Unsure how California's new fast-food wage-setting process will work? Here's a guide

With the changeover just days away, state officials have fleshed out what employers and their staffs should expect.
As of April 1, that $18 will have to rise to at least $20. | Photo: Shutterstock

With a historic change just days away for most California fast-food restaurants, the state has fleshed out how wages will be set in the new era, where employee representatives will have significant influence on what the sector’s workers must be paid. Here’s a fuller picture of how the process will work.

At the heart of the new process is the Fast Food Council, a panel that has assumed the authority previously wielded by the state legislature in setting a minimum wage. The Assembly and Senate will continue to set the pay floor for workers in other fields, but the Council now has sole responsibility for determining what a fast-food restaurant in the state must pay employees if the establishment has at least 59 sister units.

What concepts are covered?

The Council can only set the minimum wage for qualifying limited-service restaurants. However, there is widespread expectation that competition for workers will force full-service restaurants to match the wage limited-service places are mandated to offer. That threshold jumps to $20 on April 1, as required by the law establishing the Council.

What about fast-casual places?

State regulators are using an expansive definition of “limited service.”  They’ve specified that the term applies to traditional quick-service places, fast-casual restaurants, beverage specialists like coffee and boba shops, ice cream parlors, doughnut shops, pretzel stands and bakeries that don’t mix and bake bread dough on-premise.

The determinants are the level of preparation and where the products sold are likely to be consumed. If more than half of an establishment’s revenues come from the sale of food items the customer has to bake, cook or reheat prior to eating, that place is exempt. A take-and-bake pizza shop is cited as an example of a grab-and-go place that would not be covered, provided that less than half its sales come from fully finished products.

The other criterion is where a place’s ready-to-eat foods are likely to be consumed. To be covered, an establishment must get at least 51% of its revenues from the sale of products that are produced “for immediate consumption,” according to state guidelines.

But “immediate consumption” is broadly defined. Specifically, state guidelines say the term applies to a customer eating “at a table inside or outside the restaurant, in their car, or as soon as they get back home or to work with their order.” Delivered and takeout fare is expressly covered under the “immediate consumption” standard.

How about ghost kitchens and virtual brands?

At Restaurant Business’ request, the body that oversees the Council, the California Department of Industrial Relations, is determining whether the Council’s wage edicts apply to ghost kitchens and virtual concepts. Under a strict interpretation of the law that created the Council, AB 1228, they may, provided the products they market are also offered by 59 other places nationwide.

How the process works

The Council consists of nine voting members, four of whom were selected as proxies for fast-food workers in the state and four that were chosen to represent employers. The ninth member was chosen from outside of the business, a setup intended in part to break any deadlock between labor and management.

Who’s setting the wage?

The current Council is composed of…

  • Two current employees of fast-food restaurants;
  • Two labor union officials;
  • Two franchisees, whose collective holdings include units of El Pollo Loco, Taco Bell and Arby’s;
  • A corporate lawyer who previously worked for Krispy Kreme;
  • The head of Wendy’s company operations in California;
  • As the neutral chairman, the chief of staff for a state senator.

The law requires the Council to meet at least every six months to consider whether an increase in the sector’s minimum wage is warranted. However, the pay floor can only be raised once a year, on Jan. 1.  And it can only be raised; even if the economy should deteriorate, the mandated wage can’t go down, according to state officials.

How big of a wage increase should employers expect?

The increase cannot exceed 3.5%. If the cost of living has increased from the prior year by less than 3.5%, the Council is obligated to use that lower figure.

In a departure from what officials had said earlier about the process, county and municipal jurisdictions cannot set their own minimum wage for fast-food workers. The pay floor specifically for that sector can only be set and adjusted by the Council, according to Miles Locker, legal counsel for the office of California’s Labor Commissioner.

Workplace standards

The Council also has the authority to recommend changes in state workplace and safety regulations that apply to fast-food workers.  But those requests are technically only suggestions. Agencies empowered to enforce the standards can accept or reject them as they see fit.

If the agencies decide to pursue a recommended regulatory change, they have to follow the usual practice of making a formal proposal, airing it to the public, collecting all feedback, and then adjusting the rules accordingly.

One of the underlying law’s peculiarities is the express designation that predictive scheduling requirements—mandates that employers set a worker’s schedule a certain number of days, weeks or months in advance—are beyond the Council’s purview. According to Locker, the group cannot even recommend a relevant rule or requirement.

But, he told Council members during their initial meeting, they can make suggestions in regard to what he termed “reporting time pay.” He explained that recommendations could be aired on levying a penalty on employers if they call a staff member into work and then cut their shift short.

Shaping the Council’s wage decisions

No mechanism is in place to push back on the Council’s wage decisions. What the panel decides has the force of law, according to Locker.

The only option available to fast-food employers or general members of the public is sounding off during the Council’s twice-a-year hearings on a possible wage change. AB 1228 requires that the meetings be open to the public, with an opportunity provided for input from attendees.

In addition, the law requires that the meetings move from one major population to another within the state.

What may be next

Locker also noted in speaking during the initial meeting of the Council that certain loose ends remain. For instance, there is no stipulation in AB 1228 about how far in advance employers must be notified of how much the minimum fast-food wage will rise on the next Jan. 1.

The statute does specify that the Council’s wage-setting authority expires on Jan. 1, 2029.

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