Calif. Assembly OKs bill making fast-food franchisors liable for franchisees' labor practices

The landmark legislation codifies a re-definition of franchisors and franchisees as "joint employers." It now heads to the Senate.
California's Congressional building. / Photo: Shutterstock

Fast-food franchisors would be accountable for the employment policies and practices of their franchisees in California under a bill passed yesterday by the state’s Assembly.

The measure essentially codifies that large chains like McDonald’s or Chipotle are by definition the joint employers of franchisees’ workers, a designation franchisors have been vigorously fighting in California, the nation’s largest fast-food market, and elsewhere.

The bill—the Fast-Food Franchisor Responsibility Act, or AB 1228—would make franchisors of brands with at least 100 units nationwide the first party to address allegations that a franchised store in California had violated a state employment rule. A copy of any complaint alleging a violation would be submitted to the franchisor of the accused store. The franchisor would then have 30 days to resolve the problem, or 60 days if an extension is requested.

If the situation is not rectified, both the franchisor and franchisee employing the complainant would be subject to sanctions and court actions.

The measure also states that franchisors can be sued by franchisees in California if the chain’s franchise agreement impedes the licensee’s compliance with state labor laws. The bill specifies that the roadblocks could include contract provisions that push the franchisee’s cost of compliance beyond reach. The implications are murky, but presumably could apply to matters such as to what personnel are entitled to overtime.

A survey of restaurant franchisees in the state found that 98% of the operators believe the Act would cut into their ability to run their stores as they, rather than their franchisors, see as appropriate for local market conditions.

“AB 1228 has the potential to destroy tens of thousands of local franchised restaurants by taking away their independence in favor of corporate control and more government intervention,” Jeff Hanscomb, VP of state and local government relations for the International Franchise Association, said in a statement. “This will eliminate the equity local restaurant owners have built over decades and take away any future opportunities for franchise business ownership.”

The IFA has been leading the fight to thwart a redefinition of franchisors as joint employers in California and elsewhere. It succeeded in having that designation omitted from last year’s Fast Act, or AB 257, a landmark California law that gives fast-food workers a loud say in setting their own wages.

The Fast Act was viewed as a major victory for the Service Employees International Union, the nation’s second-largest union and the biggest by far within the hospitality industry.

The bill has been put on hold until it can be subjected to a referendum by California voters in November 2024, the result of an intense petition campaign by the IFA, the National Restaurant Association and the U.S. Chamber of Commerce.

“When fast-food workers won a historic voice on the job through AB 257,” McDonald’s employee Serigio Valderrama said in a statement issued by the SEIU, the industry responded by spending tens of millions of dollars on a referendum to silence us. Instead of investing in local franchisees and communities to address rampant health and safety violations, the industry has insisted they have no responsibility for many of the half-million fast-food workers who wear their uniforms.

AB 1228 now moves to California’s Senate, where Democrats hold a majority of the 40 seats. If passed there, the legislation would move to the desk of Gov. Gavin Newsom, a Democrat who signed the Fast Act into law on Labor Day.

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