Deep Dive Episode 150 – Regulating Business in the Age of COVID-19

COVID-19 has presented unique challenges for state lawmakers as they attempt to address public health and economic concerns. The crisis has also raised significant questions about whether states should reform existing regulatory regimes, and about the propriety of adding further regulatory burdens during an ongoing pandemic.

In this live podcast, Brian Kabateck, Luke Wake, and Clark Neily address vital questions raised by the virus, including how states should balance public health and economic concerns, whether states should change their enforcement priorities during the crisis, and whether this is the right time for states to liberalize economic regulations more generally. The discussion is centered around several proposals from the Regulatory Transparency Project’s State & Local Working Group, which recently published a white paper entitled “Ten Reforms to Spur Coronavirus Recovery.”

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Transcript

[Music and Narration]

 

Introduction:  Welcome to the Regulatory Transparency Project’s Fourth Branch podcast series. All expressions of opinion are those of the speaker.

 

Jack Derwin:  Good afternoon and welcome to The Federalist Society’s Fourth Branch podcast for the Regulatory Transparency Project. My name is Jack Derwin, and I’m Assistant Director of RTP at The Federalist Society. 

 

As always, please note that all expressions of opinion are those of the guest speakers on today’s call. If you would like to learn more about each of our speakers and their interesting work, you can visit www.regproject.org to view their full bios. After opening remarks and discussion between our panelists, we will go to audience Q&A, so please be thinking of any questions you’d like to ask our speakers. 

 

This afternoon, we’re pleased to host a conversation on “Regulating Business in the Age of COVID-19.” To discuss the topic, we’re pleased to feature Brian Kabateck, Luke Wake, and our moderator, Clark Neily. Clark, who will introduce our other two speakers in just a moment, is Vice President for Criminal Justice at the Cato Institute. Clark, the floor is yours.

 

Clark Neily:  Well, thanks so much, Jack. And thanks to Luke and Brian for this, what I’m sure will be a very interesting discussion about regulation in the era of COVID. Luke Wake is an attorney with the Pacific Legal Foundation. Before that, he was a senior staff attorney at the NFIB Small Business Legal Center. And Luke serves as the co-chair for the Regulatory Transparency Project’s State and Local working group, along with me. 

 

Brian Kabateck is a highly accomplished and experienced trial lawyer. He’s the former President of the Consumer Attorneys of California as well as the Los Angeles County Bar Association. I want to welcome Luke and Brian and ask Luke to kick us off.

 

Luke Wake:  Well, thank you very much, Clark. And thanks to The Federalist Society for hosting this discussion. It’s always a pleasure. 

 

Back in May, I joined in another conversation. That conversation about Constitutional Limits of Emergency Power, I was speaking to the Jacksonville Federalist Society Chapter, then. And since then, I’ve been actively working on those sort of issues, specifically on matters of separation of powers. I’m, for example, suing Governor Newsom here in California in the state’s color code regime here that assigns different colors to different counties based on the assessed risk level and corresponding business restrictions. And by the way, there’s no green category there. So the Governor says we’re not going back to exactly green or normal any time soon, so just we’re going to continue to regulate and regulate. And all of that’s coming from the Governor.

 

But one of the reasons that my organization, Pacific Legal Foundation, honed in on Governor Newsom’s exercise of emergency powers is because in September when most of the rest of the country had lifted its restrictions, more or less, on business, Governor Newsom was doubling down on his. Of course, on the other side of the spectrum, you have states like South Dakota, where Governor Noem has erred on the side of restraint, notwithstanding the very significant public health threat posed by COVID-19. Of course, there’s a lot of states that have fallen somewhere in the middle between those two approaches.

 

But as I said when I presented to the Jacksonville Chapter back in May, this is a moment for federalism to shine. And that really was, I think, the core premise behind the Regulatory Transparency Project’s latest white paper, which posits ten reforms to spur coronavirus recovery.

 

So first, I think we have to recognize that this economic crisis was at least partially self-induced. And I say partially because, undoubtedly, we would have seen severe market effects, just in terms of changed consumer behavior. It’s no surprise people, for example, are less willing to fly like sardines in commercial flights these days. We’re in a pandemic. But it was the forced business closures this spring that really sent our economy into a tailspin from record low unemployment in February to Great Depression levels by April.

 

We literally shut down the economy, all “nonessential businesses,” which is why Congress felt compelled to pass the largest stimulus bill in U.S. history. And I was talking to small business owners at the time when I was at NFIB. It was utter chaos. Business owners were laying everyone off. They were totally unsure how or whether they could survive at all. And frankly, they were panicked because they didn’t even know how they were going to put food on the table for their families. Remember, small business owners don’t usually get unemployment.

 

Of course, some states were quicker to loosen those restrictions. And I think we’ve seen that the economy has rebounded faster in those states, but I think we’re ultimately going to see an entire generation of small businesses go under because of our public policy response.

Now, we have to bear in mind that business still have overhead expenses when they’re closed. Rent, utilities, insurance premiums, licensing fees, as my co-panelist would note. For example, I’m representing an indoor golf facility in this lawsuit against Newsom. He’s been totally closed down since March 19th, all but four days. I don’t know how you survive that.

 

And I’m not sure that we’ve felt the full impact of these lockdowns even yet. Many businesses that have survived so far have done so because they have CARES Act money, loans from the EIDL loans, paycheck protection program loans, but those reserves are running dry. And when they run out for those businesses, they’re going to have to find a way to profitable. And if they can’t, they’re going to go under. And who knows, we might see, for example, another wave of home foreclosures if all of that happens. So there’s a lot at stake here.

 

And I would add, by the way, that those businesses that are barely hanging on by a thread are going to face other challenges, including heightened workers’ compensation costs, to say nothing of the increased cost businesses are going to face as states are looking for ways to rebuild unemployment and unemployment insurance reserves. 

 

But of course, lawmakers can choose our response going forward. Again, we have these small businesses that have barely survived, so far, these shut downs. And they’re operating now with special restrictions that make it difficult or impossible sometimes for them to be profitable; for example, restrictions prohibiting indoor operations, or limiting capacity to ten percent, depending on the type of industry we’re talking about. 

 

But on top of those COVID-focused regulatory complications, we have to worry about everything else in the regulatory thicket that preexisted this. So it was difficult enough for small businesses, I would say, to navigate regulatory issues in the before times. So that’s why one of the recommendations in this white paper is that this is not the time to be adding complexity to the regulatory thicket. It’s not the time to be adding burdens, mandates, restrictions on businesses that, again, are just hanging on by a thread. For example, I would say this is not the time to raise minimum wage, or to add new meal and rest break requirements, or complicate overtime rules. 

 

For that matter, we are doing this paper that now is a very good time to think about how we can constructively cut back on the regulatory thicket, both in terms of providing immediate relief for a struggling economy but also to spur growth. If you want to raise from the ashes here, the argument is that this is the time to think about regulatory reform and liberalization, whether we’re talking specifically about lifting restrictions that maybe help people cope with the current pandemic, like restrictions on telemedicine, or restrictions that maybe made the pandemic worse, like the Certificate of Need laws, or other restrictions that affect more normal business operations. For example, occupational licensing reform, I think, should be on the table. 

 

We talk in the paper about loosening land use permitting requirements or revisiting and reforming rules that inhibit entrepreneurialism. And specifically there, I might point to California’s AB 5 as a very controversial example of where the state is restricting independent contractors and therein making it very difficult for entrepreneurs to get off the ground.

 

The point, though, the overarching theme here in this paper is that lawmakers really should be thinking creatively about how to cut back on the regulatory thicket, now more than ever. And I would say, one might ask whether the medicine is worse than the ailments, whether this economic and social cost of closing down our economy was worse than the public health threat. 

 

And I don’t really have an answer for that, necessarily. But what I am going to say is that we’re dealing with a very serious public health concerns with COVID-19 on one hand. But on the other side of the ledger, we have very serious concerns about how people are going to be able to continue providing for their family. Society has to be able to continue to function, even in an ongoing emergency, so it’s incumbent upon the state legislatures, ultimately, to balance these competing concerns and crafting public policy. 

 

And by the way, that’s my issue with the governors making these rules, that they’re usurping the legislature’s function and, really, violating the separation of powers. But be that as it may, there is no question that it is within the power of the state to impose reasonable regulation to protect public health and safety. So the immediate question really facing lawmakers, or governors who are playing lawmaker, is whether and to what extent we should be regulating businesses in response to COVID. And I would argue, as we did in the white paper, that whatever the optimal public policy may be, it should be coming from the state level.

 

As is often the case, and we see this in other regulatory context, minimum wage, paid sick leave, it’s a real problem when you see Balkanization with different municipalities adding different complexities, stacking on top of the federal and state regulatory burdens. If the goal is to protect public health while encouraging economic recovery or preventing further fallout, I guess, we would argue that the best way to resolve these tensions is probably for the states to preempt local regulation of business. 

 

Of course, that’s not to say that we need a one-size-fits-all approach. The situation on the ground in the Bay Area, for example, is going to be much different than in rural California along the Oregon border, just the same as the situation on the ground in northern Virginia is going to be much different than less populous areas of the state. So taking a regional approach makes sense, but you don’t want municipalities doing different things here. 

 

And on another note, but a related one, I would say, insofar as state or local lawmakers are establishing standards of conduct, I think it’s imperative that we provide businesses with some assurance that they’re not going to face lawsuits as long as they’re complying with those standards. Otherwise, we end up with plaintiffs — the bar really moving the goalpost of the regulated community, and that’s a concern. Ultimately, we want to be able to encourage businesses to feel like they can operate reasonably.

 

But, of course, it is important as well thinking about how we respond immediately to COVID to think forward looking. We should be thinking about how to sow the seeds of economic recovery so that it is easier for entrepreneurs to get new businesses off the ground going forward, to give confidence to businesses to do new hires, to expand, whatnot. And I think we’ll find that the states that have taken the opportunity here to cut back on the regulatory thicket will fare better in the long run. 

 

What is more, ultimately, I think our point in this white paper is that these states will be in a better position to weather the next storm, whatever that might be. And we seem to have crises from to time, looking back to, for example, the housing crisis in the early 2000s. And these things are inevitable. So the question is how can we be in the best position to weather these storms? 

 

I will hand things over back to Clark, or I suppose Brian. And that is sort of an overview, anyway, of the theme of this white paper.

 

Clark Neily:  Thanks, Luke. Brian, you’ve got, as we’ve discussed, a lot of experience on representing consumers. And I know that from our prior discussion, you feel that we should not be in a hurry to change things in our legal system in the face of COVID. So it sounds like there’s probably some overlap here, but maybe some areas where you would part ways with Luke. What can you tell us about your perspective?

 

Brian Kabateck:  Right. So thank you very much for having me. I appreciate that. And probably right, that Luke and I probably agree on more than we disagree on here. I just want to start off by saying I don’t have a white paper, but I do have over 30 years of experience in the civil justice system and lobbying in Sacramento for access to justice and access to courts, as well as overall trying to make litigation more affordable for all people in California, which is a significant problem in California, probably a problem throughout the United States. No one should have to litigate a $100,000 dispute and pay a lawyer $100,000 to do it. 

 

But I’m not an economicologist. I’m not an economist. So my experience here is simply with respect to the civil justice system, and how we go about this and what we do. And I really believe that a robust civil justice system gives confidence to ordinary people in the United States. And by having a robust civil justice system that gives people access to the courts and access to justice, we level the playing field, and we make people feel, if not it’s always true, at least feel that they have a fair shake, that they have a fair opportunity.

 

I would say that in that mix of things is also the reality. The contingency fee lawyers provide real people with an opportunity to lawyers and access to justice. And I would also remind folks that about 90 percent of the people in the United States don’t have ready access to lawyers or access to the justice system. So it’s an issue that we have to consistently confront. And I’m also not naïve enough to say that that means that all lawyers who do plaintiffs’ work, contingency fee work, are good lawyers, are competent lawyers. There are certainly those out there that you may see on your local TV stations that are advertising that aren’t necessarily providing the system with great access to justice.

 

But the most important thing I see here is that the laws of litigation, civil justice system, access to the courts is incredibly important. And although outside the area of what I’m talking about today, I can tell you that the court system in this country, as a result of COVID, is a train wreck. And it is going to be a long time before these trains are put back on the tracks. 

 

I’m not advocating a radical position today. I’m not saying that we need to make huge changes in what we’re doing. In fact, my underlying theme is that I would recommend, at least when it comes to regulation and litigation and rules and laws and changes, that we do nothing right now to modify or change what’s happening. We can’t overreact in these times. In fact, what we need to do is be cautious about the kind of decisions that we make when it comes to changing the laws and changing how things proceed.

 

I’ve got ten reasons behind this, and I want to go through these ten very quickly.  The first is there is no evidence yet of a litigation floodgate. I recall being interviewed back in March and April. And at that time, I predicted that there might indeed be a litigation floodgate that all kinds of new types of crazy lawsuits were being filed and even not crazy lawsuits were being filed as a result of COVID. 

 

We have not seen that kind of en masse litigation being filed by lawyers. And I don’t know that it’s going to happen. I predict that you’re going to see anything drastic. And I don’t mean by that that there aren’t cases out there that are filed that are going to make people scratch their heads. But for the most part, we haven’t seen this. 

 

I am a big proponent and friend of Jerry Brown, version 2.0; not the original Jerry Brown back in the 70’s, but the one that we saw in his last eight years in California. And one of the things that Jerry Brown constantly said was, “Let’s be careful about no new causes of action.” So I am advocating right now that we not have any new causes of action that come out of COVID that create new liability, new laws, at this time. 

 

And similarly, I’m also advocating heavily that there be no blanket immunity. There are all kinds of problem when you come down to blanket immunity. And immunity of businesses, of companies, of governments resulting from COVID would be a giant mistake, especially when we’re still in the thick of things. I also would advocate for no modification of long-accepted legal principles. We have legal principles in this country that have been around for a long time that courts are used to, lawyers are used to, and frankly, people and citizens are used to. And we need to stick with these principles.

 

But similarly, we want responsible actors. And what I’m talking about here is we need the businesses — and we’re primarily talking about businesses that deal with the public — we need them to be responsible in all respects. The civil justice system demands that, and it ensures that because people are held accountable for their lack of responsibility.

So I think that cuts across the board here when we’re talking about the response of COVID. And I can think of several examples that probably play that out. But where we’re really going is my sixth point, which is the common law brings certainty to the justice system and to what happens. So negligence is negligence. Negligence requires duty, breach, causation of damages. Those are the four elements.

 

Causation is incredibly important here. I think it’s very hard for a plaintiff to establish a causal link between contracting COVID, for example, at a business and that specific business. I think it’s a very difficult standard to make, and that’s probably the way it should be. And similarly, I don’t want to see the burden of proof change. The plaintiff has the burden of proof, they have to make this, they have to establish this. And I’m aware in some states, with like workers’ compensation in California, the obligation and the burden of proof is now on the employer to disprove that the employee got COVID inside the business. I’m not a workers’ comp expert, but that seems like a sea change. And I think that law is now expired, but that was the sea change. And damages always are, ultimately, at the end of the day, the issue that we’re talking about. 

 

So let me go through my last issues quickly. What we’re really talking about is a causal link in personal injury cases in COVID, and it being very difficult. So I think that’s something people have to keep their eye on, is that we’re talking about regulations and business regulations, especially in the civil justice system. Is there a causal link?

 

Next, I don’t want to see any changes in legal liability. I think that there should be the standard that exists right now. And that means when we talk about negligence, or negligence per say, those are good rules. We don’t need to change the standards, as some states have, to gross negligence because negligence is negligence. And the anticipation about what can and can’t be proved — frankly, the system works most of the time. I realize it’s not perfect. 

 

Meanwhile, I believe that excessive government regulations would be changing the gameboard, and that’s unworkable at this point in time. For example, one case I’m currently working on when we talk about changing regulations and government action is, I’m representing restaurants throughout California who are suing the counties and the State of California for continuing to collect permit fees allowing them to operate their restaurants. And at the same times, those governmental entities have either completely or partially closed those businesses. 

 

The best example of that is an alcohol license. So the State of California charges an annual fee for an alcohol license, but we know that many businesses have not been able to serve alcohol, or have been closed, or, frankly, some have gone out of business. And those kind of fees should be returned to the restaurants as quickly as possible, at least on a pro rata basis.

 

Regulations right now that would throw off the civil justice system and, frankly, make it more difficult for people to run their business is something that I’m sure Luke and I agree on. It’s not the time to change the law to make it more difficult for businesses or to give businesses any kind of immunity or hall pass. 

 

And I have to ask the final question when it comes to these issues about the litigation, regulation, and the justice system. Is this a solution in search of a problem? In other words, if people are talking about changing goal posts now, where’s the data? Where’s the data to show that this is a realistic problem? Is there an influx of these lawsuits? I don’t think there is.

 

I know some states have enacted immunity for medical malpractice or for medical negligence, and I think that’s a bad idea. As it is, the standard for medical negligence is falling below the current standard of care. And in addition to that, there are caps in many states, which I think are wrong and are the wrong way to address problems, but we take a look at it. If you create an immunity for medical negligence, you are going to be giving a hall pass to nursing homes, who, in many cases, have been the worst offenders of COVID and killing patients and being not careful. So immunity, all of these changes, it’s a problem.

 

Now, one thing I didn’t discuss, and if there’s time later we can discuss it, which is this independent contractor issue and possible solutions that we can come up with for dealing with that. But it’s a big issue. 

 

And my final comment is let’s go slow. Let’s be careful before we start making changes. So thank you for letting me give my opening remarks.

 

Clark Neily:  Thanks, Brian. It’s very interesting observations there from someone with firsthand experience. Luke, before I maybe pose questions to both of you, is there anything in Brian’s opening remarks that you wanted to comment on?

 

Luke Wake:  Yeah. Well, Brian, again thank you for joining me in this conversation. I appreciate that. And I have a couple thoughts. It does seem that we agree on quite a bit here. And for that matter, I, to be honest, was rather skeptical at the outset — maybe we took opposite views at the outset about. I was rather skeptical as to how successful the plaintiffs’ bar would be in bringing lawsuits against businesses on theories that they have caused COVID exposures precisely because we’re dealing with a situation where it’s very difficult to know with any certainty when and how someone necessarily was exposed. There’s some situations where there’s pretty good reason to believe that the event started here. But a lot of the cases, that’s not the case. So establishing causality seems very difficult.

 

I think my one response to that is — and again, I come from things from a small business perspective — is that the reality is when a small business faces an obligation of this sort –you talked a moment ago about lack of access to justice. And that really is an issue. The cost of the legal system is exorbitant. And it really is. The economics of litigation generally don’t make sense. 

 

And in the sort of context we’re talking about, when you have a demand from a law firm saying that — you get this letterhead saying, “We think you’re liable here, and pay us this amount of money.” Ultimately, most of these cases end up in settlement because the business has to make a calculated judgment about how much it’s actually worth to fight it.

 

But in any event, yeah, you may be right that there hasn’t been quite the flood that some people speculated. But in any event, I don’t think it’s really — as difficult and as novel as this situation is, the idea saying, well, businesses should be allowed to operate with some established guidelines or rules in the state, and that if they’re following those guidelines, they should be presumed to be acting reasonably, that seems reasonable to me.

 

But I did want to respond to one other thing you said here, and I think this gets back to what I think is the bigger picture. Your overall theme is that we ought to be cautious about my proposals, I guess, about deregulation and liberalization of licensing regimes, or whatever. But at the same token, you mentioned that we ought not create any new causes of action. 

 

And I guess one point I would raise, and I’ve talked about this in other contexts, is it seems, especially here in California, anyway, any time the legislature makes any sort of modification, any new requirement for employers, any change to labor code, it basically creates a new cause of action in itself because anything — any minor violation, however unintentional it was, can be the subject of a PAGA lawsuit. And a lot of money’s at stake there.

 

I think insofar as we’re concerned about “lawsuit abuse” is the term I often hear in the small business community, but insofar as you’re concerned about litigation, I tend to be more concerned about the traditional sorts of lawsuits that we saw before COVID. And those are suits where people are bringing major liability claims over very — alleging they missed their meal and rest break, or whatever, and very difficult to prove that you’ve done everything right, especially considering the economics of litigation. 

 

And so again, bear it in mind this idea that any time you add to the regulatory thicket in California, we effectively are creating new causes of action. I think that’s all the more reason to hit the pause button on regulatory — at least adding to the regulatory thicket. But my overall premise was that we should be reducing the regulatory thicket.

 

Clark Neily:  Well, thanks, Luke. So one question — and Brian, of course I’m going to invite you to respond again to Luke — but one issue that has come up is the possibility of raising the standard of liability for COVID-related claims from simple negligence to gross negligence or recklessness. I can anticipate your answer, and I don’t want to put words in your mouth, but let me somewhat play devil’s advocate here by saying that it’s quite clear the economy is taking a big hit and it’s going to potentially take significant effort to sort of jumpstart the economy. We’ve got massive amounts of deficit spending. We’ve got unemployment. 

 

Is it wildly implausible to suppose that some businesses might be concerned and may limit themselves in ways that are economically unbeneficial due to concerns about potential exposure for COVID-related lawsuits, for example, if they are perceived to have opened up too early or, let’s say, even seating people too close together in a restaurant, things of that nature? Where should our heads be at on this question of exposing businesses to liability for getting out ahead of the curve, potentially, in a way that may be economically beneficial but could be problematic from a liability standpoint down the road?

 

Brian Kabateck:  Right. So let me start by first saying that I’ve consistently said this to people, which is what made sense in March makes no sense or little sense today. So the perfect example of that is the complete closure of everything back in March maybe made sense in March. Maybe initially, people said, “Hey, we don’t know this. We haven’t got ahold of it yet.” And as time has gone by, it’s evolved.

 

And I think that our thinking about business liability or business responsibility has equally evolved. I just don’t think that we’re — I think what we’re trying to create if we talk about gross negligence or recklessness is a very, very different standard than exists today. People listening to this, including yourselves, might go, “Well, yes, that’s exactly what we’re trying to do.” But I don’t see the need for it. 

 

So let’s just look at a basic negligent question. And one thing you mentioned was “opening too early.” Well, what exactly does that mean? Does that mean that the business opened early when there were a bunch of its employees that had contracted COVID and were still showing up to work? Or does that simply mean that they made a concerted effort to do everything appropriate to protect people, to put on face shields, etc., etc., and then somebody gets sick?

Well, if somebody gets sick in that context, you’re talking about, is there even negligence? Did the business do something wrong? Or are we creating an artificial quasi-immunity by going to gross negligence or recklessness when there’s no particular need for it? A restaurant that operates appropriately, how is a customer going to prove that they got COVID at that business or that they did something to injure the guest, the patron? I don’t see that.

 

And I think what we’re trying to say here is let’s try to create a standard that we don’t yet know we need. So the same way I’d caution government to be careful about the regulations you’re making in December or going forward are not the same as in March, let’s talk about whether or not we even need this kind of standard to allow businesses to reopen. Is there a legitimate problem out there?

 

And one thing I also want to respond to that Luke said about the concept of lawsuit abuse and frivolous lawsuits and all of that is that whether we agree or disagree that there’s a problem, I don’t think now is the time to be enacting new laws that create new claims and new causes of action. And I think y’all would agree with me on that. But similarly, it’s not the time to be reviewing and trying to change our laws until we know more about where things stand 90, 180 days from now. And I urge caution on both sides. I think it’s very dangerous for us to be thinking about how we’re going to change things.

 

I get that businesses don’t like to be sued. Believe me, I understand that. I think there’s also bigger problems here about our civil justice system being too expensive and too costly. And we’ve got to find ways around that, as well. But the ways around that aren’t to move the goal posts on lawsuits or immunity.

 

Clark Neily:  Well, thanks for that, Brian. And of course, Luke, feel free to respond to that. I’ll pose a new but related question. We know that a key driver of economic prosperity and innovation is a willingness to take prudent risks. And there’s some concern that in the current environment and, frankly, in the foreseeable environment, there may be a pronounced unwillingness on the part of entrepreneurs in particular to take the kinds of prudent risks that are necessary in order to keep the engine of prosperity running at an appropriate speed. 

 

Do you want to weigh in on that and offer some thoughts about how we could optimize the environment so that we do not unduly retard that kind of prudent risk taking but also recognize that, in some ways, we’re still in kind of an environment of uncertainty and real concern about what the future holds?

 

Luke Wake:  Yeah. Well, first of all, I can think of nothing more risky than launching a business. Being an entrepreneur is inherently risky. And that was true in the before times. I think it always will be true. It’s difficult. You can look at the statistics during normal times, how often restaurants fail in the first year, for example. It’s kind of staggering.

 

But getting back to this overarching need, this need that I think predates COVID — but COVID I think, puts an explanation mark on the need to think about reform — is that a large part of why it is so difficult to launch a business is because it is so difficult to navigate all of the regulations that businesses are expected to, especially small businesses. They don’t have in-house attorneys. They don’t have HR professionals. When a regulatory issue comes up, it’s the owner that’s figuring out how to do it himself or herself. And that’s complicated and time consuming. And it’s easy to make mistakes, especially the more complicated things are, and especially in an environment where the ground is constantly changing beneath your feet.

 

But there is some interesting data out there that speaks to the fact that businesses are generally hesitant to expand or to hire new employees, to open a second location, or to, say, invest in new equipment when they have uncertainty about what’s coming down the line in terms of state or federal regulation, in terms of being afraid of new regulation coming down the line. For example, during the Obama years, the NFIB Research Foundation found a large percentage in the small business community was hesitant to take those sort of risks because they just didn’t know what to expect from government. And of course, they were in a recession as well then, and I think all of that is probably true here as well now. 

 

But just to respond to the point that Brian made a moment ago about this is not the time to be changing the laws. I think the question is whether or not — a sort of core premise that we’re operating with here, with the white paper that we’re talking about, is the idea that we do, in this country, have a problem with, really, regulation in the aggregate. 

 

So any single regulation might have its pros and cons, and you can argue. There’s always going to be someone who’s going to make a case for any specific regulation when viewed at a granular level. But the issue is, in the aggregate, what happens in the aggregate? And that’s really — and I think if you look at it in the aggregate, we have to acknowledge that there is a problem with just too much regulation. And then the question is when, if ever, are we going to begin to deal with that problem?

 

Clark Neily:  Yeah, that is a challenge. And it leads nicely into another question I wanted to ask, and I’ll kick this over to Brian. There does seem to be some tension between what Luke just said about a desire to not exacerbate our problem with overregulation. And yeah, the very nature of the COVID pandemic tends to suggest the need or the possible need for at least some new forms of regulation, whether it’s regulations about dining indoors or transportation facilities, whether there should be movie theaters, stadiums, and other places where people gather in large numbers should conduct themselves differently in light of the pandemic that seems not likely to go away in the near future. 

 

Brian, can you give us some thoughts on the tension between the desire to not overregulate on the one hand but not underregulate in the face of this kind of unprecedented pandemic that we’re experiencing?

 

Brian Kabateck:  Right. So one thing I’ve definitely seen as a result of this is, going partly back to what I said last time I spoke about what made sense in March doesn’t make sense in December, is somebody when we got started suggested that perhaps this is a question that, at some point, the governors and the chief executive officer of these various states and local municipalities have to stop issuing orders that are best left to the legislators, the elected officials in the other branch. 

 

And I think that that is a serious question. And when we look at the fact that nine months has passed now since this all started, why isn’t the legislature making more of these rules? Or why aren’t more of these rules being made in a common sense fashion than just being shoved down our throat? And I see that. 

 

I have a soft spot for the restaurant industry because I represent them. I see this huge problem in California — with no disrespect to those of you listening in, perhaps, colder climates — but outdoor dining is not a problem insofar as the logistics of it in at least southern California and other parts of the state. So why are they stopping it? Well, they’re stopping it with apparently no backup or no information because there’s no general check on government. Some executive officer is sitting there. Oftentimes, they’re not even elected. It’s their health officials that are making these rules and regulations and they’re hurting these businesses. 

 

My overall theme here is, first of all, when we talk about entrepreneurs starting businesses, that’s the backbone of America. And I am not — I am a small business owner, myself. I’ve got 30 some-odd employees, so I understand the hardship. But when you’re an entrepreneur, don’t do it on the backs of your employees, cheating them, taking advantage of them. We have to watch that. 

 

But at the same time, isn’t this the time that we need — is this a moment for us to sit down, rationally, and talk about changes to the way businesses are regulated? Maybe I’m far to altruistic and Pollyanna-ish about this, but I would like to see coming out of this common sense where we sit and talk about how regulations are getting promulgated. Emergency regulations, sure. The governor should issue emergency regulations. But how many days after that do those expire?

 

I just think about the War Powers Act of the President. At some point, Congress checks that. Why aren’t these rules and regulations that they’re vomiting on a daily basis being checked by someone? So I’m with you all on the notion that we have to have certainty about regulations, and we have to know where these regulations are coming from.

 

Clark Neily:  Thanks for that. We’re going to start taking questions in just a few minutes, but I think I’d like to ask one more before we turn over to the audience. And Luke, I’ll invite you to start. And Brian, certainly feel free to jump in if you have some further thoughts.

 

The workplace looks a lot different for many of us. Right now, I’m sitting in my study at home on a work day, as are many, if not, I suspect, most of the people listening. It’s not clear how much of the pre-COVID operating tradition we’re going back to. Is it realistic to suppose that most of the workforce is just going to pick up and go back to offices and start commuting like they used to? And I ask that not rhetorically. I really don’t know the answer to that question. 

 

But it points to the possibility, Luke, that perhaps you’re on the verge of a new environment in which the workplace and the way that work gets done in this country is going to change and evolve even more quickly than it has in the past. And it’s a reasonable question, I think, to ask whether policymakers are likely to keep up. They’ve not done a great job in the past of keeping up with innovation. The pace of innovation is about to escalate significantly, which many of us suspect that it is prompted in large measure because of the responses that were necessary to the COVID pandemic. Is the gap between innovation and regulation going to widen in the near months and years? What do you think?

 

Luke Wake:  Well, it’s a very thought provoking question. And I tend to think this is actually really going to spur businesses to think differently about their operations. I think some are going to prefer to go back to the way things were before. But I think a lot of them are going to embrace this idea of allowing people to work remotely, if — I think the studies show that people are more productive that way when they don’t have their commute. Other people can’t wait to get back to the office.

 

But the idea that we want to enable businesses and entrepreneurs to have flexibility not get in the way I think is sort of a key premise behind the Regulatory Transparency Project, or at least that we want to identify those regulatory issues that are sort of getting in the way of innovation and entrepreneurship, and so on. And that’s one of the reasons that we really do think that in the white paper, talk about looking for ways to be innovative in addressing the regulatory thinking.

 

One concrete example that your question brings me back to is the debate in California — and Brian, please, if you want to comment on this and maybe mention something about this in your comments — but the debate about independent contractors in AB 5. Much of the reason that has come to the head the way it has is because we’ve developed technologies that have enabled entrepreneurs to operate in ways that wasn’t previously possible.  

 

It is now possible today, for example, to do most any sort of work that requires a computer literally anywhere where you have an internet connection. And that has enabled people to do some very innovative business models. And we have now app technologies on our phone and all that. And when you have government regulation — the governor coming in and saying, no we have to have a one-size-fits-all inflexible rule, for example, say, with regard to classified employees versus contractors in a way that discourages people from being able to do innovative business models, I would argue that is a problem.

 

Brian Kabateck:  Great. So I’ll chime in here.

 

Clark Neily:  Go ahead.

 

Brian Kabateck:  I’ll chime in, if you don’t mind, about this. A bigger subject and one that I’ve worked on for several years is the sole notion of independent contractors versus employees and probably beyond the scope of our limited time here today. But I agree with Luke that the workplace is going to look different after this. The legal field is going to look different, and people are going to have more flexibility. Not all the jobs are the same. Not all independent contractor jobs are created equal. And the problem here has been the employers taking advantage of the independent contractor position.

 

I’ve debated this before, and my ultimate conclusion is that traditional independent contractor jobs should stay traditionally independent contractor. So a perfect example of that would be a freelance writer who may write for six or seven different publications. That person has traditionally been known as an independent contractor and should continue to be. People with specialty licenses have been able to be independent contractors.

 

On the other hand, I think back to my youth when I pumped gas back in the days when gas station attendants actually pumped gas. That would never be an independent contractor job. And of course, that provides a safety net for workers. Someone’s paying into unemployment insurance. In some cases, they’re paying for insurance, health insurance, workers’ comp, all that kind of stuff. So I believe that as we reevaluate this, we need to also reevaluate what jobs are independent contractors and what aren’t; bigger issue, bigger topic, probably another time. But I think that getting people back to work right now is getting them back to the jobs and the position and the status that they had before. 

 

Clark Neily:  Thanks, Brian. I know that we’re just about to take questions. But Luke, maybe a quick response from you before we start taking questions.

 

Luke Wake:  Yeah. Just a quick response. And Brian, I agree, this is a conversation that we’re not going to solve independent contractor issues today. But just going back to your point earlier about not changing — probably we should be slow to change the status quo. I would argue the same thing when it came to this AB 5. We shouldn’t be changing the long-established rules for delineating independent contractors versus employees. We have rules that worked, and if there were bad actors, the answer was to enforce those preexisting rules. But anyway, we should probably go to Q&A.

 

Clark Neily:  All right. Jack, do you want to open the phone lines up for questions?

 

Jack Derwin:  Absolutely. It looks like we have a few questions in the queue, so we will turn to our first one.

 

Caller 1:  Yes, I have a question. First of all, an observation is that I mirror the panelist’s observation that I’ve been surprised that there hasn’t been the large scale testing of the water of the COVID cases. But the thought is that the reason why we haven’t experienced that yet is simply the barriers to entry to get to the courts. The courts are more difficult to navigate through right now. To a certain degree, for the first three or four months, they were essentially not in operation on the civil side. And it doesn’t mean that these things aren’t going to come.

 

As to the causation, there was a couple of comments about the observation that the causation element to the COVID cases would put a natural governor under a normal historical paradigm. And I’m not so sure of that. I think that perhaps the barriers to entry to getting to the courts is really the governor, right now.

 

And the question is particularly to Brian. Knowing that there’s a present value when the lawsuit is simply filed on the COVID case — for the employer, there’s a present value. The case comes in. Immediately, there’s a monetary value to get rid of it. What specifically — and there was some discussion before — but what specifically do you have as a resistance to raising to a negligence — excuse me, a reckless standard or a gross negligent standard on the COVID cases? In particular, what harm would you see from the plaintiff’s side for raising that standard so as to eliminate the present value as to the flood, perhaps, of COVID cases that would come and to then increase the economic viability of firms going forward in a depression time that seems to be rapidly developing in the State of California?

 

Brian Kabateck:  Sure. So thank you for your question. First, let me just start off by saying this, that as far as a barrier of getting into the courts to file lawsuits, I haven’t seen that. Courts are generally accepting lawsuits. They’re accepting the filings of lawsuits. Getting to trial is a very difficult problem and a very serious problem that exists out there because a lot of courts are not coping. They’re not figuring out how to deal with this predicament and this situation. So we’re going to see the backlog of cases like we haven’t seen in decades in trial courts around the country, from federal courts down to local state courts. 

 

So I’ll give you my opinion about this. I think looking at — when you look at a reckless standard, gross negligence, whatever the standard may be, I understand that that would look like there’s a higher barrier to get into court. If you really want to come up with a higher barrier to get into court, it might be something like a certificate of merit that somebody has to file to say that they’ve conducted a thorough investigation and made a determination that COVID was caused in this business, that they consulted with a medical expert, something like that. 

 

I can tell you from having represented the plaintiffs’ bar and having been in the plaintiffs’ bar for over 30 years, a higher standard of proof, for example, would not bar certain people from filing non-meritorious lawsuits. And the reason I don’t like the idea of moving to a reckless or gross negligence kind of standard is that I believe that negligence, in and of itself, is going to be a hard barrier to overcome. So if you’re looking to stop those lawsuits before they come in, and I know we talk in some cases about shakedown laws, give me a couple grand and I’ll go away, the different standard isn’t going to make the difference. Something like a certificate of merit might make it more difficult for people to file those types of lawsuits.

 

Clark Neily:  Great. Next question?

 

Jack Derwin:  Absolutely. 

 

Sylvia Ross:  Thank you. My name is Sylvia Ross. I’m in Virginia. Thank you for a very technical presentation. I have a much more basic question because I’m concerned that as I pay attention to the messaging traffic under COVID — I asked this in an earlier teleforum — that I was concerned that COVID would now turn what is flu season into public “everybody don your mask.” And now I’m noticing the WHO and CDC has put the word flu onto the mask messaging, too.

 

But my questions are more basic in terms of the comment to exercise common sense in light of how quickly things are changing. And the first question is, how can we even approach this problem if we fail to even articulate the philosophical problem between the difference between the common law and codified law, meaning facts drive what common law we pick to litigate under, and as we morph more into codified law, it’s the ruling law that drives the facts on the ground.

 

The other question I have is in relation to the constitutional issues and basic liberty. And is this really — this health — is this really being used by public officials and power holders to do an end run around constitutional liberties? And now businesses have to do the dirty work in fear of employment law issues and tort law. And so it’s done under this guise of a public health scare. I’m very concerned with those in authority using this for that. 

 

And finally, there’s a reality of viruses in the world. And this is a rhetorical question in some sense. Do we bend the world — there’s peanut allergies. Do we bend the world, or tell the kid with peanut allergies to learn to live in a world with peanuts? And now there’s viruses. Just those three things sort of give a bigger picture look at this, to me. Any comment? Thank you. I’ll just — you can mute me, please.

 

Clark Neily:  I imagine both of you will have something to say about this, but let’s do it real quick so we have time to get through the remaining questions. Luke, why don’t you go first?

 

Luke Wake:  Well, yeah, there’s a lot to respond to there. And I, probably just in the interest in time, will respond to the constitutional questions that she raised there, because they’re very — I did note Justice Alito made some remarks recently on how we’re seeing unprecedented encroachments on civil liberties. And that really is true. What we’ve seen, for the most part, is when courts are extremely deferential when it comes to people claiming violations of equal protection or substantive due process rights or whatnot, or economic liberties. 

 

But the sort of claims that have gotten the most traction — now the First Amendment claims on religious liberty infractions — but it has been separation of powers based claims. And we saw that with the Michigan Supreme Court and the Wisconsin Supreme Court recently. And so that’s the area where I think we are — I think courts are beginning to realize that there is a problem with autocratic rule. And that’s what an autocratic rule is. It’s one man making all the rules.

 

Brian Kabateck:  We don’t have a lot of time. But the only thing I’d add to this is that I think that when we look at the law and look at common law, just go back to what I said before, is we need to take a deep breath and we can’t change the law now until we know more about it. So bigger topic, and I want to answer a few more questions.

 

Clark Neily:  Okay, great. So it looks like we have no other questions in the queue right now. And we do have a hard stop on the hour. So maybe each of you could just take a minute or two to summarize your overall view on regulation in the time of COVID. Brian, why don’t you start?

 

Brian Kabateck:  Well, I think that we all have to observe where we are right now, and we have to learn from this experience. And without sounding too preachy here, I think that my brothers and sisters in the trial bar and plaintiffs’ bar have to look at this, too, and see and realize that there’s bigger questions than how much money you’re going to make or how successful you’re going to be as a trial lawyer. We have to think about the public good, and we have to think about how we can actually make a difference. 

 

And without sounding too much like I’m preaching, but I probably am, I think that we all need to reevaluate the rules and the regulations that businesses operate under. I can tell you that the fact that courts are slow to open — not opening for trials and for hearings, rather. They’ll gladly accept your money in your filing, but as far as getting a trial date, it’s going to be years down the road. It’s tremendously hurt lawyers, both on the plaintiffs’ side and on the defense side. It’s made a substantial impact, so we all are feeling this and we’re all in it together. 

 

And if we don’t learn from this and learn that government officials don’t control these issues on their own without a check on them and that we have to be more cognizant of the problems that exist out there, then we’ve gained nothing from this. And I’d like to be very optimistic about it. I don’t know how it’s ultimately going to shake out. 

 

But with that, I thank you all for letting me participate today. Although we may not share all the same ideas, I’ve enjoyed it. And Luke, I’ll turn it over to you.

 

Luke Wake:  Yeah, thank you Brian. And I really do enjoy these conversations immensely, and you’ve been great. I think it’s interesting that we, I think, fundamentally do agree, though, that it’s important to be having the conversation about where it makes sense to cut back. Again, any given regulation that you home in on and focus is going to have people that are advocating to keep it. But again, I think we need to start with the premise that we have, in the aggregate, a problem with too much regulation. 

 

So one thing to think about. The Trump administration, I think, controversially — and it shouldn’t have been so controversial — but adopted this regulatory budget concept. For every one regulation, we’re going to eliminate two. But you know, Canada and the U.K. have done just that. And it really is a good idea, I think, in terms of just keeping — you know, pruning the garden. And so we should be having this conversation. What can we prune? And with that, I will say thank you.

 

Clark Neily:  Great. Thanks to both of you. Thanks to everybody who joined us today. I hope you enjoyed the discussion. I’m going to turn it over to Jack to close us out.

 

Jack Derwin:  Absolutely. Brian, Luke, and Clark, thank you so much for lending us your valuable time today. I think we had a really thoughtful and informative discussion. And I think it was particularly great to explore some areas of disagreement. 

 

Thank you to our audience for tuning into today’s call. We welcome any listener feedback by email at rtp@regproject.org. And with that, we are adjourned.

 

[Music]

 

Conclusion:  On behalf of The Federalist Society’s Regulatory Transparency Project, thanks for tuning in to the Fourth Branch podcast. To catch every new episode when it’s released, you can subscribe on Apple Podcasts, Google Play, and Spreaker. For the latest from RTP, please visit our website at www.regproject.org.

 

[Music]

 

This has been a FedSoc audio production.

Brian Kabateck

Founding and Managing Partner

Kabateck LLP


Luke A. Wake

Attorney

Pacific Legal Foundation


Clark Neily

Vice President for Criminal Justice

Cato Institute


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