How Will California’s Fast Food Council Bill Affect QSRs Across the Country?

On September 5, 2022, Governor Gavin Newsom signed AB 257, the Fast Food Accountability and Standards Recovery Act, into law in California. Passed by the legislature in August, the bill creates a Fast Food Council, with labor and management at the table, to set standards for wages, safety, security, and time off.

The following groups will be members of the Fast Food Council:

• Government officials from the state’s Department of Industrial Relations
• Representatives from the Governor’s Office of Business and Economic Development
• Industry workers and their advocates
• Franchisees
• Franchisors

The Act intends to ’empower fast-food workers with new wage and workplace protections to support their health, safety, and welfare.’

What does AB 257 include?

AB 257 applies to fast food workers in restaurants with at least 100 locations nationally.

As currently written, the law will go into effect after labor groups secure signatures from  10,000 fast-food restaurant employees. Representatives from Service Employees International Union (SEIU), who co-sponsored the law, began collecting signatures immediately. The process to choose and appoint the council’s representatives will begin once the SEIU obtains the required number of signatures.

The overarching theme of the legislation is to set standards on wages and working conditions on the fast food industry to ensure the safety and well-being of workers in the industry.

The 10-member council will include:

• 4 seats for industry representatives: 2 from franchise holders and 2 from franchisors.
• 2 seats will be reserved each for fast food worker representatives and fast food worker advocates.
• The remaining seats will be held by a representative of California’s Department of Industrial Relations and the Governor’s Office of Business and Economic Development.

The council will convene every 6 months to hear public comments on health, safety, and employment conditions. The group will recommend standards for the industry. Each new standard will go through a rule-making process through the state’s Office of Administrative Law (OAL).

Any recommended standard that passes the OAL will take effect no sooner than October 15 of that same year. For oversight, the Act provides that nothing ‘restrains the legislature from enacting legislation that prevents a standard, repeal, or amendment from taking effect.’

What does AB 257 require?

The overarching theme of the legislation is to set standards on wages and working conditions to ensure the safety and well-being of workers in the industry. Fast food or Quick Service Restaurants (QSR) are the sole focus of the legislation.

On January 1, 2024, and every year thereafter, wages for QSR workers ‘may’ be increased by the lesser of 3.5% or by the increase in the annual Consumer Price Index. The council will have the power to raise the minimum wage for these workers to $22 per hour, effective January 1, 2023. California’s current minimum wage of $15. per hour is scheduled to increase to $15.50 per hour statewide on January 1, 2023.

Additionally, the council plans to make recommendations for the safety and well-being of QSR employees. They may set standards for cooling requirements in areas of excessive heat. They are also poised to set standards that minimize the risk of physical violence from consumers that many employees face.

Cooling system and security measure recommendations will be submitted to California’s state safety agency CalOSHA. The council will petition CalOSHA to consider their suggestions, then CalOSHA will be required to respond within 6 months of the request.

How do local areas participate in recommendations?

The bill also allows cities or counties with 200,000 or more residents to form a local fast food council. These will make their recommendations to the statewide authority. Approximately 100 metro areas and counties may meet the 200,000 resident threshold, each potentially making recommendations that could become statewide policy. Local councils will be subject to California’s Ralph M. Brown Act. All meetings must be held in an open/public format, according to this law.

The law:

• Prohibits retaliation against any employee who files a claim under the bill
• Provides for reinstatement and damages if an employee is fired due to filing a claim
• Will be enforced by the state’s Labor Commissioner, who will have the power to investigate and order relief
• Provides the Commissioner the ability to issue citations and civil actions against employers, fast-food restaurant operators, fast-food franchisors, and franchisees.

This language may suggest a joint-employer relationship, which the National Labor Relations Board recently rejected at the federal level. Barring the law’s renewal, the council will disband on January 1, 2029.

What businesses are impacted by AB 257?

The law, as written, applies to ‘chain’ or ‘fast food’ restaurants with more than 100 locations nationwide, no matter how many sites are in California. The bill defines included eateries as any location that provides food or beverages and includes any establishment that is part of a chain. This includes restaurants not owned by the chain’s corporation but by individual franchise holders. Restaurants targeted are those which serve foods or beverages:

1. In disposable containers
2. For immediate consumption either on- or off-premises
3. With limited or no table service
4. That requires customers to order, select, and pay for items before eating

Excluded from the law are restaurants located and operated in grocery stores. The grocery stores pay the employees who work in grocery store restaurants; the chain stores don’t. Because of this difference, the bill excludes the grocery store eatery sites.

Opponents of the bill argue that the vague language will impact non-fast food locations. These may include ‘fast casual’ restaurants with cafeteria-style ordering and payment. Additional affected restaurants include those that primarily work on a ‘to-go’ basis due to COVID-19.

Who opposes AB 257?

Franchise owners may be specifically concerned about the implications of the bill. These restaurants often have limited control over:

• Pricing
• Suppliers
• Operating hours

They may have little choice but to move to automated systems, like ordering kiosks, to drive down labor costs in an effort to remain profitable. The very law aimed to protect QSR workers may ultimately result in their termination.

Some may have to pass the costs of compliance on to consumers. Many are still recovering from the devastation of the pandemic. With supply chain issues and an industry-wide worker shortage, many franchise locations may be unable to weather the storm. With inflation on the rise, many may see decreasing consumer demand forcing closures.

California’s own Department of Finance (DoF) opposed the bill. A statement from the agency outlines that the legislation will create significant ongoing costs for the Department of Industrial Relations (DIR). The DoF also argued the bill will create a ‘specific rule-making body within DIR, which could lead to a fragmented regulatory and legal environment for employers raising long-term costs across industries.’

With supply chain issues and an industry-wide worker shortage, many franchise locations may be unable to weather the storm following AB257’s enactment.

The coalition of restaurants, Protect Neighborhood Restaurants, aims to reverse the legislation. They filed a referendum request with the state’s Attorney General and hope to collect the required 600,000 plus signatures before the end of the year to put AB 257 on the ballot in 2024 with the intent of repealing it. The group is supported by the International Franchise Association, the National Restaurant Association, and many small businesses and organizations.

Why does AB 257 matter outside California?

Many employment laws took a test drive through California before going nationwide. California was the first state to mandate sexual harassment training for managers in 2004. Since then, the law has been updated to include workers as well as supervisors. Six states and several local governments have followed suit with the required training to recognize and prevent sexual harassment in the workplace.

If AB 257 works well in California, other states, counties, and cities may follow suit. The law’s success may become a model to advocate for and protect workers in QSR locations across the country.

California’s AB 257 is sweeping legislation that could shift the landscape of employer/employee relations in California and potentially across the country. This law may have dramatic implications for QSR owners in California and beyond. As the council is formed and its recommendations provided, many states will consider whether similar legislation is appropriate for their area.