September 23, 2021

A Bit of Normalcy Returns to Ag Legal Battles

By Tim Linden

There is no question that 2020 was a year like no other and that also permeated the legal work associated with the business of agriculture.

“Last year was all about COVID,” said Jason Resnick, Senior Vice President & General Counsel for Western Growers. “We are not yet living in a post-COVID world, but there is a sense of certainty about the rules and regulations covering the pandemic.”

Resnick said that companies, and their attorneys, were scrambling last year to stay ahead of the ever-changing governmental rules and regulations covering the workplace environment, health and safety protocols, sick leave obligations and back-to-work provisions. “With the Delta variant, COVID is still with us but we have more than a year’s experience and there is much less uncertainty about how to handle it,” he said.

The WG executive did note that there is still a lot of uncertainty about when a return to more normal routines will occur. “Many companies had put plans in place to reopen their offices and some have had to put those reopenings on the back burner.”

As such, there are new issues surrounding vaccinations, testing and the rights of the employer and employee. Resnick said there are many circumstances in which employers can require employees to be vaccinated. “For example, some H-2A employers are requiring their employees to arrive in the United States vaccinated or to be vaccinated once they get here,” he said.

He believes this makes perfect sense as H-2A employees tend to congregate together at work, live and spend leisure time together. He added that vaccines are readily available and it is not a challenge to get vaccinated as it once was.

For the general employee population, Resnick noted: “We are not issuing a blanket recommendation that employers require their employees be vaccinated but we know some employers who are doing that.”

He indicated that employers need to make that decision based on their own circumstances.

On the non-COVID legal front, but certainly related, Resnick said H-2A applications are skyrocketing as ag employers in virtually all the production areas are experiencing labor shortages. “I’m getting multiple calls each week from members who want to file new applications or at least explore the idea,” he said.

He added that “wage inflation is real” and the labor force appears to be in a good position of leverage currently.

Western Grower & Shipper interviewed several attorneys who are members of the Western Growers Ag Legal Network to get a sense of the kind of cases they have been working on.

“Class action lawsuits and PAGA (California’s Private Attorney General Act) claims are what we are seeing mostly,” said Pat Moody, a partner in the Fresno, Calif.-based law firm of Barsamian & Moody. “It is legalized extortion and it is having a devastating effect on agriculture. Everyone is getting sued. People are going out of business. The Mom-and-Pop farms can’t survive.”

Moody explains that these lawsuits pick apart the many rules in California’s wage and hour laws and regulations. “It’s virtually impossible to do everything right if you are an employer,” he said, noting that the rules have so many nuances even the most diligent company is going to make some mistakes.

It is at that point that Moody says lawyers file suits and begin auditing the books. When they find even a small error, it can balloon to millions of dollars when it results in looking back over hundreds of employees for several years. The Fresno defense attorney said these plaintiff attorneys often demand millions to settle the case and it is very difficult and costly for an employer to defend himself in court. He explained that virtually every case will find some error that results in the plaintiff’s attorney fees being part of the judgment.

Moody said there are many different areas of attack but often they focus on meal breaks being too short or the workers aren’t released on time. Or some of the workers aren’t released on time. This is always a difficult operation for a foreman to manage as workers are typically scattered over a field and involved in different aspects of a harvesting operation.

PAGA claims aren’t quite as onerous, he said, because they generally only allow a one-year look back. A class-action suit can cast a wide net and create a settlement proposal well into the millions. “It is not uncommon for these settlements to reach eight-figures,” Moody said.

What’s an employer to do? Moody said first and foremost, every employer has to “do everything they can to make sure you are doing everything correctly. You need to conduct self-audits all the time. And you need to audit the FLCs (farm labor contractors) you use because of joint liability issues.”

He also advised employers to make sure each employee signs an arbitration agreement in which he or she waives their right to file a class action suit. He noted that the law does not allow for the waiving of PAGA actions through an arbitration agreement, but because the look-back is not as severe, those suits are typically not as costly.

“For the 30 years that I have been practicing ag labor law, we typically had many different types of cases,” he said. “For the past five or six years, it seems like wage and hour litigation is all we do. It’s probably 70 percent of our cases.”

Craig Hardwick of Alvarado Smith, Santa Ana, Calif., said, “one of the hot button issues right now is lack of housing.” For many years, cities controlled development through zoning regulations, but over the past several years, the California Legislature has passed statewide laws forcing cities to approve more projects and to stop putting roadblocks up for development, especially housing projects. “One way this can affect agriculture is we may start seeing changes in areas zoned for agricultural use,” he said.

While some landowners might like the increased opportunity of selling for development, others could be challenged by a housing development going up adjacent to their farm.

Another area of law that could hit agriculture has to do with the Tenant Protection Act of 2019. This law strengthens the rights of tenants, which puts landlords in a more challenging position, including landlords with company housing, or even if they have a farmhand or a ranch manager living on the property. Tenants now have additional rights that should be taken into consideration when a landowner is contemplating uses for property that include tenants.

One piece of good news for ag companies and farmers is that the on-fire California real estate market has loosened up a lot of lender money for purchasing property or making improvements on land. There has also been an influx of former city dwellers now moving to the “country” now that they are working from home. This has resulted in a “hot market” for many rural locations, but it also brings non-farm folks to those areas, which could impact local rules and regulations.

Even though he has spent decades in the real estate business, Hardwick noted that “his crystal ball broke years ago” when asked to comment on whether California is in a real estate bubble or if prices have peaked. He reluctantly opined that it could be a bubble but not as big as the two that saw a precipitous drop in real estate values in 1994 and 2009.

Mike Droke of Dorsey & Whitney LLC, Seattle, Wash., grew up in Santa Cruz, Calif. and took many of his ag clients when he moved up to Washington many years ago. “We are experiencing more investment, merger and acquisition activity in all of business, including the ag space, than we have ever seen before,” he said. “From farm to table, there is activity in all areas.”

He said large pension funds, investment firms, larger companies and even individuals are making substantial plays for firms and land connected to agricultural production. “Bill Gates is now the largest ag land owner in the United States,” he quipped.

Droke said the activity is being fueled by high valuations and available money at low interest rates. “Why would a school pension fund invest in agriculture? They see agriculture as a good investment,” he asked and answered. “Everything from land to established businesses to processors, agtech and ag inputs.”

He does not see this current activity as being a bubble but rather a longer trend. “We’ve been seeing it for the past five years and we see deals that haven’t been announced yet that tell us this is not ending soon. If it’s a bubble, it’s a long and large one.”

He noted that there are higher multiples on average than there were two years ago when parties are coming to an agreement on a sales price. But he does not believe these higher multiples (on sales, revenues or profit) are out of line. He said they are justified by the simple rules of supply and demand—there are many buyers looking to purchase.

He did caution that companies considering a merger or acquisition from either the buy or sell side should do their homework and make sure they are armed with specialists advising along the way. “When you buy or sell, it can be very complicated with lots of things to consider including water rights and environmental issues. You need a group of advisors with experience in these areas.”

For example, he advised parties to be very familiar with the supplier and customer contracts they have. “Look at your agreements. Can they be assigned to a new buyer or do they need consent from the other party?” he said.

Gone are the days, Droke said, when a handshake behind the pick-up truck in the field is sufficient. There are many nuances of contracts that come into play when a company acquisition is being negotiated.