A loophole is a weakness or gap in a law that allows people to legally avoid following part of the law. Some of them are costing the state billions in lost dollars every year and allowing businesses to hurt workers and consumers.
This article will explain 10 major California legal loopholes that you should know about, who exploits them, and what can be done.
1. Corporations Use Legal Tax Loopholes to Pay Far Less
Legal Loophole: Proposition 13 passed in 1978 caps yearly property tax increases at 2% maximum until the property is sold. This keeps taxes lower, especially for corporations owning land for a long time.
Exploited By: Corporations like Chevron, Disney, and Intel worth billions use shell corporations to own land so ownership doesn’t technically change hands. This allows them to pay property taxes at 1978 rates rather than current market value rates!
Loophole Impacts: California misses out on up to $11 billion in tax revenue every year from corporations exploiting Proposition 13. This is income that could go towards hiring more teachers to reduce the crowded classrooms kids deal with across the state.
What You Can Do: Contact state lawmakers supporting a “split roll” initiative to have corporations start paying property tax based on current value. This could raise an extra $6-10 billion per year for California!
Current Events: A 2024 ballot initiative called “California Schools and Local Communities Funding Act” proposes all commercial and industrial properties get reassessed at current market value for tax purposes.
2. Wage Theft From Worker Misclassification
Legal Loophole: Employers wrongly call workers “independent contractors” instead of employees. This fails basic standards like the ABC test:
A – Are they free from company control?
B – Do they do work that’s different from the company’s normal work?
C – Are they running their own independent business?
If the answer is no, they are likely improperly classified to avoid labor regulations.
Exploited by: Delivery apps like DoorDash and UberEats. Other examples are contractors in construction, hair stylists, and nail salons often misclassify workers illegally.
Loophole Impacts: Estimates show worker misclassification costs California $7 billion in stolen wages every year! It also denies basic legal protections to workers, such as minimum wage, overtime pay, injury compensation, and paid leave. A contract worker does not get these benefits.
What You Can Do: Report potential misclassification to California’s Labor Commissioner’s Office which investigates over 20,000 cases per year. Fines now go directly to workers rather than just the state.
Current Events: Instacart just settled a $46.5 million class action lawsuit in November 2023 for misclassifying California shoppers and failing to reimburse expenses.
3. Data Breach Penalties Are Tiny
Legal Loophole: Under the California Consumer Privacy Act (CCPA), the maximum fine businesses pay for losing people’s personal data in a breach is $750 per individual. Even for millions of records lost, it’s cheaper for corporations to pay tiny breach fines versus properly securing data.
Exploited By: Corporations and public entities. Oftentimes, corporations and governments, by omission, do not follow the law. Examples include that Uber paid just $148 million in 2018 to settle legal issues from a 2016 breach covering 57 million riders and drivers. That’s less than $3 per person – when Equifax paid $700 per person for losing less data!
Loophole Impacts: With weak data privacy laws, California residents have had over 25 billion records breached since 2005. Stolen financial and medical information ruins lives through identity theft plus choices and opportunities limited by damaged credit scores.
What You Can Do: Support state bills like AB 1360 which increases breach penalties on businesses holding sensitive health and financial data to match tough standards set by the European Union.
Current Events: The California Privacy Rights Act (CPRA) took effect on January 1st, 2023. This allows individuals to sue over certain data breaches, finally giving people power along with stiffer potential fines.
4. Wage Theft From Break Violations
Legal Loophole: Millions of hourly workers covered by wage laws lose pay when employers illegally deny them meal and rest breaks. Pressure to skip breaks is common in retail, fast food, and other industries.
Exploited by: Walmart paid $65 million in a settlement as part of a 2016 lawsuit for forcing employees to work through breaks and off-the-clock. Target, UPS, and many more corporations have paid massive settlements too.
Loophole Impacts: Skipping breaks is a legal loophole and risks worker health and safety. A recent UCSF study found loss of breaks increased the risk of injury by 43% in warehouse workers. Missed family time also hurts kids + communities.
What You Can Do: Report denied breaks and law violations to the California Labor Commission, especially for vulnerable immigrants fearful of retaliation. Most cases settle quickly with back pay and penalties given to workers who were unlawfully cheated out of wages by employers who failed basic responsibilities.
Current Events: California is considering new legislation in 2024 to boost meal and rest break enforcement through increased workplace inspections and larger fines for violations.
5. Fake “Flushable” Wipes Clog Sewer Systems
Legal Loophole: No law defines what “flushable” means on moist wipe labels. Therefore, businesses can claim wipes are flushable without proving they actually dissolve
Exploited by: Clorox, Charmin, and other brands market bogus flushable wipes that contain plastic fibers blocking sewer systems and costing cities big bucks.
Loophole Impacts: California cities face a lot of money in plumbing repair costs caused by so-called flushable wipes laden with plastic. Taxpayer dollars fund this preventable damage. In addition, fatty deposits, called “fatbergs,” caused by wipes threaten public health and habitats. Bad form!
What You Can Do: Avoid wipes labeled flushable and support bills enforcing flushability standards so products match exaggerated claims. SB 1215 in 2023 would penalize businesses for clogged pipes from false advertising of flushables.
Current Events: The proposed California Consumer Protection Law with enhanced false advertising penalties seeks to prevent consumer scams like fake flushable wipes that burden people financially when wastewater systems require major fixes.
6. Cryptocurrency Riches Hidden Offshore
Legal Loophole: Exchanging cryptocurrency for real money as part of a contract triggers a taxable event. But crypto holders can indefinitely avoid taxes by living large on crypto credit cards and loans instead of “cashing out” into dollars. There are currently no regulations regarding these crypto workarounds.
Exploited by: Crypto billionaires spend wildly using asset-backed loans yet never realize actual taxable income. This tax dodge will deprive California and the U.S. government of billions in owed taxes if unaddressed.
Loophole Impacts: California misses out on sizable tax revenues that could expand healthcare access and social services for its 40 million residents. The wealthiest individuals avoid taxes through loopholes while ordinary citizens cannot. This worsens inequality.
What You Can Do: Petition state officials in support of tax legislation introduced in 2023 to close cryptocurrency tax loopholes. These regulations should match regulations already passed in countries like Australia.
Current Events: US Treasury Secretary Janet Yellen continues pushing a cryptocurrency tax reporting provision requiring investors to disclose assets worth over $10K to combat potential tax evasion in a largely unregulated area.
7. Social Media Addiction Fuels Teen Mental Health Crises
Legal Loophole: No regulations prohibit addictive social media practices, like infinite scrolling, push notifications, and other features maximizing user engagement for profit at the expense of user danger. Platforms claim no responsibility for harm or danger caused by knowingly addictive products.
Exploited by: Meta/Facebook executives ignored internal research about Instagram’s mental damage to teens while pitching the app to young users. 40% of girls reporting feeling “unattractive” after using Instagram is linked by researchers directly to anxiety, depression, and eating disorders.
Loophole Impacts: Soaring teen suicide rates correlate to social media addiction according to Stanford studies. Yet parents have no recourse against wealthy Silicon Valley corporations aggressively hooking kids on age-inappropriate platforms.
What You Can Do: Urge state lawmakers to back proposed Social Media Platform Duty of Care Acts in California holding businesses liable for algorithmic harms to children. Similar UK regulations provide models for United States’ action.
Current Events: Last month whistleblower documents revealed Snapchat’s internal goal to get over 80% of 13-34 year olds addicted to premium Snapchat. Currently, 69% of all 13-24-year-olds have premium Snapchat accounts driving massive corporate profits.
8. Right to Repair Blocked
Legal Loophole: Device manufacturers aren’t legally mandated to release manuals, software, tools, and parts needed for independent and DIY repair. They block access through locks, warranties, and other unfair monopolies.
Exploited By: Apple has fought fiercely against Right to Repair reforms to force consumers into pricey manufacturer-authorized repair shops that maximize corporate bottom lines.
Loophole Impacts: Californians pay higher costs to fix electronics due to blocked access imposing repair monopolies. Unnecessary electronic waste also results when items could easily be fixed but manufacturers restrict access to properly tackle issues.
What You Can Do: Voice support for pending state legislation like SB 749 requiring electronics businesses to open access to device specs for fair affordable local repair options. Similar regulations were passed in Massachusetts and New York against intense industry opposition.
Current Events: Just last week Apple lobbyists succeeded in stalling Right to Repair reform bills in numerous states through aggressive misinformation campaigns about safety issues. Groups like Repair.org continue leading local advocacy efforts for policy change.
9. Restaurant Workers Excluded From Protection
Legal Loophole Example: Food chain franchises don’t count as joint employers, so workers can’t bargain wages and conditions with parent corporations, only individual store owners.
Exploited By: McDonald’s oversaw operations at franchise locations through tools like pricing algorithms, virtual kitchens, and marketing campaigns shared across all stores, yet legally did not control the franchise locations where harassment occurred, leading to lawsuits against McDonald’s for the harassment.
Loophole Impacts: Not classifying workers as jointly employed by billion-dollar chains and local franchise outlets denies them leverage to win better wages, sexual harassment protections, and union rights. This entrenches inequality faced by service workers.
What You Can Do: Tell state officials and members of Congress you want to eliminate joint employer loopholes for restaurant workers. Doing so would classify them as protected under companies like McDonald’s with resources to improve jobs locally across California.
Current Events: Last December the federal NLRB proposed changing joint employer regulations to make mega restaurant chains legally accountable for franchise location conditions so workers can collectively bargain improvements at a larger level. Industry lobbyists are pressuring officials to abandon updates empowering food chain staff.
10. University Sports Gambling Loophole
Legal Loophole Example: California failed to close a loophole allowing unchecked sports gambling on college competitions, although it’s supposed to be limited to pro teams to avoid corruption risks for student-athletes.
Exploited By: Offshore gambling sites like Bovada face no penalties for illegally taking bets on college sports events, causing growing match-fixing fears as student participation is tempted without adequate deterrence. This should be illegal and in violation of the laws.
Loophole Impacts: The rampant unregulated market encourages gambling schemes that undermine integrity in college athletics. Younger students face gambling addictions too from unchecked betting access and promotion.
What You Can Do: Call on California lawmakers to restrict offshore bookies from soliciting sports bets on college games which federal law prohibits. Join advocacy groups supporting proposed bills expressly banning these offshore sites not governed under state regulatory frameworks.
Current Events: Last year a UC Riverside basketball player was caught manipulating game scores for a gambling ring. Experts warn that expanded gambling fuels pressures on unpaid college athletes to participate in point-shaving plots threatening entire sports at academic institutions.
I hope this overview of 10 significant legal loopholes exploited regularly in California helps explain how gaps in policies, regulations, and enforcement hurt taxpayers, workers, and consumers. We all must recognize where current rules fail to adequately protect people’s rights and interests against corporate shortcut incentives. Engaged citizens can collectively pressure elected representatives to pursue reforms addressing these loophole problems through updated rules, stiffer penalties, and consistent application of existing standards. Progress happens when voices unify behind civic priorities for positive change.