For years, California has led the way in the fast food industry, with several famous brands having their origins there, including Jack-in-the-Box, Taco Bell, Del Taco, and Fat Burger. Despite this, in recent years the California legislature and the governor have supported legislation that would recast franchisors as employers and create a joint employment relationship between the franchisor and the franchisee.
However, two weeks ago an agreement reached between big labor unions and fast food companies has been documented in a term sheet dated Sept. 11, 2023, would scrap new statutory joint employer standards. Here's a rundown of what this means for franchising and business generally if the agreement becomes final:
- Repeal of the FAST Act. AB 257, known as the FAST Act – which would make fast food restaurant franchisors liable to the same extent that they may be enforced against the fast food restaurant franchisor's franchisee would be repealed. The FAST Act would impose civil liability on a fast food restaurant franchisor for its franchisee's potential violations of various laws, including laws that specifically require an "employer" to do or refrain from certain activities, such as the California Labor Code, the Business and Professions Code, and the Fair Employment and Housing Act.
- Joint employer provisions deleted in AB 1228. Under this agreement, statutory joint employer liability between franchisor and franchisee will be removed from AB 1228. Under AB 1228, an employee, or former employee of a franchisee, would be able to bring an administrative charge or lawsuit against not only the franchisee employer, but also the franchisor for violation of the employment laws mentioned directly above.
- Raise in minimum wage for large fast food franchisors. Starting April 1, 2024, all fast food restaurants that are a part of a chain with more than 60 units, must pay a minimum wage of $20 per hour. Sixty units applies nationwide.
- No more referendum on AB 257. Under the agreement, businesses pushing for the referendum on the FAST Act would withdraw this challenge to the law no later than Jan. 1, 2024.
- The Industrial Welfare Commission to remain unfunded. The budget appropriation and control language for the Industrial Welfare Commission has been removed from the bill. For context, by funding the commission, labor had a backup plan to continue to regulate the fast food industry as a hedge against the FAST Act being repealed by voters next year. Gov. Gavin Newsom signed AB 102 into law in July 2023, and a part of that bill funded the commission to continue to issue wage orders regulating the wages, hours and working conditions for various industries by October of 2024.
- Establishment of the Fast Food Council:
- This council, set up within the Department of Industrial Relations, will have representation for employers, employees and their advocates.
- The council would be made of 9 voting members, including representatives from fast food restaurant franchisees or restaurant owners, restaurant employees and their advocates, and a neutral chairperson. The governor still maintains the power to appoint all but 2 of the 9 seats on the council.
- The council's responsibilities are significant. They can revise the hourly minimum wage each year from 2025 to 2029, but they're capped at an increase of the lesser between 3.5% or the annual change in consumer price index (CPI). They also will have the power to reduce future wage increases by region with specific limitations.
- The council can also propose standards to state agencies. These proposals will undergo review under the California Administrative Procedure Act.
- Local governments are restricted on setting minimum wages: Local governments can't raise minimum wage for fast food employees above what is mandated by the council.
Nothing above is final. These provisions will take effect only if the revised version of AB 1288 is passed by the state legislature and signed into law by the governor. Even if the revised version of AB 1228 becomes law, it does not purport to alter California common law for joint employer liability in misclassification cases where the evidence shows that a franchisor has exerted too much control over its franchisees. Making a mistake can be costly.
Brown Rudnick lawyers have experience resolving joint employer claims both before and after a lawsuit is filed and routinely advise new and seasoned franchisors on how to minimize the risk of exposure to these claims, and if a claim is brought, to reduce the amounts for which joint employer lawsuits are oftentimes settled.
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