New Fast-Food Wages In And Old Wages Out - - What Did Employers Sacrifice And What Did They Win With New Legislation?

On September 28, 2023, Governor Gavin Newsom signed AB 1228, which will result in fast food employee minimum wages rising to $20 per hour on April 1, 2024.  This is in stark contrast to the general minimum wage in California which will be $16 per hour starting on January 1, 2024. 

A similar piece of legislation, the Fast Food Accountability and Standards Recovery Act, AB 257, was adopted last year, and fast food companies forestalled implementation of the legislation by amassing enough signatures to put the issue on a state-wide ballot in November 2024.  This new legislation is dependent upon the businesses withdrawing the ballot measure.  It is a negotiated compromise between businesses and unions to avoid a costly statewide ballot fight.

For employees, AB 1228 supersizes the following benefits:

• The definition of “national fast-food chain” is now based on 60 limited-service restaurants as opposed to 100 establishments under the previous law;
• Minimum wage increasing to $20 per hour on April 1, 2024;
• The possibility of annual wages increases beginning January 1, 2025, of either 3.5% or an amount based on average changes to the consumer price index for urban wage earners and clerical workers each year, whichever is lower;
• A Fast Food Council that can recommend minimum standard for hours and other working conditions; and
• The Service Employees International Union avoids an expensive ballot measure and can repurpose monies for other fights.

For employers, the benefits are not quite as apparent:

• Unions agreed to pause efforts to pass a law to make fast-food franchisers legally liable for labor violation committed by franchisees, which is a potential saving on legal costs;
• Local governments will not be able to force fast-food companies to increase wages regionally for workers beyond increases approved by the State;
• Lawmakers agreed to defund the Industrial Welfare Commission, which unions were going to use an insurance policy if AB 257 was not implemented; and
• Fast-food companies saved millions of dollars by calling off the referendum battle over AB 257.

The question that remains to be answered is how does a win for fast-food workers impact other employees in California?  Salary compression is a real issue for employers.  If you raise the floor for minimum wage employees by such a large margin, how does it not affect those employees supervising them?  Thus, when it is estimated this legislation could impact up to 500,000 employees, it does not take into account all the other non-minimum wage employees who will also have to be given wage increases.  Franchise owners of a McDonalds will not be able to absorb these costs and will be forced to pass along the costs to the consumer who may be paying an additional four dollars for every Big Mac consumed.  In addition, why would someone work at an entry level position at a retailer if they can earn $150 per week more frying chickens for El Pollo Loco?  While multiple employees in California will benefit from better wages, the cost of things they purchase will skyrocket or businesses may just leave California.  Alternatively, business may accelerate a pivot to automation and eliminate many entry level positions.  Employees who believe this law is a huge win may in the long run snatch defeat from the jaws of this victory as businesses and jobs disappear and employees are left holding the expensive wrapper of a Jumbo Jack.

If you have questions about new Fast Food minimum wages or the Fast-Food Council, contact the author or your usual trusted counsel at AALRR.

This AALRR Alert 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. AALRR is not responsible for inadvertent errors that may occur in the publishing process. © 2023 Atkinson, Andelson, Loya, Ruud & Romo