California's new fast-food wage law will also expand overtime eligibility

Salaried quick-service managers will be entitled to overtime if they make less than about $84,000 a year. And that's just one of the other surprises the bill is packing.
Under the new wage law, Papa Murphy's would not qualify as a fast-food restaurant. | Photo: Shutterstock

As an unforeseen effect of California’s unique new system for setting fast-food wages, quick-service restaurants there may find themselves paying appreciably more in overtime.

Under state law, salaried employees are not entitled to overtime compensation if they’re paid at least twice the minimum wage, or currently more than $5,546 and change per month, or roughly $66,553 annually. That threshold will remain in effect within other segments of the California economy, including the full-service restaurant sector.

But on April 1, the minimum wage for most fast-food workers in the state will jump to $20 an hour. That raises the exemption threshold for managers and other salaried employees of fast-food restaurants to $6,933 a month or about $83,200 annually, according to Miles Locker, an attorney for the office of the California Labor Commissioner.

Anyone earning less than those amounts would be entitled to overtime starting Jan. 1.

Locker noted the change while breaking down what California’s first-of-its-kind fast-food labor law, AB 1228, will specifically require of the wage-setting body it has created, the Fast Food Council. He spoke at the panel’s initial meeting, an hours-long business session held March 15.

The Council is empowered by AB 1228 to review the state’s minimum wage for fast-food workers every six months and raise it in accordance with the cost of living. The law caps that annual increase at 3.5%. Locker mentioned that the minimum cannot be lowered even if the cost of living should drop.

The mandated increase would apply to any employee of a fast-food restaurant within the state that had at least 60 sister units nationwide.

His analysis of the law brought to light a number of implications that had not been aired since AB 1228 was signed into law in late September. His comments also raised a number of questions about exemptions and applicability that have yet to be answered.

One key surprise was the exemption of take-and-bake pizza shops and other foodservice establishments that derive at least 51% of their revenues from the sale of products that customers are required to bake, cook or reheat at home to be edible.

With a short preamble that hinted at the controversy over what other fast-food places may be exempted, Locker addressed what had been called the Panera Exemption, but what he termed the Bread Exemption.

According to the law, restaurants that were producing and selling loaves of bread on Sept. 15 for off-premise consumption and continue to do so today are exempt. Locker said a detailed analysis by his office had determined that “producing” meant mixing the dough as well as baking it.

Without mentioning Panera by name, he specifically stated that places which receive dough made elsewhere for proofing on-site—the process used by Panera and a number of other bakery-cafe and sandwich concepts—would not qualify for the exemption.

In addition, Locker revealed that the Fast Food Council cannot press state officials to mandate predictive scheduling, or assigning workers a certain number of hours weeks or months in advance so they can plan accordingly. But, he continued, the Council can make recommendations about “reporting time pay.” As he explained, the Council can recommend that the state or individual jurisdictions require fast-food employers to compensate employees who are called into work and then sent home because business was lighter than expected.

Much of Locker’s report to the Council during its initial meeting was devoted to what the panel can or can’t do.

Its core function, he stressed, is to update the minimum wage for applicable fast-food workers at least once a year, after analyzing the adequateness of the level no less than every six months. A full review of the segment’s pay structure has to be completed at least every three years.

In addition to fulfilling those obligations, the Council can recommend changes in the standards a fast-food workplace has to meet. Those suggestions have to be submitted in writing to the relevant state agency. If it agrees with the proposal, that agency would then follow the usual protocol of airing the suggestion to the public, collecting any feedback and adjusting its regulations accordingly.

Yet to be answered, Locker said, was the question of when employers need to be alerted about a change in the fast-food minimum wage. The amount can be adjusted every Jan. 1 until 2029, but the law did not specify how long beforehand employers need to be informed. The lawyer noted that the public must be notified of a Jan. 1 increase in the basic minimum wage for California no later than the preceding Aug. 1.

Also left unaddressed is whether a ghost kitchen or a virtual concept housed within a full-service restaurant could be covered by AB 1228’s mandates. Locker noted that the law “applies but is not limited to” fast-food restaurants, which are defined as limited-service places whose primary business is selling food for immediate consumption.

“Every business that falls under that code is covered, but there are going to be more,” said Locker.

He did not specifically mention ghost kitchens, virtual concepts or any other type of restaurant operation. But the terms that determine applicability do apply to the former two businesses. A place qualifies for coverage if it offers limited service; sells ready-to-eat products for takeout or delivery as well as on-site consumption; and is part of a chain of at least 60 outlets, as defined by using the same menu, brand name and trade dress.

Restaurant Business has reached out to the Council for clarification on whether ghost kitchens and virtual concepts could be covered. The agency that oversees it, the California Department of Industrial Relations, said it would research whether those types of food outlets are covered and inform us. 

Update: California officials said they would investigate whether ghost kitchens and virtual concepts are covered in response to Restaurant Business' request.

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