Compromise settles dispute over status of fast-food franchises

In some ways, the most interesting — and perhaps most significant — event in the final days of the 2023 legislative session was a compromise deal on state oversight of the fast food industry.

Last year, unions pushed through legislation that would have created a new state commission to set wages and working conditions in the industry.

By implication, the legislation sidelined the industry’s franchise system and treated local outlets as mere branches of their corporate franchisors.

Although the resulting wage increases received most of the media attention, the erosion of the franchise model was the most worrying aspect for fast food companies and their franchisees.

Immediately, industry bigwigs pledged tens of millions of dollars for a campaign to challenge the legislation through a referendum that could go before voters in 2024.

Parliament’s response was to consider another bill that would have doubled down on the attacks on the franchise model by making corporate franchisors legally responsible for labor law violations at their franchisees’ fast food outlets.

With the outcome of the referendum uncertain, the long-warring factions began negotiating and last week a deal was reached.

The 2022 legislation would be repealed, the 2023 legislation would be scuttled, and a substitute for both would retain the fast food council but slightly change its composition, limit its power to set wages and working conditions, provide for a new minimum wage of $20 per hour for employees. fast food workers, ban local efforts to change wages, and eliminate threats to the franchise model.

Like all legislative compromises, this one, enshrined in Assembly Bill 1228, had something for everyone but didn’t give every stakeholder everything they wanted.

“Over the past decade, California fast food cooks, cashiers and baristas have raised the alarm about the poverty wages and unsafe working conditions that plague our industry,” said Ingrid Vilorio, executive. fast food union, in a press release. “We always knew that to resolve these issues, we needed a seat at the table with our employers and the power to help create better rules in our sector. »

“This enables meaningful wage increases for workers, while at the same time eliminating greater – and potentially existential – threats, costs and regulatory burdens targeting local restaurants in California,” said Matt Haller, CEO of the International Franchise Association, in a press release.

Haller’s statement suggests that, overall, it appears that, given the circumstances, the big players in the fast food industry, such as McDonald’s, have emerged victorious, although their franchisees will feel the financial strain which will result from it.

The $20 minimum wage is only slightly higher than what fast food workers currently earn on average, as the industry has raised wages sharply in recent years in an effort to fully staff outlets. Current wages in California fast food average $19 per hour.

More importantly, the agreement protects the franchise system’s assumption that fast food outlet operators are independent businessmen who invest their money and are basically responsible for hiring, training, remuneration and sometimes dismissal of their workers.

If state regulation of wages and working conditions in fast food had survived as originally proposed, with franchisees indirectly considered merely branch managers rather than entrepreneurs, it could have harmed franchising in other industries of consumption.

Union leaders much prefer to deal with large-scale sectors rather than individual employers, both in organizing workers and in negotiating contracts. The recently ratified labor contract affecting all West Coast ports is an example of industry-wide negotiations, as is the current impasse over a new contract with the auto industry.

Breaking up the fast food franchise system would have been a big step in that direction.

Dan Walters is a CalMatters columnist.