On September 28, 2023, Governor Newsom signed AB 1228 into law, which repealed the FAST Act and implemented new regulations of the fast food industry in California.  AB 1228 was amended to reflect the terms of an agreement reached between labor representatives and fast-food companies that was announced on September 10, 2023.  We have reported on the terms of the agreement before here, but given the importance of the new law, this Friday’s Five delves into the details of AB 1228 and highlights five key issues of the new law signed by Governor Newsom:

1. Covered employers:  AB 1228 applies to national fast food chains, which are defined as “limited-service restaurants consisting of more than 60 establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services, and which are primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service. For purposes of the definitions in this part, “limited-service restaurant” includes, but is not limited to, an establishment with the North American Industry Classification System Code 722513. Bakeries and grocery stores are exempt from this definition and are not included as fast food restaurants. 

2. Minimum wage for fast food restaurant employees: $20 per hour on April 1, 2024.  Each year thereafter on January 1, the fast food council may increase the minimum wage by the lesser or 3.5% or the average change in the U.S. Consumer Price Index.  The council has the ability to set a different minimum wage based on the region of the state or to set a statewide minimum wage increase.  The fast food council’s minimum wage preempts any other local city or county minimum wage requirements. 

3. Establishment of the Fast Food Council: This council, set up within the Department of Industrial Relations, will have representatives 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 franchisees 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 (subject to the caps discussed above). The council can also recommend other workplace standards to state agencies. But, these recommendations will undergo rigorous review under the California Administrative Procedure Act and the council does not have authority to implement any other workplace standards by itself. 

4. The FAST Act (AB 257) will be repealed and the referendum that was set to go to California votes in November of 2024 will be withdrawn

5. Key issues eliminated from the law:

  • The Industrial Welfare Commission will not be revived.   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 2023. By funding the IWC, labor representatives 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.  The agreement reached now eliminates the funding for the IWC and it will not reconvene. 

The implications of AB 1228 are significant for the fast food industry in 2024. It is imperative for employers to be prepared. As the Governor’s deadline for signing other bills looms in mid-October, our firm remains diligent in reviewing any key legislative updates. We invite business owners, human resource professionals, and in-house counsel to join our webinar on October 26, 2023, where we will review the newly enacted employment laws for California. Registration for this informative session can be accessed here.