California voters will no longer decide the fate of the controversial Fast Food Accountability and Standards Recovery Act (FAST Act), which was expected to significantly affect fast-food restaurants in the state, including franchise operations.
Following a series of meetings with representatives of the fast-food industry and labor unions, California Gov. Gavin Newsom has signed into law AB 1228. The law withdrew a pending voter referendum set for November 2023, repealed the FAST Act and implemented new regulations for the fast-food industry that represent a compromise.
Background
Newsom previously signed the FAST Act in September 2022. The law authorized the creation of a Fast Food Council that would have broad authority to establish sector-wide minimum standards on wages, working hours and other working conditions related to the health, safety and welfare of fast-food restaurant workers. Read our prior alert here.
Opponents of the FAST Act lobbied against the law and quickly garnered enough signatures for a voter referendum initiative. On January 24, 2023, the California Secretary of State verified and qualified a referendum challenging the FAST Act. It was set to appear on the ballot in November 2023.
During the intervening months, all sides worked out a compromise. AB 1228, which was signed September 28, 2023, reflects the agreement reached between labor representatives and the fast-food industry. The law will remain in force until January 1, 2029, or as otherwise provided.
Fast Food Chains Defined
AB 1228 applies to “National Fast Food Chains”— a set of limited-service 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. They 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. The definition excludes bakeries and restaurants located inside a grocery store.
AB 1228 Implements the Following:
Establishment of the Fast Food Council
AB 1228 creates the Fast Food Council within the Department of Industrial Relations, which has limited authority compared to the Fast Food Council that was outlined in the now-repealed FAST Act.
The Fast Food Council consists of 9 voting members, including: two representatives from the fast food industry; two representatives of fast food restaurant franchisees or restaurant owners; two representatives of fast food restaurant employees; two representatives of advocates for fast food restaurant employees and one unaffiliated member of the public who is not an owner, franchisee, officer or employee in the fast food industry. (The unaffiliated member can’t be an employee or officer of a labor organization or a member of a labor organization representing fast food restaurant employees. He or she also must not have received income from the fast food industry or any labor organization for a period of two years prior to appointment.) Additionally, the Fast Food Council includes two nonvoting members: one representative from the Department of Industrial Relations and one representative from the Governor’s Office of Business and Economic Development.
The Fast Food Council is required to hold meetings at least every six months that are open to the public and focused on issues of fast food restaurant health, safety and employment conditions. The location of the meetings or hearings will rotate among major metropolitan areas throughout California to allow for public participation. After these meetings, the Fast Food Council may request information from local agencies, including any recommendations for action by the Fast Food Council.
The Fast Food Council may also adjust the hourly minimum wage each year pursuant to specific parameters described below, and may set forth requirements, limitations and procedures for adopting and reviewing fast food restaurant health, safety, and employment standards (subject to the manner prescribed in the Administrative Procedure Act).
Increases Beyond State’s Minimum Wage
Effective April 1, 2024, the minimum wage for employees of National Fast Food Chains will increase to $20 per hour. The state minimum wage at that time will be $16.00 (although some cities are higher).
Thereafter, the Fast Food Council may increase the minimum wage on an annual basis by no more than the lesser of one of the following, rounded to the nearest ten cents: 3.5% or the percentage increase in the Consumer Price Index.
Other Notable Elements and Provisions of AB 1228
Labor unions secured an exemption, so that a collective bargaining agreement may supersede AB 1228, if the agreement expressly provides for the wages, hours of work and working conditions of the employees as well as a regular hourly rate of pay not less than 30 percent more than the “state minimum wage.”
Additionally, AB 1228 is enforceable by the Labor Commissioner through the procedures set forth in the Labor Code, or by a covered worker through a civil action, through the same means and with the same relief available for violation of any other state minimum wage requirement.
AB 1228 additionally prohibits a fast-food restaurant operator from discharging or in any manner discriminating or retaliating against any employee due to the employee’s participation in or testimony to any proceeding convened by the Fast Food Council.
National fast-food chains secured a few wins including: Cost savings by calling off the battle over the original FAST Act referendum and a pause of labor’s efforts to make franchisors legally liable for labor code violations of franchisees.
Next Steps
The impact of AB 1228 is far-reaching for over 500,000 non-union fast-food workers, especially with regards to the applicable minimum wage law in some cities that currently pay the California minimum. Fox Rothschild urges all fast-food employers to review their labor and employment practices and policies to ensure they comply with this and other California law.
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