Question & Answer:

The Future of California Business in a COVID-19 Environment

Making Sense of the Economic, Legal, and Employment Impacts on Your Company

July 22, 2020

Welcome to Nelson’s COVID-19 resource page.

In our ongoing commitment to explore COVID-19’s impact on California businesses, Nelson brought together experts at our July 2020 NELSONtalks webinar: The Future of California Business in a COVID-19 Environment.

During this event, our panel of experts explored economic, legal, and employment considerations related to California’s reopening. They discussed how businesses are adjusting their financial, operational, and workforce strategies to align with new economic and workplace realities.

Below is a recap of questions our audience asked during the webinar. The information presented here is intended to be a general overview and should not be considered legal advice regarding your specific situation.

Through our NELSONtalks, we are dedicated to providing valuable information for your business and employees. Please feel free to share the full webinar recording and the slide presentation, as well as all other NELSONtalks resources with your network.

Our Experts

Robert Eyler Headshot

Dr. Robert Eyler

Dr. Robert Eyler is President of Economic Forensics and Analytics and Dean of the School of Extended and International Education and Professor of Economics at Sonoma State University.

Jennifer Shaw Headshot

Jennifer Shaw, Esq.

Jennifer Shaw is the founder of Shaw Law Group and an expert in employment law for more than 25 years. She earned her BA in economics from University of California, Santa Cruz and graduated magna cum laude from University of San Francisco School of Law.

Alex Chamorro Headshot

Alex Chamorro

Vice President of Executive Search at Nelson and has 20-plus years in recruiting and executive search with the world's largest and most prestigious international recruiting organizations.

California's Economic Issues

Dr. Robert Eyler 8/1/201. More uncertainty in hiring due to uncertain demand.
2. Longer spells of unemployment mean greater potential for housing problems.

Dr. Robert Eyler 8/1/20The housing market is tenuous if unemployment creates rental vacancies. It’s also tenuous if current homeowners are at risk of not staying up on their payments. Rental vacancy remaining low increases the opportunity cost of selling and staying local.

Without another place to go, people selling their homes will need to move out of area. We may see a rebalancing to suburban and rural parts of California. We will need to wait and see.

Dr. Robert Eyler 8/1/20Not augmenting unemployment insurance would put more low-income households as risk of hunger or homelessness marginally. It might also relieve some pressure on rehiring, as former workers would have a greater incentive to go back to work sooner -- but the demand for labor needs to be there for this to happen.

Not augmenting unemployment insurance may also force more people to consider leaving the state and finding a place where work is more plentiful, which, in the short run, may be tricky given the general nature of this problem.

Dr. Robert Eyler 7/22/20We haven't seen any evolution of the forecast that suggests the change in cases is going to lead to a generalized contraction or an economy a la shelter-in-place policies. In fact, most policy makers and economists suggest they’re going to have focal changes in local business contraction related to shutdowns and that it’s not going to be generalized.

We’re on this knife edge right now. The question is that when cases go up, will that lead to the conditions that were originally prescribed and cause us to go back to shelter in place at level 2.5 and then back to level 1 or level 0 -- scenarios that we’re really trying to avoid. There’s no doubt that we’re getting close to that blade, but for right now, we think it’s a relatively short-lived bump in the road to recovery, but we will see how the forecasts evolve.

Dr. Robert Eyler 7/22/20 The manufacturing and healthcare fields could accelerate their hiring depending on whether the federal government thinks about doing federal subsidization or potentially some buying. Pfizer is getting huge payments to provide potential vaccines later. We may see more hiring in health sciences and healthcare -- and we may also see hiring on the manufacturing side.

Construction is another industry to watch as there are a lot of rumblings around Washington that we’re going to see federal money come out for construction projects with the idea to rehire folks who might be latent in the labor force and able to do construction-type work. These are probably the big three out the gate. These are larger multiplier industries in terms of dragging a lot of the economy behind them relatively more quickly than services-oriented industries.

But the real trick ultimately is on the other side with lower-wage workers. Will those industries grow and pick up enough of the slack so that we don’t have structural damage in bars, restaurants, hotels, nail salons, hair salons, nonprofit organizations, and community service organizations that help lower-wage workers navigate their economic lives and also provide other needed resources.

We need the economy to get working back to full recovery or close to it to drag those other industries back up again, but, unfortunately, we should expect some longer-term structural damage in some of those industries that are lower-wage and more service-oriented.

Dr. Robert Eyler 7/22/20Sonoma State University just did a study based on Wine Institute data about the economic impact of the contraction of the wine industry, and right now, the one thing that is at least providing some buoyance to the wine industry is off-premise sales. People have shopped at grocery stores more, shopped at wine shops more, and bought more off premise than they might have bought from a tasting room.

The lack of travel during shelter-in-place is one interesting distinguishing factor about California’s wine industry. Wineries can sell more at full retail. Also, restaurants wrapped around our tourism areas sell a lot of wine during sit down meals, and those are parts of the supply chain that have contracted in such a way that go all the way back to the vineyards and the wineries themselves. So, we should expect, for better or worse, that while there have been some positives, the negatives -- at least for the next couple of years -- might slow down the growth of employment, if not contract it in those industries.

There might be some structural changes in the wineries that will linger for some time to come. The one thing about agriculture is that if you stop something hard, and you reduce your capacity, it might take time for you to re-engage that capacity because it’s more based on the technology of weather and the way you configure your harvest spaces, but we will see how wineries navigate through all that. For right now we should expect that the retail ends of the supply chain contracting will certainly affect hiring and expansions at the agricultural and manufacturing level on the other side of the supply chain for sure.

Dr. Robert Eyler 8/1/20The pulse is that many are going to comply, but some will hold the loan and pay on it regardless.

Dr. Robert Eyler 8/1/20Yes, especially at the state level, but some of that may depend on retirements and how salary savings and one-time funds can bridge to 2021.

Dr. Robert Eyler 8/1/20The early signs are that rents are falling as an incentive for firms to stay in their spaces. We are also seeing some businesses engage in tenant improvements to bring workers back. Commerical real estate construction is very much focused on industrial and warehousing for now.

Dr. Robert Eyler 8/1/20A reduction of payroll taxes collected could affect Social Security, but lower interest rates allow for a reset of the debt that is carried by Social Security such that the costs of providing more funding is lower. The negative is that if more people eligible at 66 who would have waited to 70 now take Social Security payments, it spikes the liabilities against lower revenues.

Dr. Robert Eyler 8/1/20A lot. The bet is that we will get a vaccine, and corporate earnings will smoothly continue to climb as consumer and business confidence rise. Demand in equities is betting on that combo, including lower interest rates remaining.

Dr. Robert Eyler 8/1/20That has been a prediction before, and a lot depends on if we are going to continue in a knowledge-based economy or spread out to providing more services. For example, in health care, we may need more MA, CNA, PA, HHA (an array where a college degree is not needed). But we may need professional service positions to manage them and need more RNs as the current cohort retires. I don’t think the BA is dead yet, but we need to think more about teaching skills in college.

Dr. Robert Eyler 8/1/20People moving out of state will affect the housing market if others don’t move in. This scenario would impact real estate jobs if there isn't a significant net outflow, but it will stabilize at some point. There is likely a ring of global wealth that wants to come to California; an out-migration would trigger price conditions that feed that movement, but it may leave California with more retirees than new workers.

Dr. Robert Eyler 8/1/20The blue is California UI claims, using the right-hand axis (also in blue).

Dr. Robert Eyler 8/1/20Unknown, but many offices will most likely be used as transitional workspaces and there could be staggered schedules for workers to return.

Return-to-Work Legal Issues

Jennifer Shaw 7/22/20The idea of mandating remote work is tricky. Government instead seems like they’re taking a carrot approach: If you allow remote work, you can get tax credits, etc. I don’t think we’re going to see mandating remote work. I think we will see an expansion of leave entitlements for people who take care of children to do some sort of sharing with other relatives or others who they are sheltering in place with.

Jennifer Shaw 7/22/20When you just give a stipend, that is taxable. If you just give a reimbursement, that usually isn’t taxable, but I’m not a tax lawyer, so it depends on how you have your business set up.

Jennifer Shaw 7/22/20Is everybody doing the same thing? Do they all need a computer, paper, ink, electricity? Usually they’re using the same amount working remotely as they were using in the office. You may decide you want to retain higher-level execs, so I know companies who are sending in private chefs. It might not be fair, but it’s not illegal. The business is tailoring the benefits they're giving to the folks they really want to retain. My own sense of being fair gets bugged by that, but I get it, and I understand why it would make sense. Those are the things we need to look at.

Jennifer Shaw 7/22/20If you haven’t been reimbursing folks who are incurring expenses by teleworking, you do have a liability. But that doesn’t mean you want to go back and ring the bell. Maybe no one has noticed, and you can be under the radar. That doesn’t mean I'm recommending you take advantage of your employees. But here’s the bottom line: If you thought you were doing the right thing, and it turns out that you should’ve been doing a bit more, you don’t necessarily want to go back, because that doesn’t necessarily help the employee, and there are tax consequences.

Final thought: I think employers like the idea of segmenting the legal requirements from everything else. What you’ve seen here today between all three of us is that these are interrelated concepts, so you can’t just say I’m only going to deal with legal/compliance, then recruiting, then what the economy is going to look like – it's all happening at the same time.

Employment and Remote Work Issues

Alex Chamorro 8/4/22/20Posting your opening on a platform that has a broad reach can be a start. Maybe consider using LinkedIn and position your role (opportunity) as remote and open the geographic option so that it encompasses the whole United States or even the world.

You can also reach out on your own or through LinkedIn to professional associations that focus on diversity outreach or whose membership includes diverse candidates. These can all be a starting place and open the door to connect with candidates in other locations and from a more diverse background.

Alex Chamorro 7/22/20Facebook told employees that if they left Silicon Valley (CA) they would pay them differently because it wouldn’t cost as much to live in the new location as would cost to live in Silicon Valley. However, the reality is that many people on this webinar have employees who already have left the state, and their employers don’t know that.

Panel insight 7/22/20Jennifer Shaw: There certainly are Fair Pay Act Laws and Equal Pay Act Laws, and there certainly are allowances for employers to pay by geography. Salary differential becomes an issue. Legally, you can do it, but the question is what the moral implications are.

Dr. Eyler: Let’s talk about paying against productivity. If someone is doing the same job, for the same project, but chooses to live somewhere else because the business has provided this flexibility, the company still wants the productivity.

It’s in the interest of the business to pay a local lawyer less than a San Francisco-based lawyer because the business keeps the delta, but you must be smart and acknowledge the delta.

  1. Walk
  2. Pay the same

Companies like Facebook might try this approach on the surface, but if they find the available labor market is not as productive as the one they had in place, they will pay for the ones they had in place, regardless of geography, because they want the productivity.

It’s all a bottom-line play for stakeholders. If the bottom-line sags, leadership will be out, pay differential will reverse, and they will try to keep on cooking at the same pace. That game will get played as a friction between leadership thinking about that, stakeholders watching leadership thinking about that, and ultimately the workers walking so they can get paid what they need to get paid somewhere else.

Alex Chamorro 8/4/20We could see an erosion of smooth operations and collaboration among employees if they are not onboarded appropriately. Hiring managers need to stay diligent in monitoring the effectiveness of their onboarding process.

As discussed during the webinar, instituting set schedules can alleviate concerns. Teams can set schedules for when employees need to be available during work hours and when managers are available for questions. In addition to implementing routine schedules, one-on-ones with employees can help alleviate many concerns. Virtual meetings can also be a tool to help new hires feel part of the team.

Alex Chamorro 8/4/20The way we think of office work taking place in a set place has changed, and we will not go back in time. Whether they like it or not, most companies will have no choice but to offer remote options. They will have to do this to maintain and attract talent, as workers will require and demand a remote option.

However, this will not be available to all workers and might be limited to those with specific skills in highest demand.

Alex Chamorro 8/4/20There might be if relocation opens opportunities to a new demographic and, in turn, if the new hiring opportunities were not previously available to those workers.

Nelson Jobs Salary Report

Get the inside scoop on local salaries and the hot topics impacting California’s workforce in 2020. Our California-focused report includes:

Current local salary ranges
developed from recent local data (and not from a national formula) for more than 200 positions across California’s major metro markets.
Insights into workplace trends
from more than 500 of your peers in California, revealing the top trends that might affect your company’s success in 2020.
Effective strategies
other business leaders are using to attract talent in this highly competitive market, and what you can do to compete
Employees give their perspectives
in our survey of 400 working or job-seeking Californians. We reveal employees’ top considerations for accepting a new role, how commute times impact their job choices, why employer reputation really matters, and much more!

Request your 2020 Nelson Advisor & Salary Guide