AB 257: Sweeping Pro-Union Legislation Affecting California’s Fast Food Industry

09.12.2022

Despite extensive efforts in recent years, labor unions have failed to make any serious inroads into organizing employees in the fast food industry.  Now, however, in a major win for unions, the State of California has adopted legislation calculated to force unionization in the fast food industry.

On September 6, 2022, Governor Newsom signed into law the Standards Recovery Act or the FAST Recovery Act (AB 257).  While cloaked in the vernacular of a “regulatory council,” the law establishes forced management-labor bargaining over wages and working conditions on a statewide basis.  Conversely, the law “allows” employers to opt out of the council’s edicts by negotiating less onerous terms in a collective bargaining agreement.  As such, the law will subject many employers to the Hobson’s choice of either acquiescing to unionization or enduring unsustainable cost increases dictated by the Fast Food Council.

The FAST Recovery Act can only be described as radical legislation designed to force unionization of an entire industry.   The only serious precedent for the law is the “War Labor Board,” which, during the crisis of World War II, temporarily established uniform wages on an industry-wide basis.  The law undoubtedly will face serious legal challenge, including on the basis that it is preempted by the federal National Labor Relations Act.  In addition, an effort is underway to nullify the law through a ballot referendum.

The Law Creates a New Council to Establish Wages & Working Conditions.  The FAST Recovery Act establishes, until January 1, 2029, the “Fast Food Council” within the Department of Industrial Relations, to be composed of 10 members appointed by the Governor, the Speaker of the Assembly, and the Senate Rules Committee.  The Fast Food Council will promulgate minimum standards on wages, maximum hours of work, working conditions, and training for fast food restaurant employees.  “Working conditions” also includes conditions affecting fast food employees’ health and safety, security in the workplace, the right to take time off of work for protected purposes, and the right to be free from discrimination and harassment in the workplace.

The 10 members of the Fast Food Council will consist of:

• One representative from the Department of Industrial Relations;
• Two representatives of fast food restaurant franchisors;
• Two representatives of fast food restaurant franchisees;
• Two representatives of fast food restaurant employees;
• Two representatives of advocates for fast food restaurant employees; and
• One representative from the Governor’s Office of Business and Economic Development.

The Fast Food Council is required to conduct a full review of the adequacy of the minimum fast food restaurant health, safety, and employment standards at least once every three years.  In the meantime, the Fast Food Council will hold meetings no less than every six months.

Notably, the Fast Food Council cannot promulgate, petition for, issue, amend, or repeal, any minimum standards until the Director of Industrial Relations receives a petition approving the creation of the Fast Food Council signed by at least 10,000 California fast food restaurant employees, employed as such at the time of signing the petition.

An Industry-Specific Minimum Wage.  With respect to minimum wages, specifically, any minimum wage established by the Fast Food Council, from January 1, 2023 to December 31, 2023, shall not be greater than $22 per hour.  On January 1, 2024, and annually thereafter, the highest hourly minimum wage established by it will increase by no more than the lesser of one of the following:

            (1) 3.5%; or

            (2) The rate of change in the average of the most recent July 1 to June 30 period, over the    preceding July 1 to June 30 period, for the United States Bureau of Labor Statistics non-seasonally adjusted United States Consumer Price index for Urban Wage Earners and Clerical Workers.

The Law Covers Only Chains Consisting of 100 or More Establishments.  For the FAST Recovery Act to apply, the establishment must be part of a fast food restaurant chain consisting of 100 or more establishments nationally that share a common brand or that are characterized by standardized options for decor, marketing, packaging, products, and services.  AB 257 defines fast food restaurant as 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:

            (1) For immediate consumption either on or off premises;

            (2) To customers who order or select items and pay before eating;

            (3) With items prepared in advance, including items that may be prepared in bulk and kept hot, or with items prepared or heated quickly;

            (4) With limited or no table service.  Table service does not include orders placed by a customer on an electronic device.

AB 257 does, however, contain exemptions for certain bakeries and for restaurants that are located and operate within a grocery establishment.

The Law Permits the Creation of Local Fast Food Councils.  The FAST Recovery Act, in fact, further authorizes a county, or a city with a population greater than 200,000, to establish a Local Fast Food Council to provide recommendations to the Fast Food Council at the state level.  A local fast food council must be composed of at least one representative who is either a fast food restaurant franchisor or a fast food restaurant franchisee, and at least one representative who is a fast food restaurant employee, as well as a majority of representatives from local employment, health, and safety meetings. 

The Law Includes Enforcement Provisions.  Violation of the minimum standards promulgated by the Fast Food Council is unlawful.  In enforcing the minimum standards, the Labor Commissioner may investigate alleged violations, order appropriate temporary relief, and may also issue a citation against an employer, fast food restaurant operator, fast food franchisee, fast food franchisor, or any other liable person, as well as file civil actions.  The law also prohibits a fast food restaurant operator from discharging or in any manner discriminating or retaliating against an employee who makes a complaint, discloses information, or participates in any proceeding, in connection with alleged violations of the minimum standards promulgated by the Fast Food Council, or who refuses to perform work in a fast food restaurant based on a the employee’s reasonable cause to believe the practice or premises of that restaurant would the violate minimum standards established by the Fast Food Council, or any occupational safety and health standard, or any safety order of the division or standards board, or would pose a substantial risk to the health or safety of the employee, other employees, or the public.

Although an earlier version of the law was amended to remove a proposal to impose liability on franchisors for employment violations by franchisees, the law nevertheless provides the Labor Commissioner with wide discretion over claims pursued and enforcement powers. For example, the Labor Commissioner can conduct its own investigation, make its own findings (either through the franchise contract or other evidence), and can potentially file claims against both a franchisor and franchisee alleging joint liability for minimum wage violations or worker safety violations at a franchise location. This joint liability framework is concerning for many reasons, not least of all because it threatens to undermine the purpose and intent of the traditional franchise business model by holding franchisors legally responsible for the independent conduct of individual franchisees. Future changes to franchise laws and regulations are certainly possible, in light of anticipated challenges to AB 257.

The Law Provides for Public Records Act Disclosure of Documents Reviewed by the Council. AB 257 requires that all records reviewed by the Council are subject to the Bagley-Keene and Public Records Acts, making any franchisors’ corporate records and data considered by the Council potentially available to the public, including, of course, to competitors. Although there are exceptions to the Public Record Act and Bagley-Keene Act regarding confidential and private information, franchisors should be prepared to seek court intervention and injunctive relief in order to protect their trade secrets and confidentiality rights. 

The Law is Effective on January 1, 2023, But May be Delayed by a Potential Ballot Initiative. The effective date of the law is January 1, 2023.  However, on September 6, 2022, a coalition called Project Neighborhood Restaurants filed a proposed referendum initiative with the Attorney General of California to challenge AB 257 through statewide elections.  Proponents of the referendum have until April 1, 2023 to gather approximately 623,000 signatures necessary to place the repeal of AB 257 on the ballot in November 2024. If proponents of the referendum collect sufficient signatures to qualify for the 2024 ballot, then the Act cannot be implemented until voters decide in that election.

In Summary.  The FAST Recovery Act represents the high-water mark to date of transparently pro-union legislation in the State of California.  At the behest of major labor unions, the law imposes a mandatory framework for sector bargaining between management and labor on a statewide basis.  If upheld, the law will shoehorn many fast food employers into coerced unionization.  We expect a vigorous challenge to the enforceability of this legislation, particularly on the grounds that it conflicts with the labor-management relations regime established by the National Labor Relations Act.

With the potential for a patchwork of varying state and local laws regulating all aspects of fast food industry work, including a significant minimum wage increase for fast food workers beginning in January 2023, covered fast food establishments with questions and/or concerns regarding AB 257 can contact the authors of this article or their usual AALRR employment or business counsel for assistance, including with strategies and options for reducing labor costs, switching business models, and enhancing data security protections for your business.

This AALRR publication is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.     

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