Unions, governor and fast-food industry agree to a detente

For a state that crowns itself the “birthplace of fast food,” the Golden State seems to have a vendetta against the Golden Arches. Recently, state lawmakers and labor unions have launched an all-out attack on the fast-food industry, starting with the notorious Fast Food Accountability and Standards Recovery (FAST) Act enacted last year. 

The fast-food sector and lawmakers appear to finally have struck a deal to temporarily end the hostilities. But while the most immediate threats to the fast-food model have been avoided for now, the entire episode is a dreary reminder of what businesses face when choosing to operate in California.

The road from opening shots to cease fire has been long and convoluted. Last year, Gov. Gavin Newsom signed into law A.B. 257, the FAST Act, which would have established a Fast Food Council, a 10-member standing body with the authority to oversee and regulate the entire fast-food industry. The council was essentially imbued with lawmaking authority over wages, hours, and health and safety standards for the industry. This would essentially import a European form of “sectoral bargaining,” in which labor standards are set on a sector-wide level rather than company-wide one. The legislation also gave the council the ability to raise the minimum wage for restaurant workers to $22 per hour with 3.5 percent annual raises thereafter.

In response, the fast-food industry fired back by qualifying a referendum for the 2024 ballot that would repeal the FAST Act. Lawmakers then upped the ante by introducing A.B. 1228, which would enact what’s known as “joint liability” standards for the fast-food industry, meaning that franchisor parent companies would be held responsible for labor law violations of franchisees. This blurring of the corporate lines—which strikes at the very heart of the entire franchise model—had been stripped out of the original FAST Act legislation, only to be resuscitated in an act of seeming revenge for the industry’s ballot referendum.

As a final ace in the hole, lawmakers resuscitated a moribund state governing body known as the Industrial Welfare Commission (IWC), granting it power to adopt orders related to the wages, hours, and working conditions of industries—with the understanding that its first target would be fast food. The commission was to act as an insurance policy if the FAST Act repeal referendum was successful. 

Facing this dizzying array of existential threats, the fast-food industry opened talks with Gov. Newsom’s office. They came to an agreement by ceding ground on the minimum wage hike—the minimum wage for fast food workers will be raised to $20 by April 2024, with the potential for annual increases—and, in turn, the industry secured numerous concessions.

The FAST Act’s Fast Food Council will be replaced with a less virulent version that includes more equal representation for the industry. Rather than de facto legislative authority, the council will be subject to the state Administrative Procedure Act, and its powers have been curtailed to prevent it from issuing rules on controversial topics like paid time off. Further, the FAST Act cannot be resuscitated legislatively again until 2029 at the earliest. Similarly, AB 1228 is set to be withdrawn, meaning that joint-liability rules are off the table until 2029 as well. The attempted resuscitation of the IWC was also shelved until at least 2029.

The deal is not without its critics, as some franchise owners still argue it will deliver a “devastating financial blow” to the fast-food industry in California. And unfortunately, the concessions are only temporary, forestalling until 2029 the worst of the possible outcomes. However, given the available options in a state dominated by progressive politics and labor unions, it’s understandable why the industry wanted to mitigate as much damage as possible for as long as it can. 

While fast-food lives to fight another day in California, the situation once again highlights the state’s near-maniacal antipathy toward businesses. Similar to the high-profile targeting of gig companies via A.B. 5, state lawmakers are clearly interested in identifying and going after business models that run counter to labor union and progressive priorities. If the state ever wants to reverse its well-earned reputation of hostility toward business, its politicians will need to change their unfortunate habit of attempting to hammer entire industries out of existence.