California recently passed legislation that could increase costs for quick service restaurant consumers and small franchise owners by twenty percent. The bill, known as AB257 or the FAST Recovery Act, is designed to offer new wage and workplace protections for fast-food workers. How does this affect you and your franchise? While California aims to transform how the state’s fast-food workers are treated through sectoral bargaining, many argue that the bill will do more harm than good. Below, we’ll discuss what the FAST Recovery Act will do, how it’s connected to franchising and a few possible repercussions.
What is the FAST Recovery Act?
The FAST Recovery Act would establish, until January 1, 2029, a new unelected 10-member Fast Food Council with authority to create working standards for employees of fast food restaurants. The ten members of council would be appointed by the Governor, the Speaker of the Assembly, and the Senate Rules Committee, and would prescribe its powers. Those members include representatives from:
- Department of Industrial Relations (1)
- Fast-food restaurant franchisors (2)
- Fast-food restaurant franchisees (2)
- Fast-food restaurant employees (2)
- Advocates for fast-food restaurant employees (2)
- Governor’s Office of Business and Economic Development (1)
The bill defines fast food restaurants to include “any establishment in the state that is part of a fast food chain, and that, in its regular business operations, primarily provides food or beverages in the following manner:
- For immediate consumption either or or off the premises.
- To customers who order or select items and pay before eating.
- With items prepared in advance, including items that may be prepared in build and kept hot, or with items prepared or heated quickly.
- With limited or no table service. Table service does not include orders placed by a customer on an electronic device.
These new working standards would apply to any chain in California with at least 100 stores nationwide. This means that a franchise owner with one franchise location, that’s part of a larger national chain, could be forced to accept the standards put forth by the Fast Food Council while an independent restaurant chain with 99 restaurants would not fall within its restrictions.
AB 257 also creates a private right of action for employees who were discharged, discriminated or retaliated against for, among other things, making a complaint about the employer, testifying or providing information to the Council or refusing to perform work in a restaurant because the employee believes the employer is violating worker or public health and safety laws or regulations.
What Does the FAST Recovery Act Seek to Accomplish?
Quick service restaurants are one of the most heavily franchised industries. Because of this, labor unions, where active, are forced to negotiate with many different franchise ownership groups. This has prevented labor unions from being able to unionize as effectively as they would like among quick service restaurants. So, labor unions, such as the Service Employees International Union (SEIU) pushed the California legislature to pass AB 257.
The FAST Recovery Act provides labor a workaround allowing changes to be negotiated for large portions of the entire industry. It establishes a Fast Food Council to set labor standards and improve compliance with existing laws. Some examples include:
- Establish sector-wide minimum standards on wages, working hours, and other working conditions related to the health, safety, and welfare
- Supply the necessary cost of proper living to fast food restaurant workers
- Effect interagency coordination and prompt agency responses
The most immediate effect of the bill could be that the minimum wage paid by employers who fall under the bill could be raised in 2023 to $22 an hour,(which is nearly $7 more than the state minimum wage in 2023). This could have a domino effect on pay in other industries in California.
Criticisms Lodged in the Franchising Industry
In what is likely to offend franchise owners, and with little evidence to support it, the FAST Recovery Act was based on the following justification: “For years, the fast food sector has been rife with abuse, low pay, few benefits, and minimal job security, with California workers subject to high rates of employment violations, including wage theft, sexual harassment and discrimination, as well as heightened health and safety risks.” In reality, California already has some of the most stringent labor laws in the country, and ones that heavily penalize business owners for the smallest infractions. And if anything, the fast food sector had better labor law compliance then other industries. The National Restaurant Association presented data showing that despite accounting for 3.2% of California’s workforce, quick service restaurants account for only 1.6% of total average wage claims filed with the Division of Labor Standards Enforcement.
One vocal opponent, Mathew Haller (President and CEO of the International Franchise Association) stated, “AB 257 is a discriminatory measure designed to target the franchise business model. The bill creates an arbitrary standard for one sector of workers while punishing small business owners and their customers. Franchising has opened the door for hundreds of thousands of entrepreneurs to pursue their dreams and millions of workers to establish a career. Still, this bill stands to break all that down while raising prices for Californians and forcing restaurants to close their doors.”
Likewise, Sean Redmond (Vice President of Labor Policy at the US Chamber of Commerce) called The FAST Recovery Act “a radical proposal to micromanage the fast food industry” and said consumers would bear the consequences through higher prices.
Opponents strongly believe the FAST Recovery Act could damage the franchise business model by adding burdensome costs and restrictions that competitors would not be subject to. Many restaurants already run at small profit margins. To keep these margins, the restaurants will have to pass on these additional costs to consumers through higher priced food. To the extent consumers are unable to accept higher prices, this could mean businesses would shut down, employees would lose jobs, commercial real estate would suffer, and employment opportunities would diminish.
The bottom line is that the FAST Recovery Act could possibly result in restaurant closures or restaurants not opening in the first place. These restaurants, as part of a franchise, offer unique opportunities to small-business owners to build wealth utilizing the benefits of a franchise—pre-laid brand foundation, support services, and a network of resources. This would affect the dreams of many entrepreneurs, including women, immigrants, and minorities, who are underrepresented in business ownership and gravitate toward the franchise industry.
California small business owners, restaurateurs, franchisees, employees, consumers, and community-based organizations created a coalition to suspend implementation of the FAST Recovery Act. The coalition is jointly co-chaired by the National Restaurant Association, the U.S. Chamber of Commerce and the International Franchise Association. The coalition is collecting the signatures to put a referendum before the California voters to repeal AB 257. Signatures must be collected by April 1, 2023 to qualify for the November 2024 ballot. Check back for updates as things evolve.
Work with an Experienced Franchise Attorney
If you would like to find out more about how the FAST Recovery Act and whether or how it will affect your franchise, consult with an experienced franchise lawyer. Wherever you are in California (Orange County, Los Angeles, San Diego, Riverside, San Bernardino, San Francisco), we can help, contact us to schedule a consultation.