Fast food workers in California can anticipate a boost in their pay next year as a result of a compromise reached between the restaurant industry and unions over a contentious bill. The deal, which was facilitated with the assistance of Governor Gavin Newsom’s office, establishes a nine-person council that will determine future wage increases for the fast food industry in California until 2029. This agreement puts an end to a battle between the two sides that threatened to prolong for years, with the restaurant industry prepared to spend more than $100 million on the fight.
Starting April 1, the deal will establish a minimum wage of $20 for fast food workers at chains in California with at least 60 locations nationwide. From 2025 through 2029, the council will have the authority to annually increase the minimum wage by either 3.5% or the annual change in the consumer price index, whichever is lower. The council will consist of four representatives from the fast food industry, four representatives from the workers’ side, and one neutral party serving as the chair.
While fast food operators will need to adapt to paying higher wages, industry analysts believe that the agreement avoids more severe consequences. Mark Kalinowski, CEO of Kalinowski Equity Research, stated that the situation “certainly wouldn’t say it’s catastrophic, and certainly not as bad as it could have played out over the next year or two.”
California legislators rushed to resolve the matter before the end of the legislative session on Friday. The bill was passed by the state senate on Thursday, and the state assembly concurred with the amendments made by the upper house. Governor Newsom, a Democrat, has already committed to signing the bill into law.
The conflict surrounding fast food legislation in California began when Newsom signed AB 257, also known as the FAST Act, into law in January. This legislation aimed to establish a 10-person council that would oversee fast food chains with over 60 locations, including setting guidelines for working conditions and wages. The initial wage increase could have been as high as $22 an hour.
However, the fast food industry began attacking the bill even before it reached Newsom’s desk. Various chains, including Chipotle Mexican Grill, Chick-fil-A, Yum Brands, and Restaurant Brands International, spent money lobbying California lawmakers to oppose the legislation.
McDonald’s President Joe Erlinger wrote a public letter on the company’s website criticizing the bill, calling it “lopsided” and “ill-considered” for not targeting all restaurants. As of 2022, less than 10% of McDonald’s U.S. restaurants were located in California, predominantly operated by franchisees.
In response, the fast food industry collected enough signatures to create a referendum to allow California voters to decide on the matter. However, the Service Employees International Union (SEIU) accused the industry of misleading signatories and filed a lawsuit. The judge ruled against the union, and the referendum was expected to be included on the November 2024 ballots.
To counter the referendum, the SEIU supported another bill, AB 1228, which would hold franchisors like McDonald’s liable for infractions committed by their franchisees. However, the joint-employer provisions were removed from AB 257 before Newsom signed it into law.
While AB 1228 initially passed the California State Assembly, the Senate did not have the opportunity to vote on that version. Instead, the restaurant industry and unions reached a deal that replaced the joint-employer provisions with the terms outlined in their agreement. The deal also involves repealing the FAST Act and withdrawing the referendum by January 1.
Fast food workers employed by affected restaurants will experience pay increases of up to 25% starting in April. The current minimum wage in California is $15.50 an hour, with a scheduled increase to $16 in January. Employees of smaller fast food joints and other restaurants may also benefit from the legislation.
According to Joe Pawlak, managing principal of restaurant consulting firm Technomic, the $20 minimum wage sets a new standard that will make the restaurant industry more competitive for employees. He believes that other industries will have to follow suit to attract workers. Pawlak also suggests that other states like Minnesota or New York may adopt similar councils to govern restaurants or other industries.
Though the labor side made some compromises, such as the council having no power to set working conditions, SEIU President Mary Kay Henry stated that the fight for fast food workers in California is far from over. She said that they are just beginning to transform the industry for the better.
With the mandate to pay higher wages, fast food operators will need to determine how to handle increased labor costs. Some may raise menu prices, but customers may be reluctant to pay more. Others may reduce their workforce or invest in automation to handle more tasks. However, Sean Kennedy, executive vice president of public affairs at the National Restaurant Association, emphasized that the agreement protects local restaurant owners and provides a more stable future for the industry.
The agreement resolves the uncertainty surrounding the referendum set for the November 2024 elections. The industry had already spent over $64 million on the referendum, and predicting the outcome was challenging. This agreement shows the industry’s concerns and spares restaurant chains like In-N-Out from spending on the referendum.
Additionally, the deal prevents the change to joint-employer liability that worried the franchising industry. Dana Kravetz, a labor lawyer at Michelman & Robinson, highlights that the agreement permits the franchise model to continue.
Fast-food companies with many franchise locations, such as McDonald’s, KFC, Taco Bell, and Domino’s Pizza, will mostly remain unaffected by the bill unless they have company-owned locations in California. Their franchisees will have to navigate the challenge of paying higher wages. The National Owners Association, an independent advocacy group of McDonald’s franchisees, plans to push back against the bill, suggesting that it will cost each restaurant in the state $250,000 annually.
Restaurant companies that do not operate through franchises will need to cover the increased labor costs themselves. This includes Chipotle Mexican Grill, which has 457 locations, representing 14% of its total footprint, in California.
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Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
