California’s New Fast-Food Bill Sparks Concerns Among Franchisees in the State

Franchisees in California are on edge about the future of their businesses after Governor Gavin Newsom recently signed into law a new bill that will increase wages for fast-food workers across the state.

Assembly Bill 1228, also known as the Fast Food Franchisor Responsibility Act, is set to take effect on April 1, 2024. The legislation, which applies to fast-food franchises with a minimum of 60 locations nationwide, ushers in a minimum wage hike of $20 per hour and establishes the highest guaranteed base pay in the industry across the country. The wage increase would also surpass California’s current minimum wage of $15.50.

Additionally, the bill calls to establish a council that has the power to increase the new minimum wage for employees annually until 2029, potentially raising it by 3.5% each year.

Newsom hailed the bill as a major milestone but controversy has since surrounded its implementation. A key point of contention is the lack of genuine representation for franchisees during the bill’s formulation. Keith Miller, who serves as the public policy director for the American Association of Franchisees & Dealers, voiced his concerns in an interview with Franchise Times.

“The groups I work with are most upset over the fact there wasn’t true franchisee representation in the room, yet they will bear the cost of it,” Miller told the outlet. “I understand there were a couple franchisees in the room, but they were handpicked by a franchisor.”

The International Franchise Association (IFA) has also strongly opposed the legislation, arguing that it could spell disaster for local franchised restaurants. The IFA claims that 92% of franchised restaurant owners disapprove of the bill, fearing it could strip away their independence, paving the way for corporate control and increased government intervention.

“This bill will destroy tens of thousands of local restaurants by eliminating the equity they have built over decades of franchise small business ownership,” said Matthew Haller, IFA president and CEO. “The franchise business model has afforded millions of people the opportunity to pursue the American dream, especially people of color, women, immigrants and other underrepresented communities. This bill will take away their independence and the livelihood they have dedicated to their business, their employees, and the people they serve — making them simply employees of their brand. Franchising is one of the greatest avenues for upward mobility, generational wealth creation and first-time business ownership, which stands to all be taken away so organized labor can grow their ranks.”

The National Owners Association (NOA), representing over 1,000 McDonald’s franchise owners, also condemned the bill for having “draconian” rules. According to the NOA, 95% of the 1,300 McDonald’s restaurants are locally owned and operated by small business owners who would find it impossible to absorb the new costs. They estimate that the bill could result in an annual financial blow of $250K per McDonald’s restaurant.

Adding to the concerns, the NOA suggested that the legislation could set a precedent for other states, which in turn, could potentially further squeeze franchisees’ profit margins and make it even more difficult for them to sustain their businesses.

As franchisees prepare themselves and their businesses for the impending changes, the fast-food industry in California is entering uncharted territory. With tensions and uncertainty running high, the true impact of AB 1228 on the Golden State’s franchise landscape remains to be seen.