Workforce

Calif. Gov. Newsom signs landmark fast-food wage bill into law

The law, a compromise between restaurant and labor groups, will pave the way for a $20 minimum wage for 557,000 fast-food workers in the state on April 1, followed by annual wage hikes.
California fast food wage law
California Gov. Gavin Newsom | Photo: Shutterstock

It’s official: The minimum wage for 557,000 fast-food workers in California will rise on April 1 to $20 an hour, a 29% increase from the current pay floor of $15.50.

California Gov. Gavin Newsom signed a bill into law Thursday that sets that rate as the starting point for a new way of establishing quick-service wages within the state. The legislation creates a panel, the Fast Food Council, that is empowered to increase the minimum wage annually by 3.5% or the amount of change in the Consumer Price Index, whichever is lower.

Four of the nine seats on the Council will be held by fast-food workers and officials of unions that would like to represent them, essentially providing employees with a loud say on their wages.

Four other seats will be reserved for restaurant owners, franchisees or franchisor representatives, giving employers a counterbalancing voice. The ninth and final chair will be given to what proponents of the measure say will be an impartial person from outside of the business.

The bill signed by Newsom is the first of its kind in the United States, but similar legislation has been introduced in at least two other jurisdictions, the state of Delaware and Montgomery County, Md.

In celebrating Newsom’s signing of the California bill, AB 1228, union leaders indicated that they will seek to duplicate the Fast Food Council elsewhere. “This isn’t the end, this is the beginning,” said Mary Kay Henry, international president of the Service Employees International Union, or SEIU.

AB 1228 was rewritten to create the Council under a complex compromise deal between the SEIU, the National Restaurant Association, the International Franchise Association and allied groups. In exchange for accepting the creation of the Council, labor advocates agreed to back off a measure that would have held fast-food franchisors responsible for the employment actions of their franchisees, a legal concept known as the joint-employer standard. Restaurant representatives also narrowed the focus of the panel to setting wages once a year, with the 3.5% cap in place. The Council can recommend other changes, but those advisories are non-binding, according to the industry reps.

The Newsom administration, which brokered the deal, agreed to halt its resurrection of a defunct Great Depression-era regulatory panel that could have wielded more sweeping authority over the fast-food business than the Council was ultimately granted. The Industrial Welfare Council, or IWC, could have set any wage or working conditions it wanted for specific industries.

Newsom quietly revived the IWC in the budget he approved this summer. At the time, the restaurant industry was expecting to mount a massive public relations campaign to convince Californians they should vote in the 2024 general election against forming the Fast Food Council. The effort was expected to cost the local fast-food community from $120 million to $150 million for lobbying.

With Newsom’s revival of the IWC, a victory in the restaurant industry’s referendum drive would have been empty. The Fast Food Council would have been defunct, but the IWC could have assumed its functions.

Newsom succeeded in bringing together the would-be referendum adversaries to work out a compromise both sides could accept. Those negotiations began in June and continued right up until a deal was announced on Sept. 11.

“There were a few hundred hours spent to negotiate this referendum,” Newsom said before he signed AB 1228.

He revealed during the media event that the SEIU had first come to him in 2019 with the idea of changing the way fast-food wages are set. Until now, a statewide minimum wage for all hourly workers had been established by the state legislature. The lawmakers will continue to set the pay scale for workers outside of fast food, as well as for the employees of quick-service brands with fewer than 60 units nationwide.

The industry has shown a mixed response to the compromise deal. Franchisees of several major fast-food chains, including McDonald’s, have groused that the agreement was struck without their input and much to their surprise.

They characterize the outcome as a sell-out. Franchisors succeeded in getting the joint-employer standard killed, but franchisees got a 29% wage hike.

Those involved in the negotiations maintain that the deal is not ideal, but the looming alternatives were much worse. They note that the IWC could have set wages way above $20 an hour.

In addition, they say, the joint-employer standard could have prompted chains to stop expanding within California, denying franchisees new expansion opportunities.

“Signature of AB 1228 preserves the franchise business model in the state and solidifies the best possible outcome for workers, local restaurant owners, and brands,” IFA CEO Matt Haller said in a statement. “Commonsense has prevailed.”

Organized labor trumpeted AB 1228 as a milestone in their movement, and the effort to organize restaurant workers in particular. David Huerta, president of SEIU’s California chapter, called it “the most significant breakthrough the worker movement has seen in more than a century.”

The next step in putting the law into effect will be the appointment of the Fast Food Council’s members. A timeline for that task has not been revealed.

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