Last year, California Governor Gavin Newsom signed the FAST Food Accountability and Standards Recovery Act (AB 257), which sought to increase the California minimum wage to $22 per hour, with annual increases thereafter, and created a new state commission to regulate working conditions in the industry. 

Several weeks ago, following a campaign by key players in the industry to challenge this legislation, new legislation was proposed, and a compromise was reached. As a result of that compromise, Governor Newsom signed Assembly Bill (AB) 1228 into law, which repealed the FAST Act and replaced it with other provisions.

Key Takeaways

The basic takeaways of AB 1228 include that, effective April 1, 2024, the hourly wage for most fast-food and fast-casual restaurant workers increases to $20 per hour, with the Fast Food Council to set annual wages thereafter beginning in 2025 and through 2029, subject to a yearly increase cap tied to the Consumer Price Index. The law also prohibits a different local minimum wage for those restaurants that are covered.  

The law also allows the Fast Food Council to recommend regulations related to health and safety working conditions, security, taking protected leave, and protection from harassment and discrimination. However, as part of the negotiations, franchise corporations would not be held liable for workplace violations at individual restaurant franchisees, and the Council would not have the authority to regulate paid sick leave, vacation, or predictable scheduling for franchisees.

Fast food restaurants covered under AB 1228 include limited-service restaurants in California, defined as restaurants consisting of more than 60 establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services, and which are primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service. This includes both quick-service (e.g., McDonalds) and fast-casual (e.g., Chipotle) operators. Bakeries would be excluded from this bill. The law also does not apply to restaurants operated by grocery stores inside of grocery stores.  

The Impact

The impact of this legislation may result in other segments, like full-service restaurants, to follow suit. For example, if a fast food worker will be earning $20 per hour, the rippling effect is that to attract workers, full-service restaurants may also need to raise hourly pay. The trend will likely not stop in the food industry and may make its way to retailers, factory workers, and essentially, any other industry where hourly wages are paid, making the effects in California’s labor market quite profound.

Another unintended consequence of this legislation is the effect that the $20 minimum wage will have on higher-salaried positions in the restaurant business. Per California law, to be considered an exempt employee, a worker must earn no less than twice the minimum wage. With a $20 minimum wage, an exempt worker’s minimum salary in the fast food industry will become $83,200.

Supporters of AB 1228 argue that such changes allow for fast food workers, numbering more than half a million in the state, to have a seat at the table when it comes to wages and working conditions, and serves as a significant step towards combating the issues of poverty and inequality in California.  

Some opponents are skeptical of the bill’s nine-member Fast Food Wage Council and are specifically concerned that allowing state representatives to make annual decisions on wages, a restaurant’s largest expense, will have a negative effect on the business’s bottom line. 

Conclusion

The Fast Food Council will have its first session by early 2024, and it will be important for affected businesses to stand by for updates on industry regulations.