CMTA | Legislative Weekly

Legislative Weekly

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October 26, 2001

Department of Finance:
Economy Continues Slide
10,000 Manufacturing Jobs Lost in September

The California Department of Finance reports in their October bulletin that the employment and revenue picture in the state is not positive. The most available economic data on the state do not yet reflect the economic impacts or conditions after the September 11, 2001 attacks. The Department indicated in their October bulletin that although too little time has elapsed to accurately appraise the attacks’ impact on the state, it is reasonable to assume that the full impacts of the September attacks will be quite serious, add to existing economic woes, and are now only beginning to emerge.

Labor market figures in the bulletin for September reflect employment status at anytime during the second week of the month, including September 10, the day preceding the attacks.

Nonfarm employment, based on a survey of establishments, declined 17,400 in September. Industry estimates for September indicate a decline in construction employment, weakness in nearly all manufacturing sectors, gains in private service employment, and an anomalous drop in government employment.
Manufacturing employment dropped by 10,100 jobs in September. California’s high-tech specialties—computers, electronics, aerospace, and instruments—accounted for over 60 percent of the losses. Only textile mill employment rose in September.
Service sector employment rose by 6,500 in September based on gains in motion pictures (3,800 jobs), social services (3,000 jobs), and engineering and management consulting (1,700 jobs). These gains offset the fifth consecutive monthly decline in business service employment, which lost 3,000 jobs.
On a year-over-year basis, services added the most jobs, 66,100, followed closely by government, 61,100 and more distantly by wholesale and retail trade, 47,200. Manufacturing lost 63,000 jobs over the year, with losses in nearly all sectors. High tech manufacturing has been hard hit.
California's unemployment rate, based on a survey of households, inched up 0.1 percent to 5.4 percent in September based on a rise by 7,000 in the number unemployed. A year ago, the unemployment rate was 4.9 percent. The national unemployment rate, at 4.9 percent, is up a full percentage point over the year.
Preliminary General Fund agency cash for September was $468 million below the 2001 Budget Act forecast of $7.451 billion. At this time, it does not appear that any significant amount of this month’s shortfall was attributable to the September 11 terrorist attacks. If a reduction in taxable sales occurred as a result of those attacks, it will be reflected in the sales tax receipts due at the end of October. Any other effects on revenues, due to such things as the fall in the stock market or employment losses, may not be apparent for some time. Year-to-date, revenues are $608 million below expectations.

CPUC Explores Issues Surrounding Direct Access

On September 20, the CPUC suspended the right to enter into new contracts for direct access. The CPUC left for later consideration what effect should be given to contracts executed before September 20, 2001, including renewals of such contracts. (Previously the CPUC indicated that it might suspend direct access effective July 1, 2001.)

On October 23, Commissioner Wood issued a ruling asking for public input on direct access contracts, noting that commencing on or about July 1, 2001, there has been an increase in customers switching to direct access.

He states that “there are serious policy concerns about cost-shifting. If customers are allowed to switch to direct access, there is a potential for these exiting customers to avoid helping to pay down the unprecedented debt incurred by the State to help weather the energy crisis. These cost-shifting issues are part of the Commission’s consideration in determining whether there should be an earlier suspension date and what this date should be.”

Some of the questions he asks include:

Why should or shouldn’t the Commission choose an earlier date (than after September 20, 2001) for suspending the right to acquire direct access service?
If the Commission should choose an earlier date, why should or shouldn’t the Commission consider a July 1, 2001 suspension? If not July 1, 2001, what other date or dates should the Commission consider and why?
Are there alternatives to suspending direct access as of a date before September 20, 2001, that would still alleviate cost-shifting problems?
What effect, if any, should be given to renewals of contracts originally entered into prior to the effective date of the Commission’s suspension of direct access?
What effect, if any, should be given to provisions in contracts (“add-on provisions”) that allow the buyer to add more facilities to be served after the date on which direct access is suspended?
For electric service providers – How many contracts have you entered into with direct access customers between January 17, 2001 and September 20, 2001? What percentage of your total direct access contracts contains any renewal provision? What percentage of your total direct access contracts contains any add-on provision?

Also requested are copies of unsigned contract forms and signed contracts, with names and other sensitive information deleted but contract signing dates retained.

CMTA will be submitting written comments which are due November 2, 2001.

Employers in a Quandary on Temporary Plant Shutdown Status

The California Manufacturers & Technology Association (CMTA) is continuing to seek clarification from the Industrial Welfare Commission (IWC) in regards to the Division of Labor Standards Enforcement (DLSE) Opinion Letter of May 30, 2001, Re: “Deductions From Exempt Employees Salary.” This very controversial letter written by Mr. Miles Locker, Chief Counsel, DLSE generated an enormous number of complaints from employers. Labor Commissioner Arthur Lujan suspended the letter on June 20, 2001 and requested clarification from the Industrial Welfare Commission (IWC) of the criteria for determining the correct interpretation of “salary.”

However, the letter left reduction from exempt employees salary and other issues raised in the letter unresolved and still hanging over the heads of employers when they are about to enter the most frequent periods of use, Thanksgiving and Christmas weeks. CMTA believes that the “salary basis” test applicable to all wage orders should be interpreted in a manner consistent with the “salary basis” test in the Fair Labor Standards Act (FLSA) that California has consistently followed over the years.

Under the FLSA the salary deduction for exempt employees is measured by weeks and not months as opined by Mr. Locker under California law. The opinion letter prohibited any deductions from exempt employee’s salary in increments of less than one month based on the quantity of work, quality of work and or business operating requirements. Therefore, in order to be eligible for the overtime exemption, the employee must receive his or her full salary for any month in which he or she performs any work without regard to the number of days or hours worked. This is a particularly onerous provision for manufacturers who have a long history of temporarily shutting plants down for a week over such holidays as Thanksgiving, Christmas, and New Year's Day. During temporary plant shut downs, employees are permitted to use accrued vacation or other paid time off to meet the salary requirement for days missed.

Employers are facing many economic challenges in our slowing economy and flexibility is needed to improve efficiencies and control cost if employers are to remain competitive and minimize layoffs. Employers are already faced with high energy costs and double digit cost increases in health and workers’ compensation insurance premiums that only seem to grow. That is why the commission needs to take action now to clearly and specifically state that California’s policy on exempt worker salary deductions was, is and continues to follow the FLSA on exempt worker salary reductions.

Waste Board Delays Adoption of Controversial Strategic Plan

In response to concerns raised by the business community, the California Integrated Waste Management Board agreed earlier this week to delay adoption of a controversial draft Strategic Plan. The Plan is intended to serve as the Board’s blueprint for resource allocation and policymaking over the next 3-5 years. Business concerns revolve around the process by which the document was developed and concepts that promote new taxes on products and packaging. See last week’s article for more information. The Board will entertain further discussion on the draft Plan at a November 7 workshop. The Board’s action should allow CMTA and other stakeholders to engage Board members and staff in a meaningful dialogue before the Plan is adopted.

CMTA Requests Judicial Clarification of Rule Governing Intellectual Property Disclosure During Litigation

Acting as amicus curiae, CMTA has urged a California Court of Appeal to provide guidance to the business public regarding the extent and conditions under which trade secret information must be revealed in the pre-trial discovery process in trade secret misappropriation cases.

The California statute which governs such discovery exchanges states that a party claiming to have been injured from trade secret misappropriation may obtain another party’s trade secret records only if it identifies the relevant trade secrets with “reasonable particularity.” The purpose behind the statute clearly is to protect responding parties from fishing expeditions being launched outside the scope of the dispute which is the subject of the lawsuit. A trade secret can be the most valuable asset of a business. Moreover, it is extremely vulnerable to destruction during litigation as its disclosure can destroy its secret quality and hence its value. Finally, and most importantly, as parties to trade secret litigation are usually competitors, revelation of trade secret information by one to the other tends to have direct and harmful consequences.

Thus, the California legislature passed the statute to help protect against unreasonable discovery practices which would tend to affect adversely such material. Unfortunately, the statute provides no guidance as to the manner in which the parties must comply. Ambiguity in this area causes uncertainty and expense to business.

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