When our company recently expanded the number of its restaurants in Texas, I was startled to receive a call from Gov. Rick Perry thanking me for our decision.
In the 10 years I've been CEO of CKE Restaurants, no governor had ever made such a gesture. Perry went further during our conversation and asked what it would take to move our headquarters from California to Texas.
This is a question weighing on many California CEOs right now. Do we grow our businesses here where the tax and regulatory hurdles remain high, or do we relocate to a more business-friendly state like Texas?
We at CKE love California for many reasons, but the hard truth is this: California is the most business-unfriendly state we operate in. While we kept our corporate headquarters here, our company's real job-creating engine has already moved.
Our current plans for domestic development are principally centered in Texas, where it is easier to build and operate restaurants. Each restaurant we open creates about 25 permanent jobs, not to mention the numerous outside jobs supported by our business. It's no coincidence Texas' unemployment rate remains below the national average while California has one of the highest.
What would it take to bring our business development back to California? I would offer the following suggestions:
• Reduce permit costs and construction regulation.
Excessive fees, environmental regulations, street maintenance costs and construction permits unique to California add up to $200,000 in additional costs for each restaurant and can take up to two years to process through state and local bureaucracies.
• Allow managers to be paid as managers.
Unlike most states, California considers general managers subject to overtime salary requirements if they work 50 percent of their time in non-managerial tasks. Our general managers receive substantial salaries, bonuses and benefits to run their restaurants as entrepreneurs, like they own them. To avoid costly class action lawsuits on overtime claims in California, many retail businesses, including ours, have converted salaried general managers to hourly employees so they can do their jobs.
• Pay overtime on a weekly basis only.
California requires overtime for employees working more than eight hours a day, not just those working over 40 hours a week as in most states. This deprives employees of the flexibility to work six hours one day and make up the time on another. Because managers are also hourly employees, this limits their ability to work more hours on busy days and fewer on others without, again, incurring overtime costs. We have had to terminate general managers for working overtime in order to prevent class action overtime lawsuits.
• Simplify the meal and rest break laws.
These laws are so complex that it is difficult for employers or employees to understand the requirements, let alone comply with them. Opportunistic lawyers often sue companies for minor and often unintentional violations. Employees, including our general managers, are forced to take breaks during the busiest times of the day to their frustration as well as that of their co-workers and customers.
• Tame the lawyers.
With some 200,000 lawyers, California needs to put some limit on their ability to file class action lawsuits as though each one were his or her own, private attorney general. Like many California businesses, our company has wasted $20 million defending such cases in the last eight years, with a majority of that money going to the attorneys' pockets.
These recommendations come on top of the need to reduce taxes in order to retain and attract business in-state, something the business community has been calling on for years. We have some of the highest tax rates in the nation for businesses and personal incomes.
Over the last two years, whenever I tried to discuss these issues with state political leaders, I was either brushed off or told there was a lack of political will for change. That changed in February when I was contacted by Gov. Jerry Brown's Office of Economic Development, Lt. Gov. Gavin Newsom and several legislators. And in March, I received a call directly from Gov. Brown. Whether these discussions will result in any progress is yet to be seen, but at least we are talking.
Any legitimate political agenda requires prosperity for the people of California. For this to happen, California leaders must listen to the state's business community and address the tax and regulatory issues that prevent us from competing on equal ground with other states.