Restaurant Industry Insights

The FAST Recovery Act and Its Effects on the Restaurant Industry

On August 29, 2022, the California State Senate passed the Fast Food Accountability and Standards Recovery Act (AB 257). On September 5, California’s Governor Newsom signed it into law. The bill establishes a council within the Department of Industrial Relations that has the power to impose sector-wide minimum wages, working hours, and other conditions. It’s supported by the California Service Employees International Union and the Fight for $15 organization and was scheduled to take effect on January 1, 2023. 

The story isn’t over yet. 

The National Restaurant Association reported on December 5 that the Save Local Restaurants Coalition, the International Franchise Association, and the U.S. Chamber of Commerce had gathered enough signatures for a referendum. This means that once verified, the new law will be on hold until people vote on it on the November 2024 ballot.

Let’s explore who this law affects and why many in the restaurant industry have taken a stand against it. 

The FAST Recovery Act

The bill enables the creation of a 10-person council that sets standards for wages, working hours, and the working conditions for employees at quick-service chains with 100 or more locations. As soon as it was passed, the Protect Neighborhood Restaurants group filed a proposed referendum requiring that Californians be given the opportunity to vote on the legislation. 

The Issues at Hand

Critics of the bill suggest that much of the issues lie in the interpretive language. Currently, restaurants like McDonald’s and Chipotle fall under its jurisdiction, but the law is not entirely clear. 

An amendment to the Act permits the council to raise the minimum wage to $22 an hour for fast-food workers in 2023. In California, the minimum wage for 2023 is set at $15.50, which means the possible wage hike is 40% greater than the established minimum wage. Nation’s Restaurant News spoke with Riley Lagesen, attorney at Greenberg Traurig, who believes this standard would ensure an adjustment of statewide wages due to the competitive market. As is evident, many smaller businesses and independent restaurants would be unable to sustain this wage increase.

According to Lagesen, the basis of this law is to transform the labor landscape on a national level and, ultimately, unionize the entire restaurant industry. Greenberg Traurig reported that union activity has increased significantly since the pandemic. In the first three fiscal quarters of 2022, union elections filed with the National Labor Relations Board increased by 58% compared to 2021. 

About 225 Starbucks locations have unionized since the first unit voted to unionize in Buffalo in December 2021. He believes once a law like this passes in one state, it could quickly spread to other states, such as Illinois, New York, and Washington. As with the Fight for $15 movement, copycat legislation is expected to follow. California is currently the most expensive state to operate a restaurant in, and the Act is expected to further limit operators entering the state.

According to opponents, it may result in a 20% increase in menu prices. And, though targeted at the large national, franchised restaurant chains, it will likely directly or indirectly impact all restaurants in the state and beyond.

The National Restaurant Association’s Stand

The National Restaurant Association has been fighting against this legislation for several reasons. Michelle Korsmo, President & CEO of the National Restaurant Association, stated, “The National Restaurant Association is committed to bringing this legislative action to the voters in California because we think voters need to have a say when laws like the FAST Act would fracture the restaurant industry and harm the people who make restaurant businesses great.” 

While targeted at quick service restaurants, the Association feels that independent restaurants will have to increase their pay to remain competitive. They also report that the labor organizations behind the FAST Act intend to introduce similar legislation across the country, impacting owners, franchisees, and workers and possibly eliminating thousands of jobs. 

FAQS

Did the FAST Recovery Act pass?

On September 5, 2022, California’s controversial Fast Food Accountability and Standards Recovery Act, also known as the FAST Act and the FAST Recovery Act, was signed into law. Since then, proponents of the voter referendum filed on September 7, 2022, have collected enough signatures to qualify it for the 2024 ballot. The Act cannot be implemented until California voters have their say.

How does the FAST Act in California Affect the Restaurant Industry? 

According to the U.S. Chamber of Commerce, California’s AB 257, also known as the FAST Recovery Act, could radically change franchise operations and price small business owners out of the market.

According to Forbes, about 15,000 franchisees in California employ almost 750,000 people. Over two-thirds of these franchisees only own one store, and minorities make up 30% of these owners in California. If the cost of operating increases, many of these “mom-and-pop” shops could be priced out of the market.

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