Update:  On September 14, 2023, Assembly Member Chris Holden, author of AB 1228, wrote a “Letter to the Journal” clarifying that the definition of “fast food restaurant” under AB 1228 was not intended to intended to include “fast food restaurants that are located within an airport; which are connected to or operated in conjunction with a hotel, event center, theme park, museum, or gambling establishment; or which are located in and operated in conjunction with a building, group of buildings, or campus used for office purposes primarily by a single, for-profit corporation and its affiliates, where the restaurant is part of or subject to a concession or food-service contract, and primarily or exclusively serves employees of that corporation or its affiliates.” The letter goes on to state that next year, legislation will be introduced to codify this clarification.

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For years, California has led the way in the fast food industry, with several prominent brands having their origins in the Golden State.  More recently, California has shown innovation in the ways that the employment of fast food workers could be subject to government regulation.

Last year, Governor Newsom signed AB 257 into law.  The law created a “Fast Food Council” within the Department of Industrial Relations (DIR).  The Council was given the authority to impose binding sector-wide minimum standards on wages, working hours, and other conditions related to the health, safety, and welfare of fast food restaurant workers.  In response, industry groups were able to qualify a referendum for the November 2024 election, which put a hold on implementation of the Council. 

Earlier this year, a new bill was introduced that further targeted the industry.  AB 1228 would have imposed joint liability on a fast food franchisor for its franchisee’s violations of a host of laws, including the Fair Housing and Employment Act, wage and hour laws, and the Private Attorneys General Act (PAGA).

Meanwhile, in this year’s state budget act, the Industrial Welfare Commission (IWC) was re-funded, after nearly 20 years without funding.  The IWC was allocated three million dollars to convene industry-specific wage boards and adopt orders specific to wages, hours, and working conditions in any industry, with specific direction to prioritize for consideration industries in which more than 10 percent of workers were at or below the federal poverty level.

Since then, representatives of the fast food industry and labor unions have been involved in a series of meetings and discussions, facilitated by the governor’s office, to develop a compromise and a way forward.

The Legislative Compromise

An agreement was announced on September 11, 2023, resulting in a significant re-tooling of AB 1228, and addressing all of the background issues identified above.  The agreement includes several key components.  These provisions will take effect only if the revised version of AB 1288 is passed out of both houses and signed into law by the governor.

IWC To Remain Un-Funded

First, the re-funding of the IWC would be eliminated.  The IWC will remain unfunded, for now.  This development obviously has broad implications for all sectors of the California economy.

AB 257 Withdrawn

Second, AB 257, and the referendum challenging that bill, would both be withdrawn.  The Fast Food Council, as envisioned in AB 257, would be scrapped and replaced with a new version of the Council, with more limited authority. 

Joint Liability Withdrawn

Third, AB 1228 would be modified to remove the provisions imposing liability on a franchisor for the employment law violations of its franchisees.

Fast Food Council

Fourth, AB 1228 would create a new version of the Fast Food Council and implement a new minimum wage rate for California’s fast food sector.

AB 1228:  Covered Employers

AB 1228 would apply to a “National Fast Food Chain”—a set of limited-service restaurants consisting of more than 60 establishments nationally.  To be covered, the restaurants must share a common brand, or be characterized by standardized options for decor, marketing, packaging, products, and services, and are primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service. (NAICS Code 722513.) Bakeries would be exempt, as would restaurants located in a grocery store.

New Fast Food Council Limited Authority

The new Fast Food Council would make recommendations for new standards specific to the fast food industry – establishing fast food restaurant minimum standards on wages and developing fast food restaurant minimum standards for working hours and working conditions adequate to “ensure and maintain the health, safety, and welfare of, and to supply the necessary cost of proper living to fast food restaurant workers.” 

“Working conditions” include, but are not limited to, wages, conditions affecting fast food restaurant employees’ 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.  

But “working conditions” does not include all possible employment-related topics.  The Council could not develop regulations creating new paid time off benefits, such as paid sick leave or paid vacation, nor could it promulgate regulations regarding predictable scheduling.  (Note:  predictable scheduling does not include reporting time pay.)  However, the Council could recommend the creation of a standard requiring mandatory training.

However, unlike the previous version of the Council, which had authority to impose binding regulations, all standards promulgated by the new Council would be subject to the rulemaking process set forth in the Administrative Procedure Act (APA). The Labor Commissioner would be responsible for issuing, amending, or repealing standards developed by the Council. The Council would send proposed written standards to the Labor Commissioner and request that the Commissioner prepare a notice of proposed rulemaking action regarding the proposed regulatory text. If the Commissioner determined either that the proposed standards are not consistent with the Council’s authority, or not consistent with the APA, the Commissioner would need to  provide the Council a written explanation of the reasons for that determination (within 60 days) so the Council could modify its proposed standards.  

Composition of the Council

The Fast Food Council would have nine voting members: two representatives of the fast food restaurant industry, two representatives of fast food restaurant franchisee or restaurant owners, two representatives of fast food restaurant employees, two representatives of advocates for fast food restaurant employees and one unaffiliated member of the public who is not an owner, franchisee, officer, or employee in the fast food industry or a labor organization. It would take five votes to pass any resolution or take action. Council members could not serve more than two four-year terms. The Council would be required to convene its first meeting by March 15, 2024. 

Council Meetings

The Council would be required to hold meetings at least every six months in which the public would have the opportunity to be heard on issues of fast food restaurant health, safety, and employment conditions. The location of the meetings or hearings would rotate among major metropolitan areas throughout the state. The Council could coordinate with local agencies and request that they hold meetings or hearings that are open to the public. After these meetings or hearings, the Council could request information from the local agencies, including any recommendations for action by the Council.

New Sector Minimum Wage

AB 1228 would also implement a new minimum wage rate of $20 per hour for employees at a “National Fast Food Chain,” (as defined above) effective April 1, 2024.  Thereafter, the Council could increase, on an annual basis, the minimum wage for fast food restaurant employees beginning on January 1, 2025. The hourly minimum wage would increase on an annual basis by no more than the lesser of (rounded to the nearest ten cents) either 3.5 percent or the Consumer Price Index.  In establishing minimum wage increases, the Council could take into account regional differences, or it could set a statewide increase. The already-existing wage orders would be updated to reflect the new minimum wage rates.

Other Provisions of AB 1228

AB 1228 would also provide that local jurisdictions could still enact more protective local standards. However, they could not enact a law applicable solely to fast food employees. Thus, this law would not preclude them from establishing a minimum wage that is generally applicable to all industries.

The minimum wage set by the new law would be the “state minimum wage” (as that term is used in the California Labor Code) for purposes of covered fast food employees.  This cross-reference would impact other employer obligations, including the salary pay requirement to obtain exemptions from overtime.

In addition, a collective bargaining agreement could supersede the statute if the agreement expressly provides for the wages, hours of work, and working conditions of the employees, and a regular hourly rate of pay not less than 30 percent more than the “state minimum wage” ($20 for fast food workers as of April 1, 2024) for those employees, and if the agreement provided equivalent or greater protection than the standards established by the Council.

The Labor Commissioner would enforce the new law, through the already-existing enforcement procedures set forth in the Labor Code,¹ or by a covered worker through a civil action.  In any successful civil action to enforce this law by the Labor Commissioner or an employee, the court could grant injunctive relief and would award costs and reasonable attorney’s fees.

Lastly, the bill includes a retaliation clause. A fast food restaurant operator could not discharge, discriminate, or retaliate against any employee due to the employee’s participation in a proceeding with the Council.

The legislature would evaluate the Council’s performance every three years or as otherwise designated. However, the law would also sunset on January 1, 2029, which means there would likely be only one report to the legislature before the law would terminate automatically.

Impacts Outside of the Sector

Once again, California has created a “first of its kind” employment law.  The imposition of a minimum wage applicable to a particular sector of employees is quite novel.² The $20 per hour rate itself is sweeping in its scope.  The statewide minimum wage is set to increase to $16 per hour on January 1, 2024.  Employers currently paying less than $20 per hour must be prepared to address the impact this change would have on the state’s labor markets.  Given California’s diverse economy, this impact would be greater in certain areas of the state where the labor market rates are not as high as they are in large metropolitan areas or in sectors or localities where there are labor shortages.  This dramatic increase surely would create ripples throughout the California labor markets and the state economy as a whole.  Finally, the continued state of a “de-funded” IWC would take away, at least for now, one potential avenue for the promulgation of broader workplace regulations. 

Littler’s Workplace Policy Institute will continue to stay engaged in the legislative process relating to the fast food industry in California, and beyond.  Stay tuned for further updates.