There was a kind of manic-depressive quality to the California Chamber of Commerce’s election-night party last week in Sacramento. Watching the returns on a big-screen TV, some chamber members were celebrating the defeat of Proposition 9, which would have created havoc within the state’s utility industry.

But the overall picture was far gloomier. It wasn’t so much that Gray Davis had easily won the governor’s race; that was pretty much expected. It was the enormity of the Democratic victory in the statehouse and among most of the major state officeholders.

“People are concerned,” said Allan Zaremberg, president of the chamber. “We have always known Pete Wilson to be a great supporter. We just don’t know now.”

The concern among business leaders and lobbyists is that a host of measures being pushed by labor and trial-lawyer groups will force companies to pay more in fees and benefits, thus reversing the strides made in recent years to improve the state’s business climate.

So what does business plan to do?

“(We’re) going to play a lot of defense and blunt the damage. We will be less proactive on things,” said Willie Washington, human resources lobbyist with the California Manufacturers Association. “We have to put faces on these things, to find business owners who will tell legislators and the governor what impact these measures will have on their bottom lines, of the layoffs that they would be forced to make.”

Within the next 10 weeks, Democrats are expected to introduce legislation to raise the minimum wage, repeal the ban on daily overtime pay, and make health maintenance organizations liable for treatment decisions.

In previous years, many of these measures were vetoed by Wilson or were stalled in the Legislature because lawmakers knew they would not be signed. But this year, Gov.-elect Gray Davis has said he will support raising the minimum wage and repealing the ban on daily overtime pay.

“Before, with a Republican governor, we might have taken harder stands on issues, because we could usually count on his veto,” said Washington.

But with Democrats now having solidified their control over both houses of the state Legislature picking up at least five seats in the Assembly and one in the Senate business leaders face even longer odds of stopping what they have dubbed “job-killer bills” in the Legislature. Most committees will now have Democrats as two-thirds of their members, making it difficult to stop bills in committee.

“It’s not going to be a good environment for business in California,” said Tom Lucas, owner of South Bay Gardens in Redondo Beach. “We saw a major exodus of business earlier this decade. I was hoping for the pendulum to swing more to business. Now I feel that pendulum will return to the bad days.”

Indeed, business groups have conceded that some legislation, like a law to reinstitute daily overtime pay, will be enacted despite their opposition.

“We are going to lose daily overtime,” said Jack Stewart, president of the CMA. “That’s one of the spoils of the elections. Labor pushed really hard in this campaign and they now have the votes and the promise of the governor-elect. We’re just going to have to move on to other issues.”

But in other areas, business leaders are hoping they can convince Davis that some of the Democrat-led legislation could threaten the economic expansion and eat into additional tax revenues that the recovery is bringing to the state.

“During his victory speech, Davis said he planned to run a moderate administration,” said Zaremberg. “I’m hopeful that what is successful for Gray Davis as a moderate governor is also successful for the business community. He is going to be measured by whether the economy remains strong and whether that economy produces sufficient revenues to enable him to reach his goal of boosting education spending.”

Zaremberg said the best approach would be to “make people realize the true consequences of these bills. Davis’ comments on moderation lead me to believe that he will not want to kill the goose that lays the golden egg.”

The promise of a moderate administration also was noted by the state chapter of the National Federation of Independent Business, which represents small businesses throughout the state. The NFIB endorsed Davis’ opponent, Attorney General Dan Lungren.

“One of the best chances we have is to throw in his face his comments about being a moderate governor,” said Shirley Knight, assistant state director of the NFIB. “We are taking this as an olive branch. But we are going to hold him to this. If he’s not being moderate, we’ll let him know. He would then be considered a liberal who did not tell the truth on election night.”

Knight said that if Davis signs legislation that would hurt the bottom line of NFIB member businesses, the organization would launch a grassroots campaign targeting both Davis and key legislators.

While groups such as the NFIB are already pressuring Davis, the governor-elect will also face considerable pressure from labor unions and trial lawyers.

Those groups gave millions of dollars in campaign contributions to the Davis campaign and are impatient to undo what they see as the harmful policies of the last 16 years of Republican governors. Furthermore, both Assembly Speaker Antonio Villaraigosa, D-Los Angeles, and Senate President Pro Tem John Burton, D-San Francisco, have longtime ties to the labor movement. Villaraigosa was a union organizer before he ran for elective office and Burton’s political career was launched with union backing.

“It was a very negative climate with Pete Wilson,” said Miguel Contreras, executive secretary treasurer of the Los Angeles County Federation of Labor. “Wilson is owned and operated by corporate California. He only listened to one side. Gray Davis will bring the parties together, and I expect to see a more worker-friendly environment.”

It’s those types of expectations that have some business lobbyists concerned.

“Labor has wanted a larger increase in workers’ compensation benefits, unemployment insurance and state disability insurance. Put all those together and it’s going to cost businesses in California more than $3 billion. If all of that is tacked onto payrolls, it will definitely have an effect on the ability of employers to do business in the state,” Washington said.

Contreras acknowledged that pushing for too much, too quickly could backfire, igniting intense business opposition.

“We are going to be very careful about what we put on the table. We are going to go one day at a time. We are not going to treat the new Legislature or governor as a candy store,” he said.

Major business groups have all but given up their efforts to stem what they call frivolous lawsuits. “We know that right out of the gate there will be a raft of legislation from trial lawyers that will attempt to broaden corporate liability,” said Zaremberg. “Our strategy will be defensive, especially at the beginning. The first criterion will be not to make the litigation climate worse. Once we do that, then maybe we can look at reducing lawsuit abuse.”

Trial-lawyer groups, however, maintain that lawsuit abuse in California has dwindled to insignificant levels that do not warrant tort reform.

“If you look at the statistics, lawsuits are at an all-time low in California,” said Mark Robinson Jr., incoming president of the Consumer Attorneys of California. “The rule of law makes it impossible to file a frivolous lawsuit and summary judgement motions. It is not economical. I think tort reform is dead in the water.”

Staff Reporter Jessica Toledano contributed to this story.