A big Carl’s Jr. franchisee out of California that filed for bankruptcy late last week has blamed its financial problems on two issues: The state’s fast-food wage and the brand’s own problems.
That, at least, is according to a court filing on Tuesday by Sun Gir, a 59-unit operator of the fast-food burger chain in Southern California. Sun Gir is one of six entities operated by Harshad Dharod that filed for Chapter 11 bankruptcy last week.
Dharod is the owner of Friendly Franchisees Corp. The website listed 65 Carl’s Jr. locations, suggesting that six have closed.
In a declaration filed Tuesday, Dharod said that the company’s financial distress started two years ago, when California began requiring fast-food chains to pay their workers at least $20 an hour.
The wage “materially increased operating expenses,” he said in the filing.
Dharod also said, however, that Carl’s Jr.’s declining sales contributed to the problems. He blamed the chain’s challenges on “reduced marketing effectiveness” and a “lack of innovation at the franchisor level.” He also cited “turnover at the franchisor’s executive level,” saying that it contributed to the company’s financial challenges.
Court documents also describe an operation that was losing money and in trouble with its franchisor.
Sun Gir generated $19.9 million in sales during the first three months of this year but recorded a $2 million loss over that period.
The franchisee also said that Carl’s Jr. had declared defaults on at least some of its restaurants, threatening those locations with the termination of their franchise agreements, according to court documents.
Representatives for Carl’s Jr. did not respond to the filing, referring only to a statement given early on Monday when Restaurant Business first reported the bankruptcy filing. In that statement, Carl’s blamed the problems specifically on the franchisee. “This situation is specific to this individual franchisee’s financial and business circumstances,” the statement noted.
Carl’s Jr.’s has been having challenges in recent years. The chain is owned by CKE Restaurants, based in suburban Nashville. U.S. system sales declined 6% in 2025, according to Restaurant Business sister company Technomic. Average-unit volumes declined 2.7% to $1.4 million.
Franchisees, who operate all but 50 of the chain’s nearly 1,000 domestic locations, closed 40 locations in 2025.
The Roark Capital-owned CKE, which also owns the struggling Hardee’s chain, has had four different CEOs since 2017.
California, meanwhile, began requiring fast-food chain restaurants to pay $20 an hour starting in 2024, a dramatic increase in the state’s minimum wage and one targeted at a specific group of restaurants. The result led to a substantial increase in labor cost at one time.
A study earlier this year out of the University of California-Santa Cruz found that this led to higher prices, reductions in working hours and elimination of overtime. And the study found that the wage also put upward pressure on wages at independent restaurants and thinned their profit margins.
Yet several other franchisees and restaurant brands with locations outside of California have filed for bankruptcy in recent months as weak customer traffic hurts sales and exposes companies’ instability.
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