October 27, 2023 | Legal News

The Fast Food Compromise: What Franchise Systems Need to Know About California’s New Franchise Labor Law

Last year, California passed the Fast Food Accountability and Standards Recovery Act (FAST Act) which would have created the nation’s first state-mandated council with authority to promulgate minimum standards on working hours, wages, and other fast food working conditions in California. However, after swift opposition, the law’s implementation was paused, and its repeal was to be voted on by ballot referendum on Election Day in November 2024.

Not long after the FAST Act was certified for a ballot referendum, its proponents took another swing at joint employer liability—a point they previously conceded to ensure the FAST Act’s passage—by introducing AB 1228, which would make fast food franchisors civilly liable for their franchisees’ violations of various labor laws. What’s more, the bill provided an avenue for franchisees to sue their franchisors if those franchisors prevented or created a “substantial barrier” to franchisees’ compliance with state law.

With the FAST Act’s future uncertain and AB 1228’s threat of joint employer liability, Governor Newsom’s office facilitated discussions between fast food industry leaders and labor union representatives to reshape AB 1228 into a final compromise. An agreement was reached on September 11, 2023 and the Governor signed the bill on September 28, 2023. Here’s what fast food franchisors should know about the new law:

 The FAST Act Withdrawn. As part of the legislative deal struck to pass AB 1228, the FAST Act and the referendum challenging that legislation were withdrawn and will not be resurrected through December 31, 2028.

Applies to More Fast Food Franchises. AB 1228 applies to California “fast food restaurants” that are part of systems of at least 60 locations nationwide. This reaches more brands than the FAST Act, which sought to regulate the same restaurants, but of systems comprised of at least 100 locations nationwide. Bakeries and restaurants operated within – and whose employees are employed by – a grocery store remain exempt.

Establishes the Fast Food Council. AB 1228 reinstitutes the Fast Food Council within the Department of Industrial Relations. The Council will consist of nine voting members, including two franchisor representatives, two franchisees, two employees, two employee advocates, and a neutral chairperson, and two non-voting members—one from the Department of Industrial Relations and one from the Economic Department. The Governor will appoint the voting members.

The bill charges the Council with developing state-wide or regional minimum fast food employment standards regarding wages, working conditions, and training that cannot be less protective of employees than those already in place.

Like the council created by the Fast Act, the Council cannot set standards regarding predictable scheduling and paid time off, and it must petition the Occupational Safety and Health Standards Board regarding any standard that fall within the Board’s jurisdiction. But unlike the FAST Act, regulations voted out of the Council do not immediately become law. Rather, they are submitted to the Labor Commissioner for rulemaking.

 Raises the Minimum Wage for Fast Food Employees. Starting April 1, 2024, employees of California fast food franchised restaurants must be paid at least $20 per hour. And at the start of each year thereafter, the Council can raise the minimum wage by the lesser of 3.5% or the average change in the U.S. Consumer Price Index. Like other regulations, the Council can use its wage standard authority to target the entire state or particular regions, but localities are prohibited from enacting their own fast-food employee-specific wage ordinances.

Does Not Provide for Joint Employer Liability. Perhaps the biggest win to come out of the negotiations for franchisors is that the final version of AB 1228 does not include joint employer liability.

The Industrial Welfare Commission Will Not Be Refunded. AB 1228 eliminates funding for the Industrial Welfare Commission initially granted by AB 102, which was signed into law in July of 2023. Labor representatives had planned on using the funding to convene industry-specific wage boards, including for the fast-food sector.

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The final AB 1228 is the product of serious, hard fought negotiations between industry and employee advocates, with both sides claiming significant victories. While AB 1228 doesn’t impose joint employer liability on franchisors, it also isn’t a bar against such liability.  The law’s structure also requires continued vigilance from franchise systems, both in monitoring appointments to the Council and the Council’s submission of standards to the Labor Commission for rulemaking.

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