Doing Business in the United States: State Laws Matter

Foreign companies doing business in the United States need to realize that state laws can matter every bit as much as U.S. federal laws. Many foreign companies know the U.S. is complex, but many do not know the extreme differences among U.S. states.

The United States has been mired in a partisan struggle for several decades (some would say, for the past 245 years), and during the past 10 years it has been particularly difficult to pass legislation through Congress. President Biden and Democratic leaders Chuck Schumer and Nancy Pelosi (as majority leaders) have been busy for eight months trying to pass what the White House calls the “Build Back Better Act,” a roughly $1.75 trillion (as negotiations stand today) infrastructure spending bill. Senator Schumer is also expected to schedule a vote this week to open debate on voting rights legislation that he and fellow Democrats say is needed to offset restrictions being imposed by Republican-controlled state legislatures.

So, yes, national politics is a mess, and the legislation that passes through Congress has always been the result of deal-making and compromise (for a closer view, we recommend Robert A. Caro’s ‘Master of the Senate‘, a part of Caro’s epic biography of Lyndon B. Johnson).

But if you’re a foreign company that does business in the United States, you probably know it’s not only federal laws that matter; state laws (and oftentimes even local laws) matter as well.

The United States provides a regulatory environment in which it is easy to establish and operate a business and in which competition is protected and prized. But companies looking to establish operations in the United States need to abide by federal, state, and local laws and regulations governing licensing, marketing, investment, franchising, labor, the environment, safety (employee and consumer), privacy, taxation, and more.

As an example, California Governor Gavin Newsom a few weeks ago signed into effect the last of 770 new laws, from the 836 sent to him by the California legislature:

  • Real estate investors will be interested to know that new legislation will simplify the process of subdividing and redeveloping a property that is currently zoned for a single family dwelling.
  • Cannabis business owners will have been disappointed by Newsom’s refusal to approve a bill that would have allowed cannabis advertising on freeway billboards.
  • And while lawmakers approved $1 billion for wildfire prevention, they rejected a bill that called for reducing greenhouse gas emissions beyond current mandates, which officials have said California is already not on pace to meet.
  • Also, California approved a statewide guaranteed income plan designed to give monthly cash payments to qualifying pregnant people and young adults who recently left foster care. The program is limited in scope but can be seen as a pilot that may be expanded.
  • The governor also signed into law a bill that requires online delivery companies (such as Amazon) to disclose fulfillment quotas and prohibited them from compelling workers to forgo rest and bathroom breaks to meet their numbers.

One bill that failed to pass would have decriminalized psychedelic medicines. But as a reminder that businesspeople and consumers must consider carefully the jurisdictions in which they operate and reside, three California cities (including Santa Cruz and Oakland) have passed decriminalization legislation, as have Seattle and Portland (in 2020).

The bill we were disappointed to see the governor veto was one that would have decriminalized jaywalking. We look both ways, and if there are no cars coming, we figure we’re good to go. But in California that can cost you $196.

Over the past few years we have written a number of blog posts on matters that involve local (i.e. state and municipal) as well as federal laws. Here’s a sampling:

As our foreign direct investment lawyers are so fond of telling our incoming foreign company clients, in most cases businesses will be governed by the laws and regulations of multiple jurisdictions, e.g. federal, state and in some cases, county and city. As an example, even though most U.S. states allow employee noncompete agreements, some do not. California not only does not enforce employee noncompete agreements, but employees can sue an employer that seeks to require they sign one.

What’s most important for you as a foreign company doing business in the United States (and oftentimes just doing business with the United States) is to be as informed as possible about the operational and legal contexts that are relevant to your business and to get sound legal advice every step of the way when you’re making investment and business decisions.