The impact of California’s fast food wage compromise won’t be limited to fast food

Even full-service restaurants are expected to feel the impact of a minimum wage increase for limited-service chains. | Photo: Shutterstock.

In California, the battle over the regulation of fast food chains appears to have reached a point of detente, but the impact of the compromise is expected to ripple across the entire industry, across all segments – and, some say, across all industries.

In a complex compromise announced last week, union organizers and top restaurant industry representatives reached agreement on legislation expected to be signed by the governor in the coming weeks.

Under the terms of the agreement, the Fast Act will be repealed and efforts to establish a joint-employer relationship between franchisors and franchisees will be dead.

Assembly Bill 1228 has been rewritten to create a modified Fast Food Wage Board that will establish minimum standards on working conditions for the industry.

And the state’s minimum wage will increase to $20 an hour starting in April 2024, which will be a 25% increase from the $16 hourly wage slated for January.

AB 1228 is described as a fast food law. But the bill specifically targets any limited-service chain with more than 60 units nationwide, so it applies as much to casual fast-food operators like Chipotle and Sweetgreen as it does to quick-service concepts like McDonald’s or Burger King , although bakeries that sell bread in the form of a stand. Menu items alone, like Panera Bread, for example, are still exempt, as would have been the case under the Fast Act.

But fundamentally, raising the minimum wage for limited-service workers forces other segments to follow suit.

Michael Lotito, a shareholder in the Littler Mendelson law firm who runs the San Francisco-based Workplace Policy Institute, estimates that about 17.6 million people work in California and about 7.6 million earn less than $20 a year. time.

“When you have that as a starting rate in an industry like QSR that has close to 100% turnover and 500,000 people in that industry, there are always openings. That means anyone making less than $20 (an hour) is going to want these jobs very well,” he said. “So I think restaurants that make less than $20 an hour are going to find that they have a huge problem retaining and attracting people.”

In other words, if an hourly worker at McDonald’s earns $20 an hour as a base, then the full-service restaurant below will be forced to pay that amount and more to earn that worker – just like the retailer, the car repairer. workshop and manufacturing plant.

And, under the compromise legislation, the Fast Food Wage Council will have the authority to increase the minimum wage each year by up to 3.5% through 2029.

And, adds Lotito, this change in the minimum wage will also have an impact on the salary scale in the catering sector.

In California, the wage rate at which workers can be considered exempt from benefits such as overtime, for example, is based on the state’s minimum wage.

So, to be considered exempt, workers must earn at least a minimum wage of at least twice the minimum wage for full-time employment in California, which is currently approximately $64,480 per year based on current state minimum wage of $15.50.

The amended AB 1228, however, includes language indicating that the benchmark wage for limited service sector workers would be based specifically on the new fast food minimum wage, Lotito said.

So, with a $20 minimum wage, it appears that the minimum wage for exempt workers will reach $83,200 per year for those working in the quick service or casual world.

“These kinds of dramatic and unprecedented changes will absolutely bring the law of unintended consequences into play. And this law with unintended consequences will create a ripple effect throughout the California labor market,” Lotito said. “It could be pretty deep.”

Iota Condie, president and CEO of the California Restaurant Association, agreed that wage pressure would likely be felt throughout the restaurant industry because of the compromise, but that the alternative presented by the Fast Food Act would have could come to fruition. , would have been much worse, he said.

“In the full-service sector, where total compensation is well over $20 an hour, this pressure is less evident because these jobs remain attractive to service workers,” he said. “It is difficult to know how quickly these pressures will ripple across the industry as the still-tight labor market and regional differences in minimum wages cloud the crystal ball.”

Still, restaurateurs like Andrew Gruel, founder of American Gravy Concepts in Southern California, believe the compromise on AB 1228 will have more of an impact on large chains.

Gruel, who also founded and sold the Slapfish seafood chain, earlier this year opened a full-service concept called Calico Fish House in Huntington Beach, Calif., where tipped workers already earn between $16 and $24 an hour and kitchen workers make “well over $20 an hour to start,” he said.

“However, I budget my business to run 35 to 40 percent labor, which is 10 percent more than when I ran a fast casual,” Gruel said. “The only way to ensure profitability is to achieve above-average sales. »

What really scares Gruel about the AB 1228 compromise is the creation of the nine-member Fast Food Wage Council, he said.

“I think it will eventually trickle down to single-unit restaurants,” Gruel said. “Having the state make decisions about a restaurant’s biggest expense is going to destroy a lot of restaurants.”

And he added: “I will never open another restaurant in California.” »

UPDATE: This article has been updated to add additional comments from the CRA.

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