The High Price of a Seat at the Fast-Food Council Table: AB 257 Brings Rising Labor Costs to the Fast-Food Industry | Epstein Becker & Green

On September 5, 2022, California Governor Gavin Newsom signed into law AB 257, also known as the Fast Food Accountability and Standards Recovery Act. Signed on Labor Day, AB 257 was sponsored and supported by labor unions.

The bill creates a revolutionary “Fast Food Council,” similar to European labor organization work councils, that will impose minimum standards on businesses in the fast-food industry for wages, hours, training, and working conditions in California. AB 257 covers fast-food establishments consisting of 100 or more locations nationally that (1) share a common brand or that are featured by standardized options for decor, marketing, packaging, products, and services, and (2) provide food or beverage for immediate consumption on or off premises to customers who order and pay for food before eating, with items prepared in advance or with items prepared or heated quickly, and with limited or no table service.

Under the guise of protecting fast-food workers, customers, and the public, AB 257 provides labor unions—despite not being elected as the representative of employees under the National Labor Relations Act (NLRA)—significant influence in setting these minimum standards while simultaneously taking the entrepreneurial control and autonomy away from the owners and operators of these fast-food businesses. Called “groundbreaking” by labor advocates, AB 257 likely will inspire similar labor movements in other industries in California as well as in states and cities across the United States, despite strong opposition and warnings from business owners of increased costs resulting from the bill.

In a dramatic, first-in-the-nation move, AB 257 establishes, until January 1, 2029, the Fast Food Council within the Department of Industrial Relations. This 10-person Fast Food Council will be ostensibly comprised of business, labor, and government appointed by the governor. Of the 10 members, four will be from the ranks of workers and four from business, and any decision will require at least six votes. However, under the law, the governor appoints these “representatives” and likely only after consultation with his large labor organization supports, who are likely to be in alignment with Governor Newsom’s pro-labor agenda. The unelected Fast Food Council will establish pay and working conditions in the fast-food industry, thereby establishing an industry-wide minimum wage, as well as working conditions and health and safety standards.

The bill also permits cities or counties with populations greater than 200,000 to establish local councils to provide recommendations to the state council. These local councils must be composed of at least one representative who is a fast-food employee, one representative who is a fast-food franchisor or franchisee, and a majority of representatives from local employment, health, and safety agencies.

Given that one of the Fast Food Council’s primary objectives is to designate an industry-wide minimum wage, AB 257 authorizes an increase in wages for fast-food workers up to $22.00 per hour in 2023, which is nearly more than $7.00 than the state minimum wage The bill also establishes that, beginning in January 2024, wages can increase annually by the same rate as the Consumer Price Index, up to a maximum of 3.5 percent. Currently, California fast-food workers are already among the highest-paid workers in the country, with an average hourly rate of $15.61 per hour, and the bill will likely cover as many as 550,000 fast-food workers in the state.

Keeping in line with its purpose to expand protections for fast-food workers, AB 257 also authorizes fast-food restaurant workers to bring causes of action for discharge, discrimination, or retaliation for exercising rights established by the bill. It is important to note that AB 257 creates a rebuttable presumption of unlawful discrimination or retaliation for any adverse action taken against the worker within 90 days of a restaurant operator acquiring knowledge of the employee exercising their rights.

AB 257 also allows for standards issued by the Fast Food Council to override those of other state agencies in certain circumstances. The bill specifies that for fast food workers, the Fast Food Council’s standards will apply, rather than those of any other state agency, except those of the California Division of Occupational Health and Safety (Cal-OSHA). The Labor Commissioner and the Division of Labor Standards Enforcement will enforce the Fast Food Council’s standards, while safety and health violations will be enforced by Cal-OSHA. The Civil Rights Department will continue to be charged with enforcing discrimination, harassment, and retaliation laws. The Fast Food Council will conduct a full review of the adequacy of the minimum fast food restaurant health, safety, and employment standards at least once every three years and must also hold meetings not less than every six months.

There are a few limitations placed on the Fast Food Council. For instance, the council cannot create new paid time off benefits or predictable scheduling. Additionally, any new standards and recommendations proposed at Fast Food Council meetings require the affirmative vote of the (governor-appointed) Secretary of the Labor and Workforce Development Agency and must be sent to the labor committees of each house of the California Legislature. Proposed standards then become effective as new state regulations unless the Legislature intervenes and enacts legislation preventing them from taking effect. If the Legislature does nothing with respect to these recommendations and proposed standards, they go into effect no sooner than October 15 of the same year. The Fast Food Council is also required to petition Cal-OSHA for the adoption, amendment, or repeal of any occupational safety and health standards. Further, the Fast Food Council will have to provide any requested information to the Senate and Assembly Labor Committees to review their performance and standards. Lastly, local jurisdictions can exercise their police powers to establish more protective local standards than those promulgated by the Fast Food Council.

The Fast Food Accountability and Standards Recovery Act signals a revitalization of “sectoral bargaining,” a popular union strategy in which workers and labor representatives from different businesses in the same industry negotiate for share, among other things, together. However, as noted, it dramatically from other labor negotiations devises in the United States, as governed by the NLRA, because (1) there is no requirement or even ability for employees covered to elect or approve their alleged “representatives,” and ( 2) the employers governed by the Fast Food Council likewise have no autonomy or real seat at the table. AB 257 was fiercely backed by labor unions as part of an initiative to set a model for the fast-food industry in the wake of the pandemic, which union activists believe put a spotlight on issues impacting fast-food workers. Unions have struggled to organize fast-food workers for years. With this bill, labor unions seek to set a precedent of establishing similar fast-food councils in other states and cities. Additionally, labor organizations that have not succeeded in other industries are likely to push for similar councils in those industries in California and beyond.

Groups consisting of restaurant companies and operators, franchise owners, small businesses, and business leaders mobilized last week to persuade Governor Newsom to veto the bill, which they say is just another move that would increase costs and make it difficult for businesses to operate and succeed in a state already afflicted with historical inflation. The bill will undoubtedly have a negative impact on the restaurant industry and, ironically, fast-food workers. Franchisees will likely avoid opening franchises in California and begin to hire fewer California employees due to rising labor costs. Some employers in the industry will predictably begin to rely on technology to cut back on labor costs and employ automated kitchen devices, automated drive-through ordering, and self-checkouts that have become common at grocery stores. As a result, the Fast Food Accountability and Standards Recovery Act may result in significant job losses for a workforce that it is designed to protect. AB 257, along with the Fast Food Council it creates, appears to be a harbinger of how California wants to deal with industries in terms of industry minimum wages, among other issues. The bill is predicted to set similar standards nationwide, and labor unions already have their eye on doing so.

AB 257 is effective beginning January 1, 2023.

What California Employers Should Do Now

In light of the changes that the Fast Food Accountability and Standards Recovery Act will bring to the fast food industry, employers should:

  • carefully audit their payroll practices, and
  • review and revise, as necessary, employee handbooks and other employment forms, scheduling policies, and timekeeping practices.

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