October 18, 2022 | Legal News
California’s New FAST Act: What It Means for Franchising
This past Labor Day, California Governor Gavin Newsom signed into law AB 257, the Fast Food Accountability and Standards Recovery Act (or the FAST Act), which proponents trumpet as a victory for fast food workers. The fierce lobbying for and against the bill did not end with its passage. Opponents of the Act, led by the International Franchise Association, the National Restaurant Association, and the U.S. Chamber of Commerce, have already launched a referendum effort to repeal the law. If they obtain the signatures of 623,212 California voters by December 4, 2022, the FAST Act will be stayed until its fate is decided in California’s November 2024 general election.
Despite its contentious passage, the Act does not automatically increase workers’ wages or otherwise regulate working conditions. Instead, it creates a ten-member council tasked with promulgating sector-wide minimum standards for wages, working hours, and other working conditions.
Who will be on the council?
Eight of the ten council members will be drawn directly from the fast-food sector: two franchisor representatives, two franchisees, two employees, and two employee advocates. The remaining two members will be government representatives, one each from the Department of Industrial Relations and the Office of Business and Economic Development. The Governor will appoint all members, except for the two employee advocates. One of those will be appointed by the Speaker of the Assembly and the other by the Senate Rules Committee.
Who is subject to the council’s rules?
The council’s rules will apply to all California “fast food restaurants,” which the act defines as businesses that serve pre-prepared food or drinks for immediate consumption; provide little to no table service; and where the customers pay before eating. Bakeries are exempt, as are restaurants that operate within—and whose workers are employed by—a grocery store.
Further, only those fast food restaurants that are part of a chain of at least 100 locations nationally are subject to the Act. Ostensibly, this limitation was meant to spare small businesses the expense of complying with the Act, but many have criticized this limitation as discriminating against franchised businesses. For example, consider a franchise system with 100 locations nationwide. A California franchisee that owns a single restaurant in that chain would be subject to the council’s rules. Meanwhile, a single company that owns and operates a chain of 99 restaurants, even if all were located in California, would be exempt from complying with the Act.
What can the council do?
The council is generally tasked with establishing sector-wide standards on wages, working hours, and other working conditions, including those that affect workers’ health and safety, security in the workplace, the right to take time off work for protected purposes, and the right to be free from discrimination and harassment in the workplace.
The issue that has garnered the most attention is the council’s power to increase the minimum wage for fast food workers. The council has the power to increase minimum wages up to $22 per hour for 2023—a more than 45% increase over the current $15 per hour minimum wage. Beginning in 2024, wage increases will be limited to the state’s general minimum wage law, which provides for annual increases by the lesser of 3.5 percent or the prior year’s increase in the national consumer price index.
The California Labor Commissioner is tasked with enforcing compliance with the Act by investigating any alleged violations and ordering temporary injunctive relief pending such investigation. The Commissioner may also issue citations and initiate civil actions.
The Act encourages workers to report violations by granting protection to “whistle blowers.” Fast food employers are forbidden from firing, or discriminating or retaliating against, employees who complain about employee health or safety issues, or who refuse to perform work because of an employee health or safety violation. If an employer violates this protection, the employee may bring a civil suit under the Act seeking reinstatement, treble lost wages and benefits, and recovery of attorneys’ fees and costs. The Act creates a rebuttable presumption of unlawful discrimination where an employer takes any adverse action against a “whistle blower” employee within 90 days of the whistle being blown.
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Unquestionably, the Act is a victory for fast food workers, and it will have a direct impact on larger “fast food” franchise systems with locations in California. Unless the referendum is successful and California voters repeal the FAST Act, those impacted franchisors will need to closely monitor the council’s composition and rules to determine how it might affect system standards and unit economics.
Franchise systems not subject to the Act will nonetheless feel its effect. California businesses that are not “fast food restaurants” may find it difficult to find workers unless they are willing to match the potential $22 an hour offered by the fast food restaurant around the corner.
The full text of the Act is available here.
For the International Franchise Association’s take on the bill, click here.