If you’re in fast food, quick service, or an adjacent industry and have locations in California, you’ve heard chatter around AB 257.
In short, AB 257 is a new California law that establishes a 10-person council to establish standards for the fast food industry. Standards include—but aren’t limited to—setting the sector’s minimum wage at up to $22 an hour.
Although the bill was passed by the California legislature in August and officially signed into law by Gov. Gavin Newsom in September, opponents immediately set forth a referendum to put the law in front of voters.
Continue reading to discover what AB 257 is and how it could impact your food service business.
What is AB 257?
Assembly bill 257, also known as the Fast Food Accountability and Standards Recovery Act, also known as the FAST Recovery Act, establishes a fast food council within the Department of Industrial Relations.
The law says the appointed council is tasked with the power to set minimum standards within the fast food industry, including wages, hours, training, and working conditions. They also must do a full review of “the adequacy of the minimum fast food restaurant health, safety, and employment standards” every three years. The council will also be granted powers to work with other government agencies to enforce the established standards.
The law defines who falls under the “fast food” category as restaurants that ask you to pay before you eat, serve ready-to-eat food with little to no table service, and have 100 or more chain locations across the country. The language gets more specific (you can read the full bill here), but you get the general idea.
Who’s on the AB 257 council?
The council will be made up of the following representatives, appointed by the Governor, the Speaker of the Assembly, and the Senate Rules Committee:
- 1 Department of Industrial Relations representative
- 2 fast food restaurant franchisor representatives, i.e., owners
- 2 fast food restaurant franchisee representatives
- 2 fast food restaurant employee representatives
- 2 fast food restaurant employee advocate representatives, for example, unions
- 1 representative from the Governor’s Office of Business and Economic Development
It’s also important to note that the committee requires six votes to pass sector-wide changes. That means restaurant owners can easily be outvoted.
Important things to note about AB 257
Since there’s so much talk about what may or may not happen with the new law, here are some important elements you should know.
● The law establishes that the council can set a minimum wage of up to $22 per hour in 2023.
● After 2023, the council can continue to increase the minimum wage by whichever is less of the following two standards:
○ The average rate of change year over year of the US Consumer Price index.
● The council has the ability to set new health and safety standards above and beyond those already in place.
● Paid time off benefits (not including mandatory rest periods) are not part of the council’s purview.
● Counties or cities larger than 200,000 people can establish their own local fast food council and enact further standards and regulations.
● The standards set by the council may be enforced by either citation or civil litigation.
● These standards also cannot be waived with a collective bargaining agreement.
How will AB 257 impact fast food chains?
Anything we write here is purely speculation at this point. If the referendum fails and the council is formed, we don’t how quickly or drastically they’ll make changes. However, there are a few potentially big implications for fast food chains.
Labor costs could increase.
The biggest immediate concern with the bill is the potential for a huge minimum wage increase. Currently, the minimum wage in California is $15 per hour, with another 50-cent increase coming in January 2023. While the council doesn’t have to increase the minimum wage at all, it has the potential to raise it by $6.50 an hour to $22.00 per hour.
Not only is that a 47% increase, that means paying another $13,520 a year per full-time employee making minimum wage.
And this is already at a time with rising labor costs. California minimum wage has already increased from $14 to $15 an hour this year for businesses with 26 or more employees. While the job market is slowing down, the average cost of labor increased nationally by 5.7% in the second quarter of 2022, according to the U.S. Bureau of Labor and Statistics. Labor costs are already weighing down businesses, and the council has the potential to add to the pile.
Fast food prices will go up.
Beyond labor costs, food prices will likely increase as a result of enforced higher wages. Food prices are already increasing due to inflationary costs, supply chain issues, and holdover complications from COVID-19.
How much will prices increase? Expert economists have looked at this issue and come up with several different answers. According to the Los Angeles Times, Michael Reich, a labor economist at UC Berkeley, projects a price increase of about 2.3%.
Yet another economist Chris Thornberg of the UC Riverside School of Business’ Center for Economic Forecasting and Development projects raising the fast food minimum wage to $22 would lead to a 20% increase in restaurant food prices.
New equipment might be on the horizon.
We should also note that wages aren’t the only thing the council could be looking at. Part of their state-mandated task is to look at workplace safety, which could lead to new equipment requirements.
While employee and customer safety are of the utmost importance, new equipment requirements will put pressure on an already stressed supply chain. This may not be an immediate concern, but it’s something to keep in mind should the council meet and start implementing standards.
Why is AB 257 so significant?
Beyond the impact on the fast food industry (which has the potential to be HUGE), this law creates a first-of-its-kind council to govern an entire sector/industry in the state of California.
It’s experimental in the United States—no one knows how the council will work with equal representation on all sides. Typically, negotiations happen between employees and employers, but with unions on the decline and complex franchisor/franchisee agreements, proponents of the law view this as an opportunity to give employees more bargaining power and a literal seat at the table.
However, this changes negotiations from being a private person-to-business or union-to-business matter to an industry-wide public forum. Also known as sectoral bargaining, it has the potential to limit flexibility and competition. Plus, targeting the fast food industry feels just as punitive as it is exploratory.
The implications of this law are far-reaching, and this model could easily be exported to states throughout the country. In fact, New York and Illinois are already exploring similar ideas.
Why AB 257 may not stick around for long
As of late October, the law is currently in effect. That means, pending 10,000 signatures from fast food workers, the state legislature and governor’s office could be gathering candidates and assembling the council.
However, immediately after Gov. Newsom signed the bill into law, opponents filed a referendum to put the matter before voters. If the referendum passes, the law will be put on hold until it can reach California voters. This could be as late as November 2024.
In order for the referendum to pass, the law’s opponents need to gather 623,000 voter signatures by December 4. Learn more about AB 257 and the impact it will have on the fast food industry at the California Restaurant Association’s website.