Gilroy Chamber Business Focus June 2022
June 20, 2022
Classic Cars Make Their Return
The Gilroy Chamber of Commerce’s Garlic City Car Show was a big hit on Saturday, June 18, just one day before Father’s Day. With approximately 225 cars on display, 26 vendors, 2 music stages, 72-degree temperature, and nearly 5,000 people in attendance, the day was perfect.
After two years of no car show due to COVID, the community seemed to embrace and welcome back this annual event. The last car show the Chamber did was in 2019 when Dennis Gage filmed that event for his, “My Classic Car,” television show. This year’s event, whose presenting sponsor was the Gilroy Auto Mall (Nissan of Gilroy, Gilroy Chevrolet, Gilroy Buick GMC, Hyundai of Gilroy, Gilroy Chrysler Dodge Jeep Ram, and Freeway Toyota of Gilroy) saw a few cars not seen in previous years’ car shows.
Awards were given for Best Paint, President’s Award, Best of Show, and a special tribute award entitled, The Donald “Elvis” Prieto Award which was presented by Donald’s family. Since Donald Prieto was a significant part of the car show for many years, wooing the crowed with his Elvis impersonation, the car show committee wanted to recognize his contribution. Immediately following the presentation of the Donald “Elvis” Prieto award, the Chamber presented an award of recognition to Donald’s family for their efforts, support, and contribution to this community over the years.
The car show is an event designed and produced by the Gilroy Chamber of Commerce to promote the community and to help build a strong local economy. The Chamber Board of Directors and the Chamber staff would like to thank all the volunteers who helped make this year’s event successful.
The Chamber would also like to thank all the sponsors for their support:
- Gilroy Auto Mall
- Visit Gilroy
- Heritage Bank of Commerce
- State Farm – Gina Lopez Agency
- Cline Glass
- Health Net
- Bracco’s Towing
- Allstate – Mi Ocampo Financials, LLC
- Intero Real Estate
- Johnny’s Custom Auto
- CAL SILK
- Gilroy Dispatch
- Morgan Hill Times
- Hollister Free Lance
- Premier Paralegal, LLC
Drinking Water Advisory Notice-UPDATED
UPDATED JUNE 18, 2022 1:30 PM
June 18, 2022
Good afternoon – this past Thursday, June 16, 2022, during routine water quality testing a City water well located at Gilman Road and Camino Arroyo tested for nitrate levels at 12 milligrams per liter which exceeded the maximum contaminant level (MCL) of 10 milligrams per liter.
We are happy to report that after following strict State protocols and testing, the City of Gilroy water supply is within all State standards for safe consumption. We will continue monitoring levels to ensure our water system provides quality water for our community.
The State Division of Drinking Water has determined that the previous restrictions may now be rescinded and claimed an “All Clear” for our community. Please read the Drinking Water Notice below as it will provide the health and safety information pertinent to this situation.
Daryl Jordan, PE
City Public Works Director
16 de Junio de 2022
Buenas tardes – el jueves pasado, 16 de junio de 2022, durante las pruebas de calidad del agua de rutina, un pozo de agua de la ciudad ubicado en Gilman Road y Camino Arroyo probó los niveles de nitrato a 12 miligramos por litro, lo que excedió el nivel máximo de contaminantes (MCL) de 10 miligramos por litro.
Nos complace informar que después de seguir estrictos protocolos y pruebas estatales, el suministro de agua de la Ciudad de Gilroy está dentro de todos los estándares estatales para un consumo seguro. Continuaremos monitoreando los niveles para garantizar que nuestro sistema de agua proporcione agua de calidad para nuestra comunidad.
El División de Agua Potable del estado, ha determinado que las restricciones anteriores ahora pueden ser rescindidas y reclamado un “Todo Claro” para nuestra comunidad. Lea el Aviso de agua potable a continuación, ya que proporcionará la información de salud y seguridad pertinente a esta situación.
Daryl Jordan, EP
Director de Obras Públicas de la Ciudad
Proud Members of the Gilroy Chamber
The Gilroy Chamber of Commerce appreciates the support of our members. Investment dollars are dedicated to vital programs such as economic development, business marketing, leadership programs and more. We applaud each of you for helping make Gilroy a better place to live and work.
30 Years & over
Bottomley Distributing Co.
Gilroy Police Officers Assoc.
Gilroy Veterinary Hospital
Glen Loma Group
Trevis Berry Transportation
20 Years & over
Bruce Sarhaddi, DDS
10 Years & over
Gilroy Historical Society
Lazy Suzan Designs
South County Democratic Club
See Grins RV
5 Years and over
Cramer & Martinez, LLP
eXp Realty, Lisa Blagof
New Hope Community Church
Pulmuone Foods USA, Inc.
Ballot Measures Will Dominate November Election
Commentary by Dan Walters, CalMatters
Last week’s primary election told us that there will be very little drama in November’s general election vis-à-vis California’s statewide offices. With one potential exception, Democrats will continue to hold all of them.
Instead, voters will be pounded with pitches for and against a clutch of high-dollar ballot measures.
Gov. Gavin Newsom. Lt. Gov. Eleni Kounalakis, Secretary of State Shirley Weber, Treasurer Fiona Ma, Attorney General Rob Bonta, schools Supt. Tony Thurmond and U.S. Sen. Alex Padilla will face only token re-election opposition in the November election.
Insurance Commissioner Ricardo Lara is not a shoo-in, because he might be facing fellow Democrat Marc Levine in the November election. However, three Republicans have a chance to finish second in the top-two primary balloting and if Lara has a GOP foe, he’s a strong favorite thanks to a lopsided voter registration advantage.
The one real question mark is the state controller’s position, which is open because the Democratic incumbent, Betty Yee, is being forced out by term limits.
Republican Lanhee Chen, a Stanford University lecturer and former advisor to national GOP figures, has drawn an extraordinary amount of editorial board support and will likely top the field when all votes are counted. Malia Cohen, a Democratic member of the state Board of Equalization, is Chen’s probable November foe and his candidacy is a test of whether the GOP has a future in this deeply blue state.
With the paucity of drama in statewide office campaigns, the November election’s major focus will be on ballot measures, topped by a high-dollar duel over who, if anyone, will control gambling on sports events.
Indian tribes that now dominate casino gambling in the state are divided over whether to pursue a tribal measure to limit sports wagering to their casinos, which has already qualified for the ballot, or concentrate resources on defeating a rival measure proposed by a coalition of online gambling companies.
Tribes committed to an opposition strategy are already broadcasting and streaming ads aimed at the online betting measure, alleging that it will cause gambling addiction. The opposition coalition plans to place its own online measure on the 2024 ballot if it can defeat the corporate proposal.
Sports wagering, however, is not the only issue that will face voters. Others likely to make the ballot include two measures that would raise income taxes on high-income Californians, one for pandemic preparedness and the other to subsidize electric vehicle purchases.
The latter is sponsored largely by Lyft, a major rideshare corporation, and has been criticized as a corporate effort to make taxpayers underwrite a state requirement that Lyft and other companies, such as Uber, electrify their fleets.
Other pending initiatives would guarantee state funding for arts and music in the schools, reduce single-use plastic packaging and impose new staffing requirements on dialysis clinics. Previous union-backed dialysis measures have failed.
A measure to raise the state’s minimum wage to $18 per hour, sponsored by wealthy Los Angeles investor Joe Sanberg, might make the ballot, but only it if it meets the signature requirements by the June 30 deadline.
Finally, a referendum would overturn a state ban on flavored tobacco products — the latest example of corporate interests turning to the ballot to escape new regulations imposed by the Legislature.
The initiative and referendum processes were brought to California more than a century ago as a way for voters to assert their will over a Legislature then dominated by corporate interests. However, they have largely evolved — or devolved — into ways for corporate and other special interests to have their way, as this year’s crop of ballot measures proves anew.
Mileage Reimbursement Rate Increases on July 1
Article by Bianca Saad, CalChamber
On June 9, 2022, the Internal Revenue Service (IRS) announced an increase in the standard mileage rate for the second half of 2022. Although this rate usually changes annually in January, this year’s sharp increase in gas prices prompted the mid-year change.
“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” explained IRS Commissioner Chuck Rettig in the press release. “We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate.”
Effective July 1, 2022, and through the end of the year, the standard mileage rate for business travel will be 62.5 cents per mile, which is a four-cent increase from the 58.5 cent rate that was announced in late 2021. Additionally, the rate for medical and moving purposes will be 22 cents, up four cents from the first half of 2022. The rate for miles driven in service of charitable organizations will remain at 14 cents per mile.
The optional standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. It’s based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.
Under California Labor Code section 2802, employers must fully reimburse employees for all expenses actually and necessarily incurred — which includes reimbursing employees for required use of their personal vehicle. While using the IRS mileage reimbursement rate is optional, many employers typically choose to do so — and both the California courts and the California Division of Labor Standards Enforcement have stated that, absent evidence to the contrary, using the IRS mileage rate will generally satisfy an employer’s obligation to reimburse for business-related personal vehicle expenses.
Employers who use the IRS mileage rate to reimburse employees for business mileage should be ready to apply the higher rate beginning July 1, 2022, and ensure that their expense reimbursement policies are updated to reflect the increased mileage rate.
June 13, 2022
3 Big Water Announcements
- In sweeping water curtailments stretching from Fresno to the Oregon state line, state regulators ordered cities and growers in the Sacramento-San Joaquin Delta watershed to stop pumping from rivers and streams, CalMatters’ Rachel Becker reports. Starting today, the cutbacks will hit 4,252 water rights holders, including at least 400 held by 212 public water systems. The curtailments are concentrated around the San Joaquin River and its tributaries, where state officials expect “significant, very deep cuts.” And they’re “affecting water users that may have not been impacted in well over 100 years, or were affected for the first time just last year,” Ryan Jacobsen, CEO of the Fresno County Farm Bureau, told Rachel.
- Meanwhile, statewide water use continues to trend in the wrong direction. Urban Californians increased their water use 17.6% in April compared to the same point two years ago, new data shows — barely an improvement from the 19% uptick in March. Overall, California has slashed its water use by just 2% compared to 2020 levels since last July, when Newsom begged residents to conserve 15%.
- Last but not least, state water officials unanimously approved a voluntary water sharing program in the Russian River region aimed at heading off the steep curtailments sweeping the Delta watershed. Under the newly minted program, landowners with senior claims to the water — typically the last to be cut back — can agree to voluntarily reduce pumping to ensure those with more junior water rights still receive some water during the drought. But the success of the program will depend on enough water and enough participants, who can enroll until June 20th.
Gilroy Town Hall: A Virtual Q&A with City Administrator Jimmy Forbis
Join City Administrator Jimmy Forbis on Wednesday, June 22, at 6:00 PM for a Virtual Town Hall.
During the Town Hall, community members will have the opportunity to ask questions regarding any City-related topic.
To request Spanish language interpretation services for this meeting, please contact firstname.lastname@example.org a minimum of 72 hours prior to the meeting.
Community members can join the Virtual Town Hall through the following Zoom link:
Zoom Link: https://rebrand.ly/Gilroy0622
Or by Phone: +1 669 900 6833
Webinar ID: 859 0226 7132
Spice Up Your Business Plan
The City of Gilroy, the Gilroy Chamber of Commerce, and Visit Gilroy continue to collaborate on the monthly advertising and promotion of Gilroy as a destination for business. This ad, designed by Articulate Solutions, will appear in the June 17 edition of the Silicon Valley Business Journal.
There are many benefits of doing business in Gilroy such as the City’s central location with easy transportation access, global recognition as a tourism destination, along with outstanding wineries, restaurants and arts and cultural organizations.
Not only is Gilroy the garlic capital of the world, but Gilroy is quickly becoming a recreation destination. With the Gilroy Economic Development Partnership’s focus on the three key initiatives, 1) Bring the Sharks Ice to Gilroy, 2) Create a mountain bike adventure park adjacent to Gilroy Gardens, and 3) Gourmet Alley in downtown, is it any wonder Gilroy has all the ingredients needed to thrive?
New Alcohol Rule Hangs Over California’s Bars, Restaurants
Article by Suhauna Hussain and Stephanie Breijo, Los Angles Times
By the end of summer, every bar and restaurant employee who serves alcohol in California must obtain a new certification.
So far, just 33,000 people have become certified, a fraction of the hundreds of thousands of workers employed by not only bars and restaurants but also wineries, breweries, distilleries, brewpubs, event centers and stadiums — essentially any place of business where you can drink. There’s worry from some in the industry about a lack of awareness of the law and the added burden it may bring to a sector deeply affected by the COVID-19 pandemic.
Assembly Bill 1221, or the Responsible Beverage Service Training Act, will require bartenders, waitstaff and their managers at establishments licensed to serve alcohol to undergo a three- to four-hour training on how alcohol affects the body, the consequences of over-serving, basic laws regulating alcohol and intervention techniques for dealing with inebriated customers. Workers must then pass a two-hour open-book exam.
Businesses are scrambling to understand the scope of the law and the process for certification as the deadline approaches. The law goes into effect July 1, and 60 days after — by Aug. 31 — the state Department of Alcoholic Beverage Control will require that alcohol servers be properly certified. Any workers hired after that date will have 60 days to complete the certification.
The Alcoholic Beverage Control Department said it plans to focus on outreach rather than immediately penalizing businesses that fail to comply.
“We are taking an education-first approach to allow the industry to adapt to this law. We want to help them achieve compliance,” said John Carr, a spokesperson for the department. “We’re sensitive to the fact that these businesses have gone through many challenges during the pandemic.”
AB 1221 affects some 56,000 establishments in California that are licensed for customers to buy and consume alcohol on site.
Southern California hosts a large chunk of those businesses that will be required to adopt the training — 10,605 in Los Angeles County alone, Carr said. The law defines an “alcohol server” as anyone responsible for checking identifications, taking customer orders and pouring or delivering alcoholic beverages.
Though the law was approved in 2017, few businesses are aware of it. Its author, former Assemblywoman Lorena Gonzalez (D-San Diego), pushed for state-mandated “responsible beverage service training” in the aftermath of a car crash allegedly caused by a drunk driver that killed two UC San Diego medical students and seriously injured three others.
Enactment of the law was delayed during the first year of the COVID-19 pandemic to ease the process for restaurants and bars already battered by revenue losses and closures.
Still, the majority of affected bars and restaurants “don’t even know this law exists yet,” said Jerry Jolly, a 31-year veteran of the Alcoholic Beverage Control Department who served as its director before retiring in 2006.
And California’s certification process is less streamlined than in some other states that mandate similar training.
The model works like this: Workers must first register with the Alcoholic Beverage Control Department and pay a $3 fee to receive a nine-digit ID for use in training and testing. Then restaurants — or the workers themselves — must pay a third-party company for online or in-person training. After completing the training, workers have 30 days and three attempts to pass the exam with a 70% or better score — otherwise they must restart the process.
Using private companies for health and safety certifications is not unusual in the food industry, but AB 1221 has created a cottage industry of new companies specifically providing the California training, while pushing bigger national services to expand in the state as well. Jolly himself is one of the upstarts, having come out of retirement to launch a training company, Jerry R Jolly & Associates, prompted by the passage of the law.
California’s Alcoholic Beverage Control Department has certified 45 third-party training providers so far, with at least three offering the training in Spanish. Six more Spanish-language programs and one Chinese-language program are awaiting approval, Carr said. The trainings range in price: Online courses could be $6 to $40 per person, while group in-person sessions might be more expensive.
Comedy Seller Server, one of the certified third-party training providers, has been bombarded with questions about which employees need to receive the training and how to navigate the state’s portal, said Victoria Brown, operations manager at the Fort Worth company.
“In the beginning it was like, ‘Oh, my gosh, I don’t understand,’” Brown said. “But now that it’s crunch time, it’s going smoother, though we still have a lot of people who have a lot of questions.”
Some beverage proprietors aren’t shy about expressing their feelings on the new certification.
Eugene Lee, bar manager of Big Bar & Alcove in Los Feliz, began looking into programs this week. Lee said he felt the training and testing requirement was “expensive for a whole lot of BS.”
The process was so confusing and opaque that an assistant manager at the bar wound up accidentally taking the test for another state instead, he said. Lee said he wishes the training was streamlined and structured similar to food-safety certification programs required for some employees who handle food.
“It’s easy to screw up the process,” Lee said in a text message. “It didn’t seem very clear.”
Big Bar does not cover training costs, meaning Selene Martinez, the assistant manager, wasted about $10 on the wrong training and test, for a certification ultimately useless in California.
“Luckily this happened to me instead of one of our many employees that have to take this test because that is too much time and money that would have been wasted,” Martinez said.
Lesley Butler, a lecturer at Cal Poly Pomona who teaches food and beverage management, said the training is an important step.
“I know that restaurant operators are probably shaking their heads, like ‘Can we just stop getting hit with everything?’” Butler said. “But I see this as an opportunity…. Identifying when people have been served enough, or overserved, or whether they came into the restaurant already inebriated — adding that extra level of education is beneficial.”
At Death & Co., the Gin & Luck hospitality group’s lone California bar, there’s support for the new training requirement, said the group’s executive director of operations, Michael Shain.
The Arts District bar previously didn’t have formal training or rules around over-serving, though new hires receive guidance to watch for signs of over-serving such as loose body language. They also watch how many drinks are being served to one person or group in a short period and try to glean whether a customer has just come from another bar or place where alcohol may have been served.
Still, Shain said, staff can always use more guidance. Once its roughly 30 Los Angeles employees fulfill the California-mandated training, the company is thinking of adding similar procedures to its other outposts — in New York City and Denver, with forthcoming bars in Washington and Portland, Maine — Shain said.
The bar’s plans to fulfill the requirements involve designating time for staff to attend the training while being paid at an hourly rate.
“Sometimes it’s hard to be forced into doing something, but this is something that at least we’re welcoming with open arms,” Shain said.
June 6, 2022
User Fee Study Town Hall
Feedback from the development and business community is important to us. Please consider joining us at one of two Town Halls focused on the recent User Fee Study.
The City’s current fee schedule was last updated and adopted in 2014. The fee schedule establishes user fees assessed for services rendered by various departments, including Recreation, Finance, Public Works, Community Development, and Public Safety. As part of its FY22 and FY23 workplan, staff has completed a Comprehensive User Fee Study to update the City’s current user fees schedule. A draft of the report is now available for the community. Staff plans to hold two meetings to solicit feedback from the community and frequent users of the City services, including developers.
Virtual Town-Hall Meeting – Open to All
- When: Thursday, June 9, 2022, at 6 PM
- Where: Virtual via Zoom
- Zoom Link: rebrand.ly/UserFee
- Spanish language interpretation services will be available.
In-Person Meeting – Development and Business Community
- When: Thursday, June 16, 2022, at 3 P
- Where: Council Chambers, 7351 Rosanna St, Gilroy, CA 95020
- To request Spanish language interpretation services for this meeting, please contact email@example.com a minimum of 72 hours prior to the meeting.
If you are unable to attend either of the scheduled community meetings, you may submit your comments and questions via an online form.
The study will be introduced to the City Council at the regularly scheduled June 20th City Council meeting, followed by a formal adoption of the fees at the July 5th meeting or soon thereafter. For more information visit the City’s website at www.cityofgilroy.org/571/Comprehensive-Fee-Schedule
The Bay Area Travel & Adventure Show
Visit Gilroy was proud to showcase our destination at the recent Bay Area Travel & Adventure Show on May 21 and 22 at the Santa Clara Convention Center. Along with vendors from throughout California and beyond, including a wide variety of international destinations, Visit Gilroy distributed over 650 brochures and visitor guides to attendees of this annual consumer show.
This year at the Travel Show, we participated in a new technological addition—the “Lead Capture Tool”—an online tool that scanned the visitors’ QR codes from their event tickets. Their information was immediately added to our database for future leads, and they were also entered into our raffle drawing for a fabulous prize. Our raffle items included four tickets to Gilroy Gardens, a bottle of wine, garlic olive oil, two Gilroy wine glasses, two gift cards from True Religion, and jewelry and a phone case from Kate Spade—valued at over $500! Thanks to the innovative technology, Visit Gilroy was able to add 235 entries to our database for future e-newsletter contact.
Most of our visitors to the booth were from the Bay Area, with some traveling from the San Joaquin Valley, Sacramento area and other parts of Northern California. We are always excited to share with them Gilroy is a great place to visit! Visitors were most interested in the updated Spice Visitor Guide, Wineries of Santa Clara Valley brochure and our Taco Trail and Road to Garlic maps. On the second day of the travel show we were delighted to have a representative from the Wineries of Santa Clara Valley join us in our booth. In summary, we experienced an exceptionally good weekend!
Downtown Gilroy Events: Visit Gilroy is thrilled to be partnering with the Gilroy Chamber of Commerce for the return of the iconic Garlic City Car Show on June 18, 2022, from 10 a.m. to 4 p.m. In addition, we are partnering with the Gilroy Downtown Business Association to sponsor the Downtown Wine Stroll on June 4, 2022 from 1 – 5 pm. As members of both planning committees, we are pleased to offer our support in the form of marketing dollars and advertising to promote their events and assist them at the events. Downtown Gilroy will also be the venue once again for Thursday night Live Summer Music Series starting on June 16, 2022. For more information – check out Visitgilroy.com/calendar.
California Finally Getting It?
California looks to unburden manufacturers from nation’s highest sales tax.
Article by Madison Hirneisen, The Center Square
A bill that would provide a full sales and use tax exemption for purchases of manufacturing and research and development equipment up to $200 million was advanced by Assembly lawmakers.
The bill, which passed the Assembly in a 74-0 vote, expands California’s existing partial sales and use tax exemption for manufacturing and research and development equipment to a full exemption for a period of five years.
Nationwide, California has the highest state sales tax rate in the U.S. After accounting for local rates, sales and use tax rates in California can reach 10.75%, according to the text of the bill. Thirty-eight states provide a full exemption from sales and use tax for manufacturing equipment, the bill notes.
The bill passed the Assembly last week.
With only the state’s existing partial tax exemption for manufacturing and research and development equipment, “taxpayers pay more to buy equipment in California than they would elsewhere, creating a competitive disadvantage for the state,” according to the bill.
Supporters of the bill said enacting a full exemption will help to maintain California’s status as a hub for innovation and keep manufacturing jobs within the state.
“Within the California economy, manufacturing plays a crucial and essential role, supporting high wage jobs and small businesses,” Assemblymember Tim Grayson, the bill’s author, said in a statement. “AB 1951 will incentivize long-term investments and fuel growth in the manufacturing industry in California by providing a full state and local sales and use tax exemption for the purchase of manufacturing equipment.”
Under existing law, a person can receive a partial sales and use and tax exemption for qualified “tangible personal property” that is used primarily for manufacturing and research and development. The exemption is limited to $200 million in qualified purchases in a single calendar year and is set to expire July 1, 2030.
The new measure passed last week would slightly alter this provision by providing a full exemption for purchases of up to $200 million from Jan. 1, 2023, to Jan. 1, 2028. After the five years are up, the state would revert back to the partial exemption until 2030.
Supporters of the bill said the measure would advance innovation and maintain manufacturing jobs within California. Robert Gutierrez, president of the California Taxpayers Association – a co-sponsor of the legislation – said that the bill “will lead to more California-made products on store shelves” and support workers statewide.
Manufacturing jobs currently employ about 1.3 million people in California, and every one manufacturing job “supports at least 2.5 other jobs,” the California Chamber of Commerce said in a statement.
“AB 1951 sends an important message: California is serious about retaining and attracting high-quality jobs and production,” Preston Young, CalChamber policy advocate, said in a statement.
According to a fiscal analysis of the bill, about $695,000 annually would not be added to the state’s coffers due to additional taxpayers “that did not utilize the partial exemption now utilizing the full exemption.” Additionally, local government revenue loss is anticipated to total $533 million for the “change in taxpayer behavior.”
Concerns about the proposal’s ability to “erode the sales tax base” was among the reasons cited for opposition from the League of California Cities. In a statement, the organization praised the intent of the measure, but recommended utilizing the state’s surplus to invest in manufacturing.
“While we support California’s manufacturing economy, local governments can ill afford additional erosion of sales and use tax revenues,” the organization wrote in opposition. “Instead, the Legislature should use the historic state budget surplus to invest in California’s manufacturing economy, incentivize innovation, and spur a manufacturing marketplace that is competitive with nation-wide.”
The measure is now in the Senate Rules Committee.
Unlawful to Deduct Outstanding Loan from Employee’s Final Pay
What can an employer do when an employee leaves a company but has an outstanding loan owed to the company? Can the amount of the outstanding loan be taken out of the employee’s final pay?
The short answer is no. An employer cannot deduct from an employee’s final paycheck any amount representing the unpaid balance of a debt owed by the employee.
In California, wage deductions from final pay are highly regulated. An employer can lawfully make certain deductions from wages, including health insurance premiums and garnishments, but there are strict limitations on other deductions.
California Labor Code Section 221 states it is “unlawful for any employer to collect or receive from an employee any part of wage theretofore paid by said employer to said employee.” This means an employer cannot take back wages already paid to an employee.
In addition, California Labor Code Section 300 states that no assignment of future wages can be made, unless they are assigned for necessities of life and then only to the person furnishing the necessities.
The courts also have held that employers are prohibited from making deductions from wages that are a “self-help” remedy for the employer (Sniadach v. Family Finance, 395 US 337 (1969)).
The California Division of Labor Standards Enforcement (DLSE) wrote in an opinion letter that “case law makes clear that deductions from an employee’s final paycheck for debts owed to the employer are prohibited, even with prior written authorization.”
The bottom line is that an employer is prohibited from deducting an outstanding loan from an employee’s final paycheck.
If an employer makes an unlawful deduction from an employee’s final pay to recover an outstanding loan or any other debt, an employee can file a wage claim with the DLSE or in court, and the employer may face stiff penalties and potential attorney fees.
Is there anything an employer can do to recover an outstanding loan from an employee upon termination?
Although an employer cannot deduct the amount of an outstanding loan from an employee’s final paycheck, an employer can enter into a written agreement or promissory note with an employee specifying that the employee will be required to repay the loan.
The agreement should include the amount of the loan and clearly state the terms of the loan repayment.
Repayment of a loan by an employee must be made by check or other means to the company, not by a payroll deduction.
If the employee refuses to pay back the loan, the employer can choose to go to small claims or superior court (depending on the amount of the loan) to enforce the written agreement.
Employers should review their handbooks and other written policies on employee loans to ensure compliance with the law. Employers also should consider having written agreements with employees outlining the employee’s obligation to pay back a loan.
As stated above, if an employee has an outstanding loan at time of termination, an employer is prohibited from deducting that outstanding loan amount from the employee’s final paycheck.