Advocates for California’s fast-food restaurants have reached an agreement with lawmakers and union leaders to raise the starting wage at the restaurants to $20 per hour and to create a fast-food council that can recommend other industry changes.
While the restaurant advocates acknowledge the concessions will have “economic consequences” for businesses and consumers, they say the agreement spares the industry from the worst policy changes that union leaders and California Democrats sought to impose.
Late last year, the industry leaders in the state gathered enough signatures for a ballot initiative to challenge the Fast Food Accountability and Standards Recovery Act, or the FAST Act, a law designed to allow government bureaucrats to micromanage the fast-food industry.
The agreement, approved by California lawmakers as part of Assembly Bill 1228 this week, puts the kibosh on the 2024 ballot initiative.
Sean Kennedy, executive vice president of the National Restaurant Association, said that before the agreement, “both sides were looking at a very unpredictable, unstable legislative environment.” The fight over the ballot initiative would have led to “trench warfare,” he said.
“What this agreement does is it brings both sides together,” Kennedy said. “Neither side gets exactly what they want. That’s usually the hallmark of a good deal.”
Matt Haller, president of the International Franchise Association, said the agreement should not be seen as a concession that the fast-food industry deserved to be singled out for special regulation. Proponents of stricter fast-food regulation, including the Service Employees International Union of California, alleged that incidents such as wage theft and sexual harassment are prevalent in the industry. Business groups have said there is no evidence of that.
“I will fight to the death about the rationale for singling out the franchise model,” he said.
Instead, Haller said the agreement was in the best interest of franchise restaurant owners because union leaders and Democratic lawmakers had devised a plan to impose changes on the industry, regardless of the outcome of the FAST Act ballot initiative. He said critics of the agreement need to realize that “you could prevail in the referendum with voters and still be left with the exact same policy outcome as before, with little recourse to deal with it, even potentially in the courts.”
As part of the deal, the starting wage for fast-food workers will increase from $15.50 an hour to $20 on April 1, 2024. Under the FAST Act, which had been on hold because of the ballot initiative, wages would likely have jumped to $22 an hour.
The FAST Act also would have created an unelected council with lawmaking authority over the industry to impose wage increases as well as changes to working conditions and workplace training and safety. Under the new agreement, a new council will be created with limited authority on wages only. The new council can make only recommendations on other issues.
“That is a major difference,” Haller said.
The agreement also prohibits the creation of local fast-food councils that could have raised wages on restaurants in their jurisdictions even higher, and it puts an end to a reconstituted state body that many saw as an end-run effort to get around the FAST Act ballot initiative.
Over the summer, Governor Gavin Newsom signed a state budget that included a $3 million line item to re-establish the long-dormant Industrial Welfare Commission, or IWC, which has the authority to regulate wages, hours, and working conditions for industries across the state.
Business groups and advocates for fast-food franchisees said it was clear that the IWC was being reconstituted to impose regulations on their industry, regardless of how Californians voted on next year’s ballot initiative.
As part of this week’s agreement, the IWC is eliminated, Haller said.
The agreement also eliminates a Democratic “joint-liability” proposal, supported by the SEIU, that would have made fast-food franchisors legally liable for labor violations committed by franchisees. Opponents argued that the proposal would destroy the franchise model by making individual restaurants into arms of corporate, and it would have essentially turned franchise owners into middle management.
Haller called eliminating that provision a “monumental achievement.”
Kennedy said increasing the starting wage for fast-food restaurants to $20 an hour was a “dramatic increase in wage for one segment of one industry.”
“We’re going to do that, restaurant operators in the state of California are going to find a way to make that work, and do it in a way that minimizes, hopefully, price increases for consumers, lack of expansion, or job loss,” he said. “But there are going to be economic impacts here.”
There is nothing in the agreement that would slow restaurant owners from implementing new technology, such as ordering kiosks, to eliminate jobs and cut labor costs, Haller said.
“That is certainly one of the risks that California lawmakers have created for themselves,” he said.
Haller and Kennedy said they are keeping an eye out for similar overreaching proposals that could pop up in states such as New York and Minnesota.
“This has galvanized the industry,” Haller said, “to ensure that we are on offense, protecting the way that we do business, and educating lawmakers in other states about the risks of singling out one sector of one industry.”