Since the passing of California’s controversial Fast Act Bill in 2022 (AB 257), the restaurant industry has been abuzz with the impacts the bill is expected to have on the bottom line. Another blow came to the community earlier this year when a new bill was introduced (AB 1228) that impacted joint employer liability between franchisees and franchisors and wages, among other topics. Before the passing of AB 1228, and as a result of negotiations between California Governor Gavin Newsom, the National Restaurant Association, the International Franchise Association, the Service Employees International Union, and certain unnamed franchisees, in September of 2023, the QSR Legislative Agreement was reached. The QSR Legislative Agreement amended AB 1228 and made key changes to the AB 257.
What the QSR Legislative Agreement Changed
Previously, AB 257 only applied to fast-food employers and employees from chains with at least 100 units nationwide. The new agreement drops that threshold to 60 units.
Other provisions and changes in the QSR Agreement include the following:
- Wages: Before the agreement, California’s Assembly Bill 257 (AB 257) promised fast food workers a wage hike to $22 per hour by 2023, with potential annual increases based on inflation or a 3.5 percent minimum. Local governments could also raise wages further. The agreement, however, alters this landscape: the minimum wage will increase to $20 per hour, but not until April 2024. Annual adjustments are capped at the lower of 3.5 percent or inflation, and local wage increases are prohibited until 2029.
- Fast Food Council: AB 257 established a powerful Fast Food Council with broad authority over industry standards, including wages, working conditions, and training. The agreement abolishes this council and replaces it with a new one with limited scope. It can only adjust wages within the 3.5 percent or inflation cap and make non-binding recommendations on other matters like safety and scheduling. The new council also has a more balanced composition: four representatives each from workers/unions and restaurants, plus one neutral public member serving as chair.
- Industrial Welfare Commission: AB 257 empowered the Industrial Welfare Commission (IWC) to set industry-specific wages as high as $22 per hour, exceeding the agreement’s $20 minimum. The IWC also had broad authority to regulate workplace standards. The agreement eliminates the IWC’s role in the fast-food industry.
- Joint Employer: AB 1228 initially proposed holding both franchisors and franchisees jointly liable for labor violations. The agreement removes this provision, potentially shielding franchisors from some legal responsibility.
- AB 257 Referendum: The QSR industry was prepared to spend $120 million fighting AB 257’s implementation through a ballot referendum. The agreement avoids this costly battle by enacting a compromise measure.
- Business Impacts: The agreement’s wage increases will directly impact menu prices in California’s fast-food sector. This may also have ripple effects on full-service restaurants and drive wage pressure in other regions. Additionally, the agreement incentivizes automation, potentially reducing entry-level job opportunities. The economic viability of new franchises in California might also be impacted, leading to slower industry growth.
Overall, the QSR Legislative Agreement significantly reshapes the landscape for California’s fast-food industry, with major implications for wages, regulations and business operations. While the agreement avoids the high-stakes battle of AB 257, it presents a new set of challenges and uncertainties for restaurants and workers alike.
For questions or more information, contact your Windham Brannon advisor today, or reach out to Maggie Wise.
