Big changes are coming to the quick service industry in California.  An agreement reached between labor and fast-food companies has been documented in a Term Sheet dated 9/11/2023 proposes to drastically alter the FAST Act and the fast food industry in California.  The term sheet agreement, if it becomes final, introduces pivotal provisions impacting fast food workers, employers, and the entire sector at large.  Here’s a breakdown of what this means for the industry if the agreement between representatives and business becomes final:

  1. Repeal of the FAST Act: AB 257, known as the FAST Act, would be repealed.  The FAST Act was a paradigm shift on how regulations would be implemented for an industry, whereby the legislature shifted its power to regulate the fast food industry to a group of unelected members of an appointed council. 
  2. Raise in Minimum Wage For Limited-Service Restaurants: As part of the negotiations, it was agreed that starting April 1, 2024, all limited-service restaurants that are a part of a chain with over 60 locations nationwide, must pay a minimum wage of $20.00 per hour.
  3. No More Referendum on AB 257: Under the agreement, businesses supporting the referendum on AB 257 (the FAST Act) have agreed to withdraw this challenge to the law by January 1, 2024.  We previously wrote about the referendum challenging the FAST Act here.
  4. Joint Employer Provisions Eliminated in AB 1228: AB 1228’s joint employer provisions will be removed.  As a reminder AB 1228, deemed 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.  Under this agreement, joint employer liability between franchisor and franchisee would be deleted from the bill.  We previously wrote about what AB 1228’s impact would have been on the industry here. 
  5. The Industrial Welfare Commission Will Not Be Revived: The budget appropriation for the Industrial Welfare Commission (IWC), including its budget control language, has been scrapped under the deal.  By funding the IWC, labor had a backup plan to continue to regulate the quick-service industry (among other industries across California) in case the FAST Act was repealed by the voters in 2024.  Governor Newsom signed AB 102 on July 10, 2023 and a part of that bill funded the IWC to reconvene to issue wage orders regulating the “wages, hours, and working conditions” for various industries.  Employers could have expected regulations from the IWC covering nearly every industry in California (as the current wage orders cover most industries) by October of 2024. 
  6. Establishment of the Fast Food Council:
    • This council, set up within the Department of Industrial Relations, looks to have representation for all interests – employers, employees, and advocates alike.
    • The council would be made of 9 voting members, including representatives from various sectors of the fast food industry, fast food restaurant franchisee or restaurant owners, fast food restaurant employees, advocates for fast food restaurant employees, and a neutral chairperson.  However, the Governor still maintains the power to appoint all but 2 of the 9 positions on the council.
    • The council’s responsibilities are significant.  From 2025 to 2029, they can adjust the hourly minimum wage each year.  However, they’re capped at an increase of the lesser between 3.5% or the annual change in Consumer Price Index.  They also have the flexibility to reduce future wage increases by region with specific limitations.
    • The council can also recommend standards to state agencies. But, these recommendations will undergo rigorous review under the California Administrative Procedure Act.
  7. Local Municipalities Are Limited On Setting Minimum Wages: Local governments won’t be able to set a higher minimum wage for fast food employees than what is mandated by the council.

The term sheet published by the Save Local Restaurants is available here.  This agreement introduces major changes, and employers in the quick-service industry must closely watch the implementation of this agreement.  We will report on any other developments.