California Voters Put Effort to Micromanage Fast-Food Restaurants on Hold. Dems May Do It Anyway

California Democrats and union leaders may have found another way to impose a massive wage hike and new regulations on the state’s fast-food industry, even after a law designed to micromanage the industry was put on hold by a voter-approved ballot initiative.

On Labor Day last year, Governor Gavin Newsom signed the so-called Fast Food Accountability and Standards Recovery Act, or FAST Act, a law that would have created an unelected board of bureaucrats to micromanage labor policy at fast-food restaurants, and that could have hiked the hourly starting wage at the restaurants from $15.50 to $22, a nearly 50 percent jump.

But the law was put on hold in early 2023 after business leaders and restaurant groups gathered enough signatures from voters to put the measure on the November 2024 ballot. They said the law would result in increased business costs, higher food prices, technological replacements for jobs now held by people, and shuttered restaurants.

While the idea of allowing unelected officials to dictate wages and labor rules may have seemed like it was dead, at least until voters had a say, Democratic lawmakers — with the backing of the Service Employees International Union — may have found a way to impose the regulations that they wanted all along, regardless of the outcome of next year’s vote.

Tucked inside the new state budget, which Newsom signed over the summer, was a $3 million line-item to re-establish what is known as the Industrial Welfare Commission, or IWC, a long-dormant body that has the authority to regulate wages, hours, and working conditions for industries across the state. First established over 100 years ago, the commission was defunded by Democrats in 2004 when Arnold Schwarzenegger, a Republican, was governor. It has been inactive since then.

Democratic lawmakers have been quiet so far about which specific industries they want the newly funded commission to focus on. State senator Maria Elena Durazo, a Los Angeles Democrat who chairs the budget subcommittee, told the Associated Press that the commission should be looking at low-wage industries generally. “The fast-food industry is one of the industries with the problem, but it’s not the only industry,” she said.

But business groups and advocates for fast-food franchisees say it is clear to them that the IWC is being reconstituted to get around the FAST Act ballot initiative.

Jeff Hanscom, vice president of state and local government relations with the International Franchise Association, told National Review that it is “too coincidental” to assume that lawmakers happened to refund the commission just after the ballot initiative was approved. He called the effort, which can’t be blocked by voters, a “backdoor attempt by the SEIU to undermine” the California voters who worked to put the FAST Act on the ballot.

“In our view, the IWC is basically a replacement for the council that would have been established in the FAST Act,” he said. “It has very similar authority, could do very similar things.”

Attempts by National Review to reach a spokesman for the SEIU via email and on the phone were unsuccessful.

Business Groups Oppose IWC Funding

The line item in the budget says that the commission “shall convene by January 1, 2024, with any final recommendations for wages, hours, and working conditions in new wage orders adopted by October 31, 2024” — or less than a week before voters will weigh in on the FAST Act.

Business groups, including the California Chamber of Commerce and organizations representing restaurants, retailers, manufacturers, and the building industry have opposed funding and reinstating the IWC.

Rachel Michelin, head of the California Retailers Association, agreed that the IWC will likely target the fast-food industry. “There’s a fear that it’s just going to grow and it’s going to expand into other industries,” she said. “We just don’t know what they are going to do.”

Others have suggested that in addition to fast food the reconstituted IWC could eye at-home work, requiring employers to reimburse workers for a variety of expenses, and also crack down on the state’s gig economy, clarifying which workers qualify as independent contractors.

In 2020, California voters passed Proposition 22, which created an exception in state law allowing app-based companies like Uber and Lyft to classify their drivers as independent contractors. The state supreme court recently agreed to review mixed rulings on the constitutionality of Prop 22, which has been challenged by the SEIU.

Nearly 1.3 million Californians drove for ride-share and app-based delivery companies during the pandemic, according to the pro–Prop 22 coalition Protect App-Based Drivers & Services.

“California voters overwhelmingly passed Prop 22 to protect independent contractors and provide new wage and benefits protections. An unelected and unaccountable commission cannot and should not be allowed to thwart the will of nearly 10 million voters,” Molly Weedn, a spokeswoman for the coalition, said in a prepared statement.

Michelin said there could be backlash if voters strike down the FAST Act, and new regulations and wage orders are just imposed on the fast-food industry by the IWC instead. Californians, she said, “hold very close to our hearts the initiative process and our referendum process.” She added that lawmakers going after the fast-food industry may be “underestimating franchisees in California, and how much they are people of color that own them, women out a lot of these franchises. They’re community members.”

Hanscom said he doesn’t believe that if Californians vote down the FAST Act next year that the lawmakers behind the measure would have any qualms about circumventing the will of the voters by using the IWC to pass the union-backed regulations they desire.

New Bill Pushes Franchisor Liability

The reconstitution of the IWC is not the only Democratic effort presumably aimed at California’s fast-food industry. With the FAST Act on hold, the sponsor of the measure, Democratic assemblyman Chris Holden of Pasadena, pushed a new bill this year, A.B. 1228, that would make fast-food franchisors legally liable for labor violations committed by franchisees.

The “joint liability” provision was removed from the FAST Act before it passed last year.

During a floor speech in May, Holden said the bill, which is also backed by the SEIU, would ensure that the more than 550,000 Californians who work in fast food “are able to thrive in their workplace and in their communities.” He pointed at violations of child labor laws committed by McDonald’s franchisees in other states as a reason why the law is needed in California.

Opponents argued that the bill would raise costs, incentivize frivolous lawsuits, and essentially destroy the franchise model by turning independent fast-food restaurants into arms of corporate.

As Hanscom put it, “1228 basically turns a franchise into middle management.”

Speaking in opposition to the bill in May, Republican assemblyman Bill Essayli said there was little evidence that the fast-food industry has more labor violations than other industries. Instead, he accused Holden of retaliating against the fast-food industry for daring to “stand up to this body and to pass or qualify a referendum to undo a really bad law [the FAST Act] that’s going to drive up food costs for everyday Americans.”

“It’s payback,” Essayli said. “That’s what this is about.”

The state assembly passed the bill, but so far it has stalled in the state senate. The bill did not clear the judiciary committee before a mid-July deadline, but Hanscom said it’s not dead yet. If they reach an agreement on the measure, committee leaders could seek a waiver to advance the bill to the senate floor before the legislature adjourns in mid September.

“What is the sense of having rules if they can’t be waived or broken?” he said.

Hanscom said the FAST Act, the reconstitution of the IWC, and A.B. 1228 are all organizing tools for unions that are struggling with declining membership. Union leaders want to advance these ideas across the country, and they see California as the starting place.

“They want to be able to organize broader sectors of the economy, specifically fast food and quick-service restaurants,” Hanscom said. “That sector of the economy has been a holy grail, if you will, for organized labor for a long, long time.”