AB-1228 Essentials: A New Minimum Wage for Fast-Food Chains and Avoiding the Prospect of Joint Franchisor/Franchisee Liability

October 2, 2023

AB-1228, California’s New Fast-Food Worker law has important implications for restaurant franchises and has been signed into law following two years of tactical maneuvering by groups on both sides of the issue.

Here is a quick rundown of the most important points:

What does it do?

  1. Establishes a Fast-Food Council that is responsible for developing minimum employment standards for fast-food employees, including wages, working conditions and training.
  2. Sets a $20/hr minimum wage for fast-food workers.

Five Things to Know About the Minimum Wage for Fast-Food Workers

  1. The FFW Minimum Wage applies only to employees of “National Fast-Food Chains.”
  2. The FFW Minimum Wage takes effect on April 1, 2024.
  3. The FFW Minimum Wage can be increased annually by up to 3.5% or an average linked to the inflation rate, whichever is less.
  4. The law allows regional wage variations to be adopted, but the FFW Minimum Wage may not be less than the general state minimum wage.1
  5. Local governments cannot adopt a different minimum wage for FFWs but can set a higher general minimum wage that is applicable to all hourly employees.2

What is a National Fast-Food Chain?

A restaurant chain that has 60 or more limited-service restaurants (meaning restaurants with limited or no table service) within the United States.

  • Bakery chains that produce bread on the premises and sell it as a stand-alone menu item are excluded.
  • Restaurants located in grocery stores that are staffed by employees of the grocery store are excluded.
  • The author of the bill has stated that he intends to introduce further legislation clarifying that the definition is not intended to include restaurants in airports, hotels, event centers, theme parks, museums, casinos, or office cafeterias.

Five Things to Know About the New Fast-Food Council

  1. The FFC has no enforcement power, and it does not directly issue any regulations. In most cases, the Labor Commissioner’s office will issue regulations based on FFC-developed standards through the normal rule-making process and be responsible for enforcement.
  2. The FFC can develop standards related to a broad range of working conditions. The standards may have regional variations.
  3. The FFC cannot change paid time off benefits (like sick leave or vacation) or develop standards relating to predictable scheduling.
  4. The FFC will have 9 voting members: 4 representing the fast-food industry and franchisees/restaurant owners, 4 representing employees/employee advocates, and one member of the public with no ties to the fast-food industry.
  5. Unless extended, the FFC’s operations will cease in 2029. However, regulations based on FFC-developed standards will remain in effect.

Some Other Essentials:

AB-1228 is a legislative compromise. It has the backing of both the SEIU, as well as restaurant franchising industry groups.  In exchange for their buy-in on AB-1228, fast-food industry groups agreed to withdraw a proposed referendum that would repeal a 2022 law (called the “FAST Act”) that would have created a much more powerful Fast-Food Council.

The compromise took legislation off the table that would have made franchisors jointly liable for their franchisees’ violations of the Fair Employment & Housing Act, OSHA and other worker health & safety laws, wage & hour laws, California’s Unfair Businesses Practices law (the “UCL”), and violations of “public health and safety” laws.  As drafted, this legislation could have made franchisors jointly liable both for their franchisees’ employment-related and non-employment-related violations of the law.  This is the most important win for fast food chains as it is widely believed that joint liability would end fast food franchising in California as it currently exists.

If you have questions about the implications of AB-1228 for your business, contact the author of this article, Kate Friend or any of the attorneys in Donahue Fitzgerald’s Employment Group.

 

1As of January 1, 2024, the statewide minimum wage will increase to $16/hr.

2Local governments, especially in the San Francisco Bay Area have adopted local minimum wages, that as of this writing, range from $15.50 (Hayward—Small Employer rate) to $19.08 (West Hollywood) per the UC Berkeley Labor Center.