By Pooja Patel and Anthony Zaller

A new proposed law, AB 1228, called the Fast Food Franchisor Responsibility Act, that targets the franchise business model is making its way through California’s legislature.  At first glance, the Fast Food Franchisor Responsibility Act seems to benefit franchisees – it requires franchisors to take responsibility for complying with employment laws and share the liability of violations with franchisees. However, a deeper review reveals that this Act is not that straightforward.   

1. How did the Fast Food Franchisor Responsibility Act come about?

    After multiple amendments, Governor Newson signed the Fast Food Accountability and Standards Recovery Act (“FAST Recovery Act”) (AB 257) into law in September 2022. The FAST Recovery Act was supposed to go into effect on January 1, 2023, and create a 10-member Council whose purpose is to establish minimum standards on wages, working hours, and other working conditions. Notably, the Council would have the power to raise the minimum wage of fast food employees up to $22 per hour in 2023 and by up to 3.5 percent annually after that. However, a Sacramento Superior Court Judge granted a preliminary injunction preventing the FAST Recovery Act from going into effect. As a result, the FAST Recovery Act will now be on the 2024 ballot for voters to approve or deny.  

    One of the key amendments to the FAST Recovery Act, was the removal of the provision which imposed joint employer liability on a fast food franchisor for the employment violations of the fast food franchisee. This previously withdrawn provision is precisely what is proposed by the Fast Food Franchisor Responsibility Act.  

    2. What does this have to do with the Fast Food Franchisor Responsibility Act?

    The main component of the Fast Food Franchisor Responsibility Act would require fast food franchisors to share in civil legal responsibility and liability for the franchisee’s violations. An employee, or former employee, would be able to bring an administrative charge or civil lawsuit against not only the franchisee, but also the franchisor for violation of various employment laws, including:  

    • Unfair Competition Law; 
    • The Fair Housing and Employment Act; 
    • California Labor Code provisions regarding working conditions, hours worked, payment of wages, immigration status;  
    • CalOSHA rules; 
    • Private Attorneys General Act (PAGA);
    • Emergency and executive orders issued by the Government regarding employment standards, worker health and safety, or public health and safety; and  
    • Orders issued by a county or municipality regarding employment standards, worker health and safety, or public health and safety. 

    3. Contracts by franchisor and franchisee to indemnify each other are void under the bill.

    A franchisor and franchisee cannot contract around this provision: an agreement by the franchisee to indemnify the franchisor for liability under this section would be against public policy and be considered void and unenforceable.  

    4. The bill provides limited rights to franchisors and franchisees.

    Prior to filing any civil action, the employee must give notice to the franchisor of the alleged violation(s). If after 30 days, the violation(s) are not corrected, the employee may continue with their civil lawsuit. However, the franchisor can make a written request for additional time, for up to 60 days, to complete their investigation. If the franchisor corrects the violation within the time period, then the franchisor will not be liable under a civil action.  

    Additionally, the Fast Food Franchisor Responsibility Act creates a right of action against the franchisor by the franchisee: if the franchisor prevents or creates a substantial barrier in the franchisee’s compliance of these regulations, then the franchisee may file an action against the franchisor for monetary or injunctive relief.  

    5. AB 1288’s future and potential impact on California fast food businesses.

    AB 1288 was approved by the California Assembly on May 31, 2023, and is now being reviewed by the state Senate.  Although the Fast Food Franchisor Responsibility Act still needs to be approved by the Senate, its ramifications are significant and California employers need to understand the implications of the law if passed. Fast Food Franchisor Responsibility Act places the franchisor in a de facto employer relationship with the franchisee by imposing liability for the actions of the franchisee on the franchisor. If passed, the Fast Food Franchisor Responsibility Act would likely force franchisors to play a larger role in the day to day management of fast food restaurants, and take decision-making authority away from franchises. This could significantly impact franchisees autonomy and ability to conduct business independently. Finally, the bill would likely drive the fast food franchise model out of California due to the increased liability for franchisors.