Time and again I’ve encouraged smaller companies planning to escape California’s business-hostile environment to avoid publicly discussing their move. What follows is the story of an honest business owner expressing his legitimate concerns about operating in the state – and the unfortunate blowback that resulted.
Houman Salem, who owns a small apparel design and manufacturing business, wrote in the Los Angeles Times that higher labor costs are forcing him to leave California for Nevada. His article contained common sense, non-incendiary views:
“The biggest reason [to relocate] is the minimum wage, which will rise to $15 by 2021 in the county and by 2022 statewide. I write with some hesitancy, because I’m in no way an opponent of higher pay. When you have a company with fewer than 50 employees, you get to know them pretty well and have a genuine concern for them as individuals. But that has to be balanced with concern for keeping your clients, who can always take their business to other countries or states.”
He added, “When the $15 minimum wage is fully phased in, my company would be losing in excess of $200,000 a year (and far more if my workforce grows as anticipated). That may be a drop in the bucket for large corporations, but a small business cannot absorb such losses. I could try to charge more to offset that cost, but my customers – the companies that are looking for someone to produce their clothing line – wouldn’t pay it. The result would be layoffs.”
The reaction on social media was one of rage rather than reflection, according to Michael Saltsman of the Employment Policies Institute, writing in the Orange County Register:
“Good riddance,’ said one of the top comments on Facebook. ‘If you can’t pay your employees a living wage, you don’t have my sympathy,’ said another. Other comments accused Salem of being a bad businessman, of keeping too much money for himself and of exploiting his employees. Some readers even left negative reviews of his business online – even though they’d never met him or done business with him.”
Salem, the founder and CEO of ARGYLE Haus of Apparel, said he fears that the outraged reaction will discourage other affected businesses from speaking out and telling their own story.
He is correct. As a consultant who helps companies find business-friendly locations in which to locate, I encourage clients to keep a low profile. Otherwise, they will be hammered without mercy from an uninformed public and sometimes from public officials who know little about what it takes to run a business.
Publicly held corporations must divulge a relocation because that is considered a “material” event. That is why within just a few years we’ve seen media coverage of many companies moving jobs out of Los Angeles County to out-of-state locations. Examples: Toyota, Hilton Hotels, Sony Pictures Imageworks, Occidental Petroleum, Northrop Grumman and Walt Disney Co.
Salem also said he is “contacted on an almost daily basis by other L.A.-based companies in my industry who are scared about the future. They are looking to me for leadership, and want to talk about my decision to leave the state.”
He added that “When politicians talk about an ‘economy working for everyone’ – let me tell you, it’s not working for the small business owner.”
Salem chafed at critics who suggested he’s taking advantage of his employees. He has always paid above minimum wage even though doing so causes increases in payroll taxes and workers compensation.
Saltsman wrote: “Despite the challenges of doing business in California, Salem (unlike some of his competitors) is still committed to making his products domestically. ‘I’m an American – I want this country to do well, to succeed….’ He told me he’s not opposed to raising wages – but that the entire burden can’t rest on small business owners. ‘I need the government to meet me halfway. In California, unfortunately, that kind of compromise doesn’t exist.’”
Other businesses have cited the minimum wage increase while loading moving vans, namely: California Composites of Santa Fe Springs when shifting work to Texas (the company owner said if he were to stay “it would probably make me a nonprofit within a couple years or so”); Competitive Edge Research & Communications that relocated from San Diego to Texas; and Woof & Poof of Chico, which makes handcrafted pillows and stuffed figures, when transferring work to North Carolina.
I noticed something about this event that adds insult to injury. Salem’s website states, “Based in the San Fernando Valley of Los Angeles, ARGYLE Haus is a founding member (emphasis added) of the L.A. Mayor’s Fashion Council, an organization dedicated to building and reinforcing the vibrant fashion and apparel industry in the greater Los Angeles area.”
A founding member? Have public officials shown any gratitude? Well, not that I know of from politicians like Gov. Jerry Brown, Los Angeles Mayor Eric Garcetti or any member of city council. I wonder if any of them think they could run ARGYLE Haus better than Mr. Salem has.
It’s hardly surprising that Salem concluded, “We need more stable, blue-collar jobs in places like the San Fernando Valley – the kind I thought I was helping create. California, however, has put up a giant ‘Go Away’ sign.’”
Mr. Saltsman’s Orange County Register column is here: “Los Angeles’ ungracious response to minimum wage consequences.”
Mr. Salem’s Los Angeles Times opinion column is here: “Leaving for Las Vegas: California’s minimum wage law leaves businesses no choice.”
* * *
One focus of this blog has been to address California’s difficult business environment, as described in the study, California Business Departures: An Eight-Year Review 2008-2015, (PDF) updated Jan. 14, 2016.
Joseph Vranich is known as The Business Relocation Coach while the formal name of his business is Spectrum Location Solutions. Joe helps companies find great locations in which to grow. Also, Joe has been a Keynote Speaker for more than 20 years – see A Speaker Throughout the U.S. and in Europe and Asia.