Existing law, which is suspended pursuant to a referendum petition, establishes, until January 1, 2029, the Fast Food Council (council) within the Department of Industrial Relations and prescribes its powers. Existing law, among other things, prescribes the purposes, duties, and limitations of the council, including a requirement that the council promulgate minimum fast food restaurant employment standards. Existing law sets standards for any minimum wage the council establishes.

This bill would repeal those existing provisions on January 1, 2024, if a specified referendum is withdrawn by its proponents by that date.

If the referendum is withdrawn, in addition to that repeal, this bill would, until January 1, 2029, or as otherwise provided, establish the Fast Food Council and prescribe the councils purposes, duties, and limitations, as described, establish an hourly minimum wage for fast food restaurant employees, as described, authorize the council to increase the hourly minimum wage pursuant to specified parameters, and set forth requirements, limitations, and procedures for adopting and reviewing fast food restaurant health, safety, and employment standards. The bill would require all standards, rules, and regulations developed by the council to be issued, amended, or repealed, as applicable, in the manner prescribed in the Administrative Procedure Act, but as modified, and would require the council to petition the Occupational Safety and Health Standards Board and the Civil Rights Council if any minimum standards fall within their jurisdiction.

Existing law prohibits, among other things, an employer or any person acting on behalf of the employer from making, adopting, or enforcing any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, among other individuals and entities, if the employee has reasonable cause to believe that the information discloses specified violations of law, regardless of whether disclosing the information is part of the employees job duties. Existing law imposes, in addition to other penalties, a civil penalty on certain employers for each violation of this provision, except as specified.

This bill would also deem the council a governmental agency for purposes of the above-described prohibition. The bill would additionally prohibit a fast food restaurant operator from discharging or in any manner discriminating or retaliating against any employee due to the employees participation in or testimony to any proceeding convened by the council.

This bill would prohibit any city, county, or city and county from enacting or enforcing any ordinance or regulation applicable to fast food restaurant employees that sets the amount of wages or salaries for fast food restaurant employees, except as provided. By imposing additional requirements on local agencies, the bill would impose a state-mandated local program.

Existing law establishes in the Department of Industrial Relations the Division of Labor Standards Enforcement under the direction of the Labor Commissioner. Existing law authorizes the Labor Commissioner to investigate employee complaints and to provide for a hearing in any action to recover wages, penalties, and other demands for compensation.

This bill would require the Labor Commissioner to enforce compliance with the minimum fast food restaurant employment standards and any other standards promulgated pursuant to the bills provisions and would set forth procedures for enforcing the standards. By expanding the application of crimes associated with those enforcement procedures, the bill would impose a state-mandated local program.

This bill would make legislative findings and declarations as to the necessity of a special statute for fast food restaurant workers.

The bill would include findings that changes proposed by this bill address a matter of statewide concern rather than a municipal affair and, therefore, apply to all cities, including charter cities.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that with regard to certain mandates no reimbursement is required by this act for a specified reason.

With regard to any other mandates, this bill would provide that, if the Commission on State Mandates determines that the bill contains costs so mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law, which is suspended pursuant to a referendum petition, establishes, until January 1, 2029, the Fast Food Council (council) within the Department of Industrial Relations and prescribes its powers. Existing law, among other things, prescribes the purposes, duties, and limitations of the council, including a requirement that the council promulgate minimum fast food restaurant employment standards. Existing law sets standards for any minimum wage the council establishes.

This bill would repeal those existing provisions on January 1, 2024, if a specified referendum is withdrawn by its proponents by that date.

If the referendum is withdrawn, in addition to that repeal, this bill would, until January 1, 2029, or as otherwise provided, establish the Fast Food Council and prescribe the councils purposes, duties, and limitations, as described, establish an hourly minimum wage for fast food restaurant employees, as described, authorize the council to increase the hourly minimum wage pursuant to specified parameters, and set forth requirements, limitations, and procedures for adopting and reviewing fast food restaurant health, safety, and employment standards. The bill would require all standards, rules, and regulations developed by the council to be issued, amended, or repealed, as applicable, in the manner prescribed in the Administrative Procedure Act, but as modified, and would require the council to petition the Occupational Safety and Health Standards Board and the Civil Rights Council if any minimum standards fall within their jurisdiction.

Existing law prohibits, among other things, an employer or any person acting on behalf of the employer from making, adopting, or enforcing any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, among other individuals and entities, if the employee has reasonable cause to believe that the information discloses specified violations of law, regardless of whether disclosing the information is part of the employees job duties. Existing law imposes, in addition to other penalties, a civil penalty on certain employers for each violation of this provision, except as specified.

This bill would also deem the council a governmental agency for purposes of the above-described prohibition. The bill would additionally prohibit a fast food restaurant operator from discharging or in any manner discriminating or retaliating against any employee due to the employees participation in or testimony to any proceeding convened by the council.

This bill would prohibit any city, county, or city and county from enacting or enforcing any ordinance or regulation applicable to fast food restaurant employees that sets the amount of wages or salaries for fast food restaurant employees, except as provided. By imposing additional requirements on local agencies, the bill would impose a state-mandated local program.

Existing law establishes in the Department of Industrial Relations the Division of Labor Standards Enforcement under the direction of the Labor Commissioner. Existing law authorizes the Labor Commissioner to investigate employee complaints and to provide for a hearing in any action to recover wages, penalties, and other demands for compensation.

This bill would require the Labor Commissioner to enforce compliance with the minimum fast food restaurant employment standards and any other standards promulgated pursuant to the bills provisions and would set forth procedures for enforcing the standards. By expanding the application of crimes associated with those enforcement procedures, the bill would impose a state-mandated local program.

This bill would make legislative findings and declarations as to the necessity of a special statute for fast food restaurant workers.

The bill would include findings that changes proposed by this bill address a matter of statewide concern rather than a municipal affair and, therefore, apply to all cities, including charter cities.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that with regard to certain mandates no reimbursement is required by this act for a specified reason.

With regard to any other mandates, this bill would provide that, if the Commission on State Mandates determines that the bill contains costs so mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law, which is suspended pursuant to a referendum petition, establishes, until January 1, 2029, the Fast Food Council (council) within the Department of Industrial Relations and prescribes its powers. Existing law requires the Fast Food Council to promulgate minimum fast food restaurant employment standards, including standards on wages, working conditions, and training, and to issue, amend, and repeal any other rules and regulations, as necessary to carry out its duties, subject to a petition signed by 10,000 fast food restaurant employees approving the creation of the council, as specified. Existing law, among other things, prescribes the purposes, duties, and limitations of the council, including a requirement that the council promulgate minimum fast food restaurant employment standards. Existing law sets standards for any minimum wage the council establishes.

Existing law, which is suspended pursuant to a referendum petition, establishes, until January 1, 2029, the Fast Food Council within the Department of Industrial Relations and prescribes its powers. Existing law requires the Fast Food Council to promulgate minimum fast food restaurant employment standards, including standards on wages, working conditions, and training, and to issue, amend, and repeal any other rules and regulations, as necessary to carry out its duties, subject to a petition signed by 10,000 fast food restaurant employees approving the creation of the council, as specified.

This bill would require that a fast food restaurant franchisor share with its fast food restaurant franchisee all civil legal responsibility and civil liability for the franchisees violations of prescribed laws and orders or their implementing rules or regulations. The bill would authorize enforcement of those provisions against a franchisor, including administratively or by civil action, to the same extent that they may be enforced against the franchisee. The bill would require that a franchisor have the opportunity to cure a violation after written notice, as prescribed, before civil action may be commenced. The bill would provide that a waiver of the bills provisions, or any agreement by a franchisee to indemnify its franchisor for liability, is contrary to public policy and is void and unenforceable. The bill would authorize a franchisee, if the terms of a fast food restaurant franchise prevent or create a substantial barrier to the franchisees compliance with the prescribed laws and orders and their implementing rules and regulations, or any changes to them, to file an action against its franchisor for monetary or injunctive relief necessary to ensure compliance. The bill would establish a rebuttable presumption that any changes in the terms of a franchise that increase the costs of the franchise to the franchisee create a substantial barrier to compliance with the prescribed laws and orders and their implementing rules and regulations, or any changes to them. The bill would define terms for its purposes.

CONCURRENCE IN SENATE AMENDMENTS

CSA2 Bill Id:AB 1228

Author:(Holden)

As Amended Ver:September 11, 2023

Majority vote

SUMMARY

Original Committee of Reference: L. & E.

Repeals the Fast Food Accountability and Standards (FAST) Recovery Act on the condition that the referendum contesting the FAST Act is withdrawn by January 1, 2024. In the event of the referendum's withdrawal, this bill not only repeals the FAST Act but also reestablishes, until January 1, 2029, a modified version of the Fast Food Council (Council). This bill additionally outlines the Council's objectives, responsibilities, and constraints in relation to setting an hourly minimum wage and overseeing the adoption and evaluation of health, safety, and employment standards for fast food restaurant employees.

Senate Amendments

Current Committee Recommendation: Concur

1. Delete the prior version of the bill and instead replace it with a modified version of the Council established by the FAST Act, contingent upon the withdrawal of the referendum challenging the FAST Act by January 1, 2024.
2. Define the following for purposes of this bill:
   1. "National fast food chain" means a set of 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.
   2. "Council" means the Fast Food Council.
   3. "Fast food restaurant" means a limited-service restaurant in the state that is part of a national fast food chain.
      1. Exempt, from the definition of "fast food restaurant," an establishment that on September 15, 2023, operates a bakery that produces for sale on the establishment's premises bread, as defined, so long as it continues to operate as a bakery, as specified.
      2. Exempt, from the definition of "fast food restaurant," a restaurant that operates within a grocery establishment, as defined, and the grocery establishment employer directly employs the individuals working in the restaurant.
   4. "Fast food restaurant franchisee" means a person to whom a fast food restaurant franchise is granted.
   5. "Fast food restaurant franchisor" means a person who grants or has granted a fast food restaurant franchise.
   6. "Fast food restaurant operator" means a person who operates a fast food restaurant.
   7. "Working conditions" include, but are not limited to, wages, conditions affecting fast food restaurant employees' health and safety, security in the workplace, the right to take time off work for protected purposes, and the right to be free from discrimination and harassment in the workplace.
3. Establish the Council within the Department of Industrial Relations (DIR) and require the Council to consist of the following nine voting members:
   1. Two representatives of the fast food restaurant industry.
   2. Two representatives of fast food restaurant franchisees or restaurant owners.
   3. Two representatives of fast food restaurant employees.
   4. Two representatives of advocates for fast food restaurant employees.
   5. One unaffiliated member of the public who is not an owner, franchisee, officer, or employee in the fast food industry; who is not an employee or officer of a labor organization or a member of a labor organization representing fast food restaurant employees; and who has not received income from the fast food industry or any labor organization for a period of two years prior to appointment.
4. Provide that in addition to the nine voting members, the Council is required to include the following nonvoting members:
   1. One representative from the DIR.
   2. One representative from the Governor's Office of Business and Economic Development (GO-Biz).
5. Require the Governor to appoint the representatives of fast food restaurant employees, fast food restaurant franchisees or restaurant owners, the fast food restaurant industry, and the member of the public.
6. Require the Speaker of the Assembly and the Senate Committee on Rules to each appoint one representative of an advocate for fast food restaurant employees.
7. Provide that appointments to the Council shall be at the will of each appointing power and each member of the Council shall serve for a term of four years, except that all terms shall end on the date this section becomes inoperative.
8. Require all terms that end prior to the date that this section becomes inoperative to end on January 1.
9. Require vacancies on the Council occurring prior to the expiration of a term to be filled by appointment for the unexpired term.
10. Prohibit a member of the Council from serving more than two consecutive terms.
11. Require the unaffiliated member to be the chairperson of the Council and make the chairperson responsible for convening the Council.
12. Require the chairperson to designate a member or the Council to act as chairperson in their absence.
13. Require each member of the Council to receive $100 for each day of their actual attendance at meetings of the Council and other official business of the Council, in addition to their actual necessary traveling expenses incurred in the performance of their duty as a member of the Council.
14. Authorize the Council, subject to appropriation, to hire assistants, officers, experts, and other staff as needed and require all Council personnel to be overseen by the chairperson or a designated executive officer.
15. Require all meetings of the Council to be subject to the Bagley-Keene Open Meeting Act, as specified.
16. Provide that the Council's purposes are to, among other things, establish fast food restaurant minimum standards on wages, and develop fast food restaurant minimum standards on working hours, and other conditions adequate to ensure and maintain the health, safety, and welfare of, and to supply the necessary cost of proper living to, fast food restaurant workers.
17. Require the Council to provide direction to, and coordinate with, state agencies regarding the health, safety, and employment of fast food restaurant workers.
18. Require the Council to convene its first meeting by no later than March 15, 2024.
19. Provide that the Council is charged with developing minimum fast food restaurant employment standards, including, as appropriate, standards on wages, working conditions, and training, as are reasonably necessary or appropriate to protect and ensure the welfare, including the physical well-being and security, of fast food workers or to otherwise meet the purposes of this section.
    1. Authorize the Council, in developing these standards, to take into account regional differences.
    2. Prohibit the Council from making changes that are less protective or beneficial to the health, safety, or employment conditions, including wages, of fast food restaurant workers than the previous standards.
    3. Provide that if there is a conflict between the standards, rules, or regulations set by the Council and those issued by another state agency, the Council's standards take precedence for fast food restaurant employees and render the conflicting standards inapplicable to fast food restaurant employees.
20. Require decisions by the Council regarding standards, rules, or regulations to be made by an affirmative vote of at least five of the Council members.
21. Require all standards, rules, and regulations developed by the Council to be issued, amended, or repealed, as applicable, in the manner prescribed in the Administrative Procedures Act, subject to the following provisions:
    1. With the exception of standards that fall within the jurisdiction of the Occupational Safety and Health Standards Board (Board) or the Civil Rights Council (CRC), the Labor Commissioner (LC) shall be responsible for issuing, amending, or repealing, as applicable, standards developed by the Council pursuant the Administrative Procedure Act.
    2. The Council shall send proposed written standards to the LC and request that the LC prepare a notice of proposed rulemaking action regarding the proposed regulatory text.
    3. When the LC receives a request to create a notice for proposed rulemaking action, the LC is required to assess whether the proposed standards align with the Council's authority and criteria outlined in Administrative Procedure Act.
       1. If the LC determines that the standards align with the aforementioned criteria, the LC will proceed to prepare and submit the notice, along with the necessary materials, to the Office of Administrative Law, as required.
       2. If the LC determines that either the proposed standards are not consistent with the Council's authority, or not consistent with the criteria identified in the Administrative Procedure Act, the LC is required, within 60 days of receiving the Council's request to issue a notice of proposed rulemaking, to provide the Council with a written explanation of the reasons for that determination.
22. Exempt, from the requirements of 21), above, standards issued regarding the increase in the hourly wage for fast food restaurant employees.
23. Authorize the Council to develop written emergency standards and send the proposed standards to the LC and request that the LC promulgate those standards pursuant to the Administrative Procedures Act.
24. Require the hourly minimum wage for fast food restaurant employees to be $20 per hour, effective April 1, 2024, and thereafter authorize the Council to establish minimum wages for fast food restaurant employees, to take effect on an annual basis, beginning on January 1, 2025, in accordance with the following procedures:
    1. The hourly minimum wage established by the Council may increase on an annual basis by no more than the lesser of the following, rounded to the nearest $0.10:
       1. 3.5%.
       2. The rate of change in the averages of the most recent July 1 to June 30, inclusive, period over the preceding July 1 to June 30, inclusive, period for the United States Bureau of Labor Statistics nonseasonally adjusted United States Consumer Price Index for Urban Wage Earners and Clerical Workers (U.S. CPI-W).
    2. In establishing minimum wage increases subject to a), above, the Council may elect to set minimum wage standards that vary by region or to set a statewide minimum wage.
    3. The hourly minimum wage established in 24), above, and all future hourly minimum wages established in 24), shall constitute the state minimum wage for fast food restaurant employees for all purposes under this code and the wage orders of the Industrial Welfare Commission (IWC) and state that the hourly minimum wage for fast food restaurant employees is enforceable by the LC, or by a covered worker through civil action, as specified.
    4. DIR must align Wage Order No. 5-2001 and the Minimum Wage Order with the minimum hourly wage adopted by the Council and any other standards or requirements established by the Council and approved by the LC. Any existing provisions in Wage Order No. 5-2001 or the Minimum Wage Order that offer greater protections or benefits to fast food restaurant employees will remain in effect. The Council's hourly minimum wage decisions are considered wage orders and are exempt from certain requirements of the Administrative Procedure Act.
    5. Any minimum wage established by the Council must be equal to or greater than any otherwise generally applicable state hourly minimum wage.
    6. The Council shall not establish any minimum wage increase that takes effect commencing on a date after the 2029 calendar year. However, the Council may provide advice to any appropriate state agencies regarding minimum wage increases that would take effect commencing on a date on or after January 1, 2030.
25. Provide that minimum wage standards established by the Council are also subject to any suspension of increases in the statewide minimum wage, as specified.
26. State that the standards developed by the Council pursuant to 19) and 24), above, shall not alter or amend the requirements of the California Retail Food Code, as specified.
27. Require the Council to provide, upon request, information to the appropriate labor committees of the Legislature, in order to facilitate a review of the Council's performance and standards outlined in the provisions of this bill.
    1. Permit a review of the Council's performance to be conducted in a joint hearing held every three years or as otherwise designated by the appropriate labor committees of the Legislature.
28. State that nothing in the provisions of this bill shall be construed to give the Council the authority to create or amend statutes.
29. State that nothing in the provisions of this bill shall be construed to permit the Council to develop or promulgate regulations creating new paid time off benefits, such as paid sick leave or paid vacation.
    1. Specify that for purposes of 29), above, paid time off benefits do not include paid rest periods.
30. State that nothing in the provisions of this bill shall be construed to permit the Council to develop or promulgate regulations regarding predictable scheduling.
    1. Specify that for 30), above, predictable scheduling does not include reporting time pay.
31. Provide that in the event that the Council identifies minimum standards that are reasonably necessary for safeguarding the health and safety of fast food restaurant employees and that those standards fall within the purview of the Board, the Council shall petition the Board for the enactment, modification, or annulment of any occupational safety and health standard.
    1. Require the Board to consider and respond to the petition no later than six months following receipt of the petition, or no later than three months if the petition relates to an emergency, as specified.
    2. Prohibit the Board from adopting a standard recommended by the Council if it reduces occupational safety and health protections for employees.
32. Provide that to the extent there are any minimum standards that the Council finds are reasonably necessary that fall within the jurisdiction of the CRC, the Council shall petition the CRC for the adoption, amendment, or repeal of any regulation under the jurisdiction of the CRC.
    1. Require the CRC to consider and respond to the petition no later than six months following receipt of the petition, or no later than three months if the petition relates to an emergency, as specified.
    2. Prohibit the CRC from adopting a standard recommended by the Council that would reduce protections provided under the California Fair Employment and Housing Act (FEHA).
33. Require the Council to conduct a full review of the adequacy of the minimum fast food restaurant health, safety, and employment standards at least once every three years and upon that review, requires the Council to develop and seek the issuance of any fast food employment, health, or safety standard applicable to fast food restaurants.
34. Require the Council to hold public hearings, as specified, no less than every six months, providing the opportunity for the public to be heard on issues of fast food restaurant health, safety, and employment conditions.
    1. Require the Council to give advance notice of its meetings or hearings in a way that reasonably informs fast food restaurant workers, operators, owners, franchisors, franchisees, community members, and other interested parties about the chance to participate in these meetings or hearings.
    2. Require meetings or hearings to rotate among different major metropolitan areas across the state in order to provide an equitable opportunity for participation by fast food restaurant workers, operators, owners, franchisors, franchisees, community members, and other stakeholders at least once per each three-year review.
35. Authorize the Council to coordinate with local agencies and request that they hold meetings or hearings that are open to the public, as specified, so that members of the public have the opportunity to be heard on issues of fast food restaurant health, safety, and employment conditions. After these local meetings, the Council may request information from local agencies, including any recommendations for action by the Council.
36. Require the minimum wage, maximum hours of work, and other working conditions developed by the Council in standards promulgated pursuant to this bill, to be the minimum wage, maximum hours of work, and the standard conditions of labor for fast food restaurant employees or a relevant subgroup of fast food restaurant employees for purposes of state law.
    1. State that, except for the sunset date of January 1, 2029, the provisions of this bill do not restrict the authority of local jurisdictions to exercise police powers in establishing more protective local standards.
    2. Provide that the employment of a fast food restaurant employee for lower wages or for longer hours than those fixed by the minimum standards promulgated, pursuant to the provisions of this bill, or under any other working conditions prohibited by the minimum standards promulgated, pursuant to the provisions of this bill, is unlawful.
    3. Require compliance with the minimum fast food restaurant employment standards, promulgated pursuant to the provisions of this bill, to be enforced by the LC, in a specified manner.
37. Require the LC to enforce, in a prescribed manner, any standards promulgated by the provisions of this bill, except for occupational safety and health violations and protections against discrimination or harassment, which are required to be enforced by the Division of Occupational Safety and Health (Cal/OSHA) and the Civil Rights Department (CRD), respectively.
38. Provide that a standard promulgated by the Council shall not supersede a standard covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work, and working conditions of the employees, and a regular hourly rate of pay not less than 30 percent more than the state minimum wage for those employees, if the agreement provides equivalent or greater protection than the standards established by the Council and if state law on the same issue authorizes an exception for employees covered by a collective bargaining agreement.
39. State that nothing in the provisions of this bill shall be construed to require local health departments to enforce standards issued by the Council.
40. Authorize the LC to issue rules, regulations, and guidance necessary for the enforcement of the provisions of this bill, as specified.
41. Preempt any local municipalities from establishing higher minimum wages by prohibiting any ordinance or regulation applicable to fast food restaurant employees that sets the amount of wages or salaries for fast food restaurant employees from being enacted or enforced by any city, county, or city and county, including charter cities, charter counties, and charter cities and counties. However, these provisions do not preclude any employer from establishing higher wage or compensation rates for its employees or contracted employees.
42. Specify that the above prohibition does not preclude a city, county, or city and county, including charter cities, charter counties, and charter cities and counties, from establishing a minimum wage that is generally applicable to all industries.
43. Provide that all provisions of this bill, with limited exceptions, become inoperative as of January 1, 2029, and the Council shall cease operations but specifies that any standards adopted by the appropriate agencies pursuant to these provisions shall not be impacted by the cessation of the Council.
44. Prohibit a fast food restaurant operator from discharging or in any manner discriminating against an employee due to the employee's participation in or providing testimony to any proceeding convened by the Council.
    1. Provide that the Council shall be deemed a governmental agency for the purposes of an employee's right to disclose information to a government or law information agency without retaliation from an employer.
45. Provide that provisions of the bill will only come into effect on January 1, 2024, if Referendum No. 1939 (Attorney General No. 22-0005) is withdrawn by its proponents before that date. If the referendum is not withdrawn by January 1, 2024, then provisions of this bill will become inactive and repealed on January 1, 2024.
46. Provide that the existing FAST Act will become inoperative and be replaced by the provisions outlined in this bill, effective January 1, 2024, contingent upon the withdrawal of Referendum No. 1939 (Attorney General No. 22-0005) by its proponents before January 1, 2024.
47. Find and declare, among other things, that establishing uniform statewide regulation of certain aspects of minimum wage for fast food restaurant workers is a matter of statewide concern and directs specified provisions to apply to all cities, including charter cities.

COMMENTS

Suspension of the Fast Food Accountability and Standards (FAST) Recovery Act

AB 257 (Holden), Chapter 246, Statutes of 2022, termed the Fast Food Accountability and Standards Recovery Act or the FAST Recovery Act, proposes to, among other things, establish a Fast Food Sector Council to regulate California's fast food restaurants. The law was signed by Governor Newsom on September 5, 2022.

On January 24, 2023, a group known as the Save Local Restaurants coalition successfully gathered a sufficient amount of valid voter signatures, verified by the California Secretary of State, which allowed them to place a referendum to overturn the FAST Recovery Act on the 2024 ballot.^[1] The qualification of the referendum for the 2024 ballot effectively suspends implementation of the FAST Act until California voters decide whether or not to repeal the law in 2024.^[2]

Fast Food Workers and Working Conditions

According to a United States Bureau of Labor Statistics report from 2021, California is one of the states with the highest levels of employment in the fast food industry. California fast food and counter workers earn an average hourly mean wage of $15.61 amounting to an annual mean wage of $32,640.^[3]

A report by the UC Berkeley Labor Center found that despite high levels of employment in the fast food industry, "People working in fast-food jobs are more likely to live in or near poverty. One in five families with a member holding a fast-food job has an income below the poverty line, and 43 percent have an income two times the federal poverty level or less. Even full-time hours are not enough to compensate for low wages. The families of more than half of the fast-food workers employed 40 or more hours per week are enrolled in public assistance programs."^[4]

Additionally, another report by the Center for American progress found that "60 percent of fast-food workers in California are Latinx, more than 80 percent are nonwhite, two-thirds are women, and 20 percent have children. The typical fast-food worker brings in one-third of their family's income, and more than half of fast-food worker households spend more than 30 percent of their income on rent."^[5]

According to a report by the UCLA Labor Center, "Fast-food workers face an array of workplace challenges. More than half experienced wage theft, such as being paid late or unpaid overtime rates, denied meal breaks or reimbursement for uniforms or equipment. Workers also reported insufficient hours to make ends meet. More than half experienced a health and safety hazard, and 43% were injured at work. Half of workers faced verbal abuse, particularly from customers. Many also witnessed or experienced violence or harassment, such as racial slurs, assault, and robbery."^[6]

According to the Author

"[This bill], as amended, creates a path forward to resolve employer community concerns around the content of AB 257 (2022) while preserving fast food workers' hard fought efforts to secure a seat at the table and means to raise standards. The joint liability provisions of [this bill] will be replaced with an updated version of AB 257's Fast Food Council that will go into effect providing the referendum is withdrawn by January 1, 2024."

Arguments in Support

According to a coalition of labor and community advocates, "For the last decade, fast-food cooks, cashiers and baristas in California have been sounding the alarm on the poverty pay and unsafe working conditions plaguing the industry. Fast-food workers and community allies across the state have demanded that workers get a seat at the table to resolve these critical issues. New amendments to [this bill], the Fast Food Franchisor Accountability Act, were introduced to build on what was won under AB 257. Contingent upon the fast-food industry dropping their referendum against AB 257, the amendments to [this bill] clear a path for fast-food workers to start making much-needed improvements to their wages and working conditions."

According to the International Franchise Association, the National Restaurant Association and Save Local Restaurants, "this agreement reflects the best interest of workers, local franchised restaurant owners and restaurant brands by: 1) protecting the franchise business model that provides opportunities for thousands of diverse Californians to become small business owners; 2) providing meaningful wage increases for workers; and 3) eliminating significant – and potentially existential – threats, costs, and regulatory burdens targeting local restaurants in California."

Arguments in Opposition

The American Association of Franchisees and Dealers, in opposition, state, "In significant disregard to hearing the voices of small business franchisee owners, the negotiated settlement was made between the International Franchise Association (IFA), the National Restaurant Association (NRA), and the Service Employees International Union (SEIU). If signed, the result would be onerous to the franchisee community who would have to bear the primary brunt of this settlement, which would not only significantly increase labor costs thereby forcing franchisees to increase costs to consumers; this, in turn, also benefits franchisors with a larger royalty base. The AAFD views this development as a prime example of behind-the-scenes political maneuvering, raising concerns about transparency and fairness. Given these circumstances, the AAFD cannot endorse legislation crafted behind closed doors, which disproportionately affects its members and lacks transparency in its decision-making process. It also sets a dangerous precedent when minimum wage legislation targets franchised establishments and specifically quick service restaurants."

FISCAL COMMENTS

According to the Senate Appropriations Committee, "Assuming Referendum No. 1939 (Attorney General No. 22-0005) has been withdrawn by its proponents by January 1, 2024, this bill would have the following fiscal impacts:

The Department of Industrial Relations (DIR) preliminarily estimates that, at a minimum, it would incur net annual administrative costs of $4 million to implement the provisions of the bill. Cost drivers would include staffing the Fast Food Council, legal workload, and operational costs resulting from internal and public meetings (Labor Enforcement and Compliance Fund, and Occupational Safety and Health Fund).

This bill would result in one-time General Fund savings to the Secretary of State (SOS) for reduced printing and mailing costs resulting from the referendum's removal from the statewide ballot. SOS estimates that each additional page in the statewide ballot pamphlet costs $123,000. Assuming eight pages would have been needed for the referendum, savings to SOS would be $984,000.

Administrative costs to the Civil Rights Council, within the California Civil Rights Department, have yet to be identified, and would depend on future interaction with the Fast Food Council (General Fund)."

VOTES

ASM LABOR AND EMPLOYMENT: 5-2-0

YES: Kalra, Haney, Ortega, Reyes, Ward

NO: Flora, Chen

ASM JUDICIARY: 6-3-2

YES: Maienschein, Connolly, Haney, Kalra, Reyes, Robert Rivas

NO: Essayli, Dixon, Sanchez

ABS, ABST OR NV: Pacheco, Papan

ASM APPROPRIATIONS: 11-4-1

YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Papan, Pellerin, Weber, Ortega

NO: Megan Dahle, Dixon, Mathis, Sanchez

ABS, ABST OR NV: Robert Rivas

ASSEMBLY FLOOR: 42-22-16

YES: Addis, Arambula, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Wendy Carrillo, Cervantes, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Gipson, Haney, Hart, Holden, Jackson, Jones-Sawyer, Kalra, Lee, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Ortega, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Santiago, Schiavo, Ting, Ward, Weber, Wicks, Wood, Zbur, Rendon

NO: Alanis, Bains, Chen, Megan Dahle, Davies, Dixon, Essayli, Flora, Vince Fong, Gallagher, Hoover, Lackey, Low, Mathis, Stephanie Nguyen, Jim Patterson, Joe Patterson, Ramos, Sanchez, Ta, Waldron, Wallis

ABS, ABST OR NV: Aguiar-Curry, Alvarez, Bauer-Kahan, Juan Carrillo, Grayson, Irwin, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Blanca Rubio, Soria, Valencia, Villapudua, Wilson

UPDATED

VERSION: September 11, 2023

CONSULTANT: Martin Vindiola / L. & E. / (916) 319-2091 FN: 0002463

1. Hussain, Suhauna. Californians to vote on overturning a new law that could raise fast-food worker wages. Los Angeles Times, January 2023. ↑

2. Ibid. ↑

3. U.S. Bureau of Labor Statistic. Occupational Employment and Wages, May 2021. ↑

4. Allegretto, Sylvia, et al. Fast Food, Poverty Wages: The Public Cost of Low-Wage Jobs in the Fast Food Industry. UC Berkeley Labor Center, October 2013. ↑

5. Madland, David. Raising Standards for Fast-Food Workers in California. Center for American Progress, April 2021. ↑

6. Justice, Brian, et al. Fast Food Frontline: COVID-19 and Working Conditions in Los Angeles. UCLA Labor Center, January 2022. ↑

 THIRD READING  

Bill No: AB 1228

Author: Holden (D)

Amended: 9/11/23 in Senate

Vote: 21

SENATE LABOR, PUB. EMP. & RET. COMMITTEE: 4-1, 6/28/23

AYES: Cortese, Durazo, Laird, Smallwood-Cuevas

NOES: Wilk

SENATE APPROPRIATIONS COMMITTEE: 5-2, 9/12/23

AYES: Portantino, Ashby, Bradford, Wahab, Wiener

NOES: Jones, Seyarto

ASSEMBLY FLOOR: 42-22, 5/31/23 - See last page for vote

SUBJECT: Fast food restaurant industry: Fast Food Council: health, safety, employment, and minimum wage

SOURCE: Author

DIGEST:

This bill repeals, revises and recasts provisions of the Fast Food Accountability and Standards Recovery Act (FAST Act) to codify changes that have been negotiated and agreed to by both proponents and opponents (seeking a referendum) of AB 257 (Holden, 2022) but only if the referendum is withdrawn by January 1, 2024.

ANALYSIS:

Existing law:

1. Establishes the Division of Occupational Safety and Health (known as Cal/OSHA) within the Department of Industrial Relations (DIR) to, among other things, protect and improve the health and safety of workers by proposing, administering, and enforcing occupational safety and health standards. (Labor Code §140 et seq.; §6300 et seq.)
2. Establishes, also within DIR, the Division of Labor Standards and Enforcement (DLSE) under the direction of the Labor Commissioner (LC), with the duty to investigate employee complaints and enforce labor laws. (Labor Code §79 et seq.)
3. Establishes the Fast Food Accountability and Standards Recovery Act or FAST Recovery Act (FAST Act) to, among other things, create the Fast Food Council within DIR for the purpose of establishing sectorwide minimum standards on wages, working hours, and other working conditions adequate to ensure and maintain the health, safety, and welfare of, and to supply the necessary cost of proper living to, fast food restaurant workers, as specified. (Labor Code §1470-1473)
4. Defines, for purposes of these provisions, the following:
   1. “Fast food chain” means a set of restaurants consisting of 100 or more establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services.
   2. “Fast food restaurant” means any establishment in the state that is part of a fast food chain and that, in its regular business operations, primarily provides food or beverages in the following manner:
      1. For immediate consumption either on or off the premises.
      2. To customers who order or select items and pay before eating.
      3. With items prepared in advance, including items that may be prepared in bulk and kept hot, or with items prepared or heated quickly.
      4. With limited or no table service. Table service does not include orders placed by a customer on an electronic device. (Labor Code §1470)
5. Establishes, until January 1, 2029, the Fast Food Council (Council) as a 10-member council, comprising of fast food employees, worker advocates, franchisors, franchisees, and government officials within DIR and the Governor’s Office of Business and Economic Development (Go-Biz) to provide direction to, and coordinate with, the Governor, executive and local agencies regarding the health, safety, and employment of fast food restaurant workers. (Labor Code §1471)
6. Prohibits the Fast Food Council from promulgating, petitioning for, issuing, amending, or repealing, any standards, rules, or regulations, as specified, until after the Director of DIR receives a petition approving the creation of the Council signed by at least 10,000 California fast food restaurant employees. (Labor Code §1471)
7. Provides that any minimum wage established by the Council shall, from January 1, 2023, to December 31, 2023, inclusive, not be greater than twenty-two dollars ($22) per hour and provides that, on January 1, 2024 and annually thereafter, the highest hourly minimum wage that may be established by the council shall increase by no more than the lesser of one of the following, rounded to the nearest ten cents ($0.10):
   1. 3.5 percent.
   2. The rate of change in the annual United States Consumer Price Index for Urban Wage Earners and Clerical Workers (U.S. CPI-W), as specified. (Labor Code §1471)
8. Provides that, to the extent that any minimum standards that the Council finds are reasonably necessary fall within the jurisdiction of the Occupational Safety and Health Standards Board, the Council is not authorized to promulgate the standards but rather shall petition the board to adopt, amend, or repeal any relevant standards. (Labor Code §1471)
9. Requires the Council to conduct a full review of the adequacy of the minimum fast food restaurant health, safety, and employment standards at least once every three years and, upon that review, make necessary changes and/or petitions for changes, as specified. (Labor Code §1471)
10. Authorizes a county, or a city with a population of greater than 200,000, to establish a Local Fast Food Council, as specified, to periodically hold public meetings, at which the public shall have the opportunity to be heard on issues of local fast food restaurant health, safety, and employment conditions. A Local Fast Food Council may provide written recommendations to the state Council that the Local Fast Food Council finds are reasonably necessary to protect the health, safety, and welfare of fast food restaurant workers. A Local Fast Food Council shall operate independently from the council. (Labor Code §1471)
11. Requires the LC, DSLE and Cal/OSHA to enforce the fast food restaurant standards promulgated by the Council, including investigating an alleged violation and ordering remedies, through the procedures set forth in existing law, as specified. (Labor Code §1471)
12. Provides that a standard promulgated by the Council shall not supersede a standard covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work, and working conditions of the employees, and a regular hourly rate of pay not less than 30 percent more than the state minimum wage for those employees, as specified. (Labor Code §1471)
13. Provides that on January 1, 2029, the provisions creating the Council and its authorities shall become inoperative, and the council shall cease operations. (Labor Code §1471)
14. Prohibits a fast food restaurant operator from discharging or in any manner discriminating or retaliating against any employee for, among other things, making a complaint or disclosing information to a person with authority to investigate alleged violations, to the media, to the Legislature, or to a watchdog or community based organization, or a governmental agency regarding employee or public health or safety. Also protects employees refusing to work in violation of public health and safety laws, as specified. (Labor Code §1472)
15. Provides that any employee discharged or otherwise discriminated or retaliated against, as specified, shall have a right of action with specified remedies. Additionally, includes a rebuttable presumption of unlawful discrimination or retaliation if a fast food operator discharges or takes any other adverse action against an employee within 90 days of the operators’ knowledge that the employee took any of the protected actions specified in (14) above. (Labor Code §1472)
16. Pursuant to a referendum petition, the provisions of the FAST Recovery Act have been suspended and are effective only if approved as a referendum measure at the November 5, 2024 election.

This bill:

1. Repeals existing provisions of the FAST Recovery Act, Sections 1470, 1471, 1472, and 1473, revises and recasts these provisions to make several changes to the Act but only if Referendum No. 1939 (Attorney General No. 22-0005) has been withdrawn by its proponents by January 1, 2024.
2. Provides various relevant definitions, including, among others, the following:
   1. “National fast food chain” means a set of limited-service restaurants consisting of more than 60 establishments nationally (was previously 100) 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 these definitions, “limited-service restaurant” includes, but is not limited to, an establishment with the North American Industry Classification System Code 722513.
   2. “Fast food restaurant” means a limited-service restaurant in the state that is part of a national fast food chain. Exempts from this definition, an establishment operating as a bakery that produces bread for sale on the establishment’s premises, as specified.
      1. These definition updates do not change the nature of which fast food/quick service restaurants are covered and retains much of the existing definitions in the FAST Act.
3. Consistent with the existing FAST Act, specifies that the Council’s purposes are to establish fast food restaurant minimum standards on wages, and develop fast food restaurant minimum standards on working hours, and other working conditions adequate to ensure and maintain the health, safety, and welfare of, and to supply the necessary cost of proper living to, fast food restaurant workers and to ensure and effect interagency coordination and prompt agency responses regarding issues affecting the health, safety, and employment of fast food restaurant workers.
4. Modifies the composition of the Council to reduce its size form ten to nine members and remove the agency representatives (one from DIR and one from Go-Biz) as voting members of the Council and instead adds one unaffiliated member of the public to the Council, as specified. One representative from DIR and one representative from Go-Biz shall be nonvoting members of the Council.
5. Provides that the unaffiliated member of the public shall be the chairperson of the Council.
6. Specifies that the Council shall provide direction to, and coordinate with, state agencies regarding the health, safety and employment of fast food restaurant workers – striking (from the existing FAST Act) references to coordinating with the Governor and local agencies.
7. Strikes provisions from the existing FAST Act that would have required a petition signed by at least 10,000 California fast food restaurant employees before the Council could promulgate, petition for, issue, amend, or repeal any standards, rules or regulations.
8. Requires the Council to convene its first meeting by no later than March 15, 2024.
9. In developing minimum fast food restaurant employment standards, authorizes the Council to take account of regional difference.
10. Strikes from the existing FAST Act, the Council’s sole authority to promulgate minimum fast food restaurant standards to instead include state agency involvement by specifying that all standards, rules and regulations developed by the Council shall be issued, amended, or repealed per existing Administrative Procedure Act rulemaking provisions and subject to the following:
    1. With the exception of standards regarding the minimum wage, specifies that the Labor Commissioner shall be responsible for issuing, amending, or repealing, as applicable, standards developed by the Council, as specified.
    2. Requires the Council to send proposed written standards to the LC and request that the commissioner prepare a notice of proposed rulemaking action.
    3. Upon receiving such request, the LC shall determine whether the proposed written standards are consistent with the council’s authority and rulemaking law, as specified, and if it so, the LC shall prepare and submit to the Office of Administrative Law a notice of proposed rulemaking action, as specified.
11. Provides that, if the LC determines that the proposed standards are not consistent with the council’s authority or do not meet the rulemaking criteria, the LC shall, within 60 days of receiving the council’s rulemaking request, provide the council with a written explanation of the reasons for that determination and allows the council to modify its proposal as appropriate.
12. Grants the LC responsibility and authority to carry out the specified rulemaking requirements per Sections 11346.8 and 11346.9 of the Government Code.
13. Strikes from the existing FAST Act, provisions requiring the Council to submit, to the appropriate committees on labor of each house of the Legislature, a report that contains a copy of proposed standards, repeals, or amendments and a statement of the council’s reasons for adopting them by January 15 and prohibition on those going into effect before October 15 of that same year. Also strikes provisions specifying that nothing restrains the Legislature from enacting legislation that prevents a standard, repeal, or amendment from taking effect.
14. Maintains the requirement in the FAST Act that the Council provide information as requested by the appropriate committees of the Legislature on labor to facilitate a review of the council’s performance and standards, which review may be conducted in a joint hearing held every three years or as otherwise designated by the appropriate committees of the Legislature on labor.
15. Modifies the minimum wage provisions in the FAST Act to specify that, effective April 1, 2024, the hourly minimum wage for fast food restaurant employees shall be twenty dollars ($20) per hour. Thereafter, and only until January 1, 2029 when the Council ceases to operate, provides that the Council may establish annual fast food restaurant employee minimum wage increases as follows:
    1. No more than the lesser of the following, rounded to the nearest ten cents ($0.10):
       1. 3.5 percent; or
       2. The rate of change in the annual United States Consumer Price Index for Urban Wage Earners and Clerical Workers (U.S. CPI-W), as specified.
16. In establishing the annual minimum wage increases, authorizes the Council to elect to set minimum standards that vary by region or to set a statewide minimum wage increase.
17. Specifies that the minimum wage for fast food restaurant employees shall be enforced by the LC through the existing enforcement procedures of the Labor Code, or by a covered worker through a civil action, through the same means and with the same relief available for violations of any other state minimum wage requirement.
18. Requires DIR to update specified wage orders to be consistent with any minimum hourly wage adopted by the council and any other standards or requirements developed by the Council and adopted by the LC, as specified, except that any existing provisions providing greater protections or benefits shall continue in full force and effect.
19. Strikes provisions in the FAST Act requiring annual increases to the minimum wage, as specified, after January 1, 2029 when the Council is no longer operative.
20. Prohibits the Council from establishing any minimum wage increase that takes effect commencing on a date after the 2029 calendar year (when the provisions of the Council become inoperative), however, authorizes the Council to provide advice to any appropriate state agencies regarding minimum wage increases that would take effect commencing on a date on or after January 1, 2030.
21. Adds provisions specifying that to the extent that any minimum standards that the Fast Food Council finds are necessary fall within the jurisdiction of the Civil Rights Council, as defined, the Fast Food Council shall petition the Civil Rights Council for the adoption, amendment, or repeal of any such regulation.
22. Requires the Civil Rights Council to consider and respond to the petition no later than six months following receipt of the petition, or within no more than three months if the petition relates to an emergency, as defined, and prohibits the Civil Rights Council from adopting a recommended standard that would reduce protections provided under the California Fair Employment and Housing Act or other law within the Civil Rights Council’s jurisdiction.
23. Maintains from the FAST Act, provisions specifying that the Council does not have the authority to create or amend statutes; can’t set regulations creating new paid time off benefits, such as paid sick leave or paid vacation, or predictable scheduling.
24. Strikes from the FAST Act, provisions authorizing a county, or a city with a population of greater than 200,000, to establish a Local Fast Food Council to hold public meetings and provide written recommendation to the state Council regarding minimum health, safety and employment standards that the local council finds necessary but maintains local coordination provisions, outlined in (25) below.
25. Modifies FAST Act provisions around local agency meetings, to specify that the Council may coordinate with local agencies and request that they hold public meetings or hearings, at which the public, including fast food restaurant employees, shall have the opportunity to be heard on issues of fast food restaurant health, safety, and employment conditions. After these meetings or hearings, the Council may request information from the local agencies, including any recommendations for action by the council.
26. Maintains existing Labor Commissioner enforcement provisions, as specified, and remedies for violations as currently found in the FAST Act.
27. Provides that the Labor Commissioner is authorized to issue any other rules, regulations, and guidance necessary for the enforcement of these provisions, as specified.
28. Preempts any local municipalities from establishing higher minimum wages, by prohibiting any ordinance or regulation applicable to fast food restaurant employees that sets the amount of wages or salaries for fast food restaurant employees from being enacted or enforced by any city, county, or city and county, including charter cities, charter counties, and charter cities and counties. However, these provisions do not preclude any employer from establishing higher wage or compensation rates for its employees or contracted employees.
29. Specifies that the above prohibition does not preclude a city, county, or city and county, including charter cities, charter counties, and charter cities and counties, from establishing a minimum wage that is generally applicable to all industries.
30. Specifies that all provisions, with some exceptions, become inoperative as of January 1, 2029 (consistent with the existing FAST Act provisions) and the Council shall cease operations but specifies that any standards adopted by the appropriate agencies pursuant to these provisions shall not be impacted by the cessation of the Council.
31. Modifies but maintains provisions around unlawful discharge or discrimination of employees, to specify that, consistent with existing Labor Code protections, a fast food restaurant operator shall not discharge or in any manner discriminate or retaliate against any employee due to the employee’s participation in or testimony to any proceeding convened by the Council, as specified. The bill also deems the Council a governmental agency for purposes of these prohibitions.
32. Strikes from the FAST Act, provisions granting any employee of a fast food restaurant operator discharged or otherwise discriminated or retaliated against a right of action and prescribed remedies for such violations.
33. Strikes from the FAST Act, a rebuttable presumption of unlawful discrimination or retaliation if a fast food restaurant operator discharges or take any adverse employment action against one of its employees within 90 days following the date when the operator had knowledge of that employee’s action or actions, as specified.
34. Specifies that these new provisions of the FAST Act shall become operative and shall take effect commencing January 1, 2024, only if Referendum No. 1939 (Attorney General No. 22-0005) has been withdrawn by its proponents by January 1, 2024. If that referendum has not been withdrawn by its proponents by January 1, 2024, these new provisions shall become inoperative on January 1, 2024, and as of that date, are repealed.
35. Finds and declares that establishing uniform statewide regulation of certain aspects of minimum wage for fast food restaurant workers is a matter of statewide concern and directs specified provisions to apply to all cities, including charter cities.

Background

AB 257 (Holden, Chapter 246, Statutes of 2022) enacted the Fast Food Accountability and Standards Recovery Act or FAST Recovery Act. Not long after AB 257 was signed by the Governor, a coalition of California small business owners, restauranteurs, franchisees and related entities, organized as Save Local Restaurants, submitted a referendum petition challenging AB 257. AB 257 was set to go into effect on January 1, 2023 before a Sacramento judge put it on hold on December 30, 2022 in response to a lawsuit filed by fast-food industry group Save the Restaurants seeking to halt the law from going into effect before it could collect 1 million petition signatures to qualify the referendum.

On January 24, 2023, the California Secretary of State completed its verification process and qualified the referendum (Referendum No. 1939 (Attorney General No. 22-0005)) for the November 5, 2024 ballot. The law will not take effect unless it is approved by voters in the November 2024 election.

This bill codifies an agreement that has been reached between the proponents of AB 257 and opposition (Save Local Restaurants – seeking the referendum of AB 257) that would repeal the existing FAST Act provisions, revise and recast them but only if the AB 257 referendum has been withdrawn by its proponents by January 1, 2024.

[NOTE: Please see the Senate Labor, Public Employment and Retirement Committee analysis on this bill for more background information and information on prior and related legislation.]

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee, assuming Referendum No. 1939 (Attorney General No. 22-0005) has been withdrawn by its proponents by January 1, 2024, this bill would have the following fiscal impacts:

• The Department of Industrial Relations (DIR) preliminarily estimates that, at a minimum, it would incur net annual administrative costs of $4 million to implement the provisions of the bill. Cost drivers would include staffing the Fast Food Council, legal workload, and operational costs resulting from internal and public meetings (Labor Enforcement and Compliance Fund, and Occupational Safety and Health Fund).
• This bill would result in one-time General Fund savings to the Secretary of State (SOS) for reduced printing and mailing costs resulting from the referendum’s removal from the statewide ballot. SOS estimates that each additional page in the statewide ballot pamphlet costs $123,000. Assuming eight pages would have been needed for the referendum, savings to SOS would be $984,000.
• Administrative costs to the Civil Rights Council, within the California Civil Rights Department, have yet to be identified, and would depend on future interaction with the Fast Food Council (General Fund).

SUPPORT: (Verified 9/13/23)

Action Center on Race and the Economy

Amigos de Guadalupe Center for Justice and Empowerment

California Alliance for Retired Americans

California Conference of Carpenters

California Rural Legal Assistance Foundation

CARAS Gilroy

Clergy and Laity United for Economic Justice

Fight for $15

Indivisible CA: StateStrong

International Franchise Association

Media Alliance

National Restaurant Association

North Bay Jobs with Justice

PowerSwitch Action

Santa Cruz Climate Action Network

Save Local Restaurants

SEIU California

Silicon Valley Rising Action

United for Respect

Working Partnerships USA

Worksafe

OPPOSITION: (Verified 9/13/23)

American Association of Franchisees and Dealers

Coalition of Franchisee Associations

ARGUMENTS IN SUPPORT: According to a coalition of labor and community advocates, “for the last decade, fast-food cooks, cashiers and baristas in California have been sounding the alarm on the poverty pay and unsafe working conditions plaguing the industry. Fast-food workers and community allies across the state have demanded that workers get a seat at the table to resolve these critical issues.” They argue that “new amendments to AB 1228, the Fast Food Franchisor Responsibility Act, were introduced to build on what was won under AB 257. Contingent upon the fast-food industry dropping their referendum against AB 257, the amendments to AB 1228 clear the path for fast-food workers to start making much-needed improvements to their wages and working conditions.”

According to the International Franchise Association, the National Restaurant Association and Save Local Restaurants, this agreement reflects the best interest of workers, local franchised restaurant owners and restaurant brands by: 1) protecting the franchise business model that provides opportunities for thousands of diverse Californians to become small business owners; 2) provides meaningful wage increases for workers; and 3) eliminates significant – and potentially existential – threats, costs, and regulatory burdens targeting local restaurants in California.

ARGUMENTS IN OPPOSITION: The American Association of Franchisees and Dealers writes in opposition arguing, “In significant disregard to hearing the voices of small business franchisee owners, the negotiated settlement was made between the International Franchise Association (IFA), the National Restaurant Association (NRA), and the Service Employees International Union (SEIU). If signed, the result would be onerous to the franchisee community who would have to bear the primary brunt of this settlement, which would not only significantly increase labor costs thereby forcing franchisees to increase costs to consumers; this, in turn, also benefits franchisors with a larger royalty base.” They view this as a “prime example of behind-the-scenes political maneuvering, raising concerns about transparency and fairness.”

ASSEMBLY FLOOR: 42-22, 5/31/23

AYES: Addis, Arambula, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Wendy Carrillo, Cervantes, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Gipson, Haney, Hart, Holden, Jackson, Jones-Sawyer, Kalra, Lee, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Ortega, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Santiago, Schiavo, Ting, Ward, Weber, Wicks, Wood, Zbur, Rendon

NOES: Alanis, Bains, Chen, Megan Dahle, Davies, Dixon, Essayli, Flora, Vince Fong, Gallagher, Hoover, Lackey, Low, Mathis, Stephanie Nguyen, Jim Patterson, Joe Patterson, Ramos, Sanchez, Ta, Waldron, Wallis

NO VOTE RECORDED: Aguiar-Curry, Alvarez, Bauer-Kahan, Juan Carrillo, Grayson, Irwin, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Blanca Rubio, Soria, Valencia, Villapudua, Wilson

Prepared by: Alma Perez-Schwab / L., P.E. & R. / (916) 651-1556

9/13/23 19:33:34

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 1228 (Holden) - Fast food restaurant industry: Fast Food Council: health, safety, employment, and minimum wage

Bill Summary:

AB 1228 would repeal, revise and recast provisions of the Fast Food Accountability and Standards Recovery Act, as specified.

Fiscal Impact:

Assuming Referendum No. 1939 (Attorney General No. 22-0005) has been withdrawn by its proponents by January 1, 2024, this bill would have the following fiscal impacts:

• The Department of Industrial Relations (DIR) preliminarily estimates that, at a minimum, it would incur net annual administrative costs of $4 million to implement the provisions of the bill. Cost drivers would include staffing the Fast Food Council, legal workload, and operational costs resulting from internal and public meetings (Labor Enforcement and Compliance Fund, and Occupational Safety and Health Fund).
• This bill would result in one-time General Fund savings to the Secretary of State (SOS) for reduced printing and mailing costs resulting from the referendum’s removal from the statewide ballot. SOS estimates that each additional page in the statewide ballot pamphlet costs $123,000. Assuming eight pages would have been needed for the referendum, savings to SOS would be $984,000.
• Administrative costs to the Civil Rights Council, within the California Civil Rights Department, have yet to be identified, and would depend on future interaction with the Fast Food Council (General Fund).

Background:

In 2022, the Legislature enacted AB 257 (Holden), the Fast Food Accountability and Standards Recovery Act (Fast Recovery Act). This Act created the Fast Food Council to establish sectorwide minimum standards related to fast food restaurant workers.

In response, opponents circulated a referendum challenging AB 257. Specifically, Referendum No. 1939 (Attorney General No. 22-0005) qualified for the November 5, 2024 General Election ballot, ensuring that AB 257’s provisions would not take effect unless approved by voters in the November 2024 election.

As introduced, this bill would have required that a fast food restaurant franchisor share with its franchisee all civil legal responsibility and civil liability for the franchisee’s violations of prescribed laws and orders or their implementing rules or regulations. These joint liability provisions were also in initial versions of AB 257, but were amended out of the bill before being signed by the Governor.

On September 11, 2023, this bill was amended to strike all the joint liability provisions and instead codify an agreement between the proponents and opponents of AB 257 that would repeal the existing FAST Recovery Act provisions and revise/recast them, but only if the AB 257 opposition withdraws its referendum by January 1, 2024.

Proposed Law:

This bill, among other things, would do the following:

• Repeal existing provisions of the FAST Recovery Act (Labor Code Sections 1470, 1471, 1472, and 1473), and revise and recast these provisions to make several changes to the Act but only if Referendum No. 1939 (Attorney General No. 22-0005) has been withdrawn by its proponents by January 1, 2024.
• Define various terms, including, among others, the following:
  • “Fast food restaurant” means a limited-service restaurant in the state that is part of a national fast food chain (as defined). Exempts from this definition, an establishment operating as a bakery that produces bread for sale on the establishment’s premises, as specified.
  • As noted by the Senate Committee on Labor, Public Employment and Retirement, the bill’s definition updates would not change the nature of which fast food/quick service restaurants are covered and retain much of the existing definitions in the FAST Act.
• Consistent with the existing FAST Act, specify that the Fast Food Council’s purposes are to establish fast food restaurant (as defined) minimum standards on wages, and develop fast food restaurant minimum standards on working hours, and other working conditions adequate to ensure and maintain the health, safety, and welfare of, and to supply the necessary cost of proper living to, fast food restaurant workers and to ensure and effect interagency coordination and prompt agency responses regarding issues affecting the health, safety, and employment of fast food restaurant workers.
• Modify the composition of the Council, as specified.
• Specify that the Council shall provide direction to, and coordinate with, state agencies regarding the health, safety and employment of fast food restaurant workers – striking (from the existing FAST Act) references to coordinating with the Governor and local agencies.
• Strike provisions from the existing FAST Act that would have required a petition signed by at least 10,000 California fast food restaurant employees before the Council could promulgate, petition for, issue, amend, or repeal any standards, rules or regulations.
• Require the Council to convene its first meeting by no later than March 15, 2024.
• In developing minimum fast food restaurant employment standards, authorize the Council to take account of regional difference.
• Strike from the existing FAST Ac, the Council’s sole authority to promulgate minimum fast food restaurant standards to instead include state agency involvement by specifying that all standards, rules and regulations developed by the Council shall be issued, amended, or repealed per existing Administrative Procedure Act rulemaking provisions and subject to the following:
  • With the exception of standards regarding the minimum wage, specifies that the Labor Commissioner shall be responsible for issuing, amending, or repealing, as applicable, standards developed by the Council, as specified.
  • Require the Council to send proposed written standards to the Labor Commissioner (LC) and request that the commissioner prepare a notice of proposed rulemaking action.
  • Upon receiving such request, LC shall determine whether the proposed written standards are consistent with the council’s authority and rulemaking law, as specified, and if it so, the LC shall prepare and submit to the Office of Administrative Law a notice of proposed rulemaking action, as specified.
• Provides that, if the LC determines that the proposed standards are not consistent with the council’s authority or do not meet the rulemaking criteria, the LC shall, within 60 days of receiving the council’s rulemaking request, provide the council with a written explanation of the reasons for that determination and allows the council to modify its proposal as appropriate.
• Grant the LC responsibility and authority to carry out the specified rulemaking requirements.
• Strike from the existing FAST Act, specified reporting requirements to the Legislature. Also strike provisions specifying that nothing restrains the Legislature from enacting legislation that prevents a standard, repeal, or amendment from taking effect.
• Modify the minimum wage provisions in the FAST Act to specify that, effective April 1, 2024, the hourly minimum wage for fast food restaurant employees shall be $20 per hour. Thereafter, and only until January 1, 2029 when the Council ceases to operate, provide that the Council may establish annual fast food restaurant employee minimum wage increases as specified.
• Specify that the minimum wage for fast food restaurant employees shall be enforced by the LC through the existing enforcement procedures of the Labor Code, or by a covered worker through a civil action, through the same means and with the same relief available for violations of any other state minimum wage requirement.
• Require DIR to update specified wage orders to be consistent with any minimum hourly wage adopted by the council and any other standards or requirements developed by the Council and adopted by the LC, as specified, except that any existing provisions providing greater protections or benefits shall continue in full force and effect.
• Add provisions specifying that to the extent that any minimum standards that the Fast Food Council finds are necessary fall within the jurisdiction of the Civil Rights Council, as defined, the Fast Food Council shall petition the Civil Rights Council for the adoption, amendment, or repeal of any such regulation.
• Require the Civil Rights Council to consider and respond to the petition no later than six months following receipt of the petition, or within no more than three months if the petition relates to an emergency, as defined, and prohibit the Civil Rights Council from adopting a recommended standard that would reduce protections provided under the California Fair Employment and Housing Act or other law within its jurisdiction.
• Maintain provisions from the FAST Act specifying that the Council does not have the authority to (1) create or amend statutes, and (2) set regulations creating new paid time off benefits (such as paid sick leave or paid vacation), or predictable scheduling.
• Strike from the FAST Act, provisions authorizing a county, or a city with a population of greater than 200,000, to establish a Local Fast Food Council to hold public meetings and provide written recommendation to the state Council regarding minimum health, safety and employment standards that the local council finds necessary but maintains local coordination provisions. Modify FAST Act provisions around local agency meetings, to specify that the Council may coordinate with local agencies and request that they hold public meetings or hearings, at which the public, including fast food restaurant employees, shall have the opportunity to be heard on issues of fast food restaurant health, safety, and employment conditions. After these meetings or hearings, the Council may request information from the local agencies, including any recommendations for action by the council.
• Authorize the LC to issue any other rules, regulations, and guidance necessary for the enforcement of these provisions, as specified.
• Preempt any local municipalities from establishing higher minimum wages, by prohibiting any ordinance or regulation applicable to fast food restaurant employees that sets the amount of wages or salaries for fast food restaurant employees from being enacted or enforced by any city, county, or city and county, including charter cities, charter counties, and charter cities and counties. However, these provisions do not preclude any employer from establishing higher wage or compensation rates for its employees or contracted employees.
• Specify that the above prohibition does not preclude a city, county, or city and county, including charter cities, charter counties, and charter cities and counties, from establishing a minimum wage that is generally applicable to all industries.
• Specify that all provisions, with some exceptions, become inoperative as of January 1, 2029 (consistent with the existing FAST Act provisions) and the Council shall cease operations but specify that any standards adopted by the appropriate agencies pursuant to these provisions shall not be impacted by the cessation of the Council.
• Modify but maintain provisions around unlawful discharge or discrimination of employees, to specify that, consistent with existing Labor Code protections, a fast food restaurant operator shall not discharge or in any manner discriminate or retaliate against any employee due to the employee’s participation in or testimony to any proceeding convened by the Council, as specified. The bill also would deem the Council a governmental agency for purposes of these prohibitions.
• Strike from the FAST Act provisions granting any employee of a fast food restaurant operator discharged or otherwise discriminated or retaliated against a right of action and prescribed remedies for such violations.
• Strike from the FAST Act a rebuttable presumption of unlawful discrimination or retaliation if a fast food restaurant operator discharges or take any adverse employment action against one of its employees within 90 days following the date when the operator had knowledge of that employee’s action or actions, as specified.
• Specify that these new provisions of the FAST Act shall become operative and shall take effect commencing January 1, 2024, only if Referendum No. 1939 (Attorney General No. 22-0005) has been withdrawn by its proponents by January 1, 2024. If that referendum has not been withdrawn by its proponents by January 1, 2024, these new provisions shall become inoperative on January 1, 2024, and as of that date, are repealed.

Related Legislation:

• AB 421 (Bryan, Chapter 162, Statutes of 2023), among other provisions, changes the certification timeline for statewide referendum allowing for additional time for proponents of a statewide referendum measure to withdraw the measure, as specified.
• AB 257 (Holden, Chapter 246, Statutes of 2022) enacted the Fast Food Accountability and Standards Recovery Act, as specified.

Staff Comments:

Any local government costs resulting from the mandate in this measure pertaining to the definition of a crime or the penalty for conviction of a crime are not state-reimbursable.

-- END --

SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Dave Cortese, Chair

2023 - 2024 Regular

Bill No: AB 1228 Hearing Date: September 12, 2023

SUBJECT: Fast food restaurant franchisors and franchisees: joint liability

KEY ISSUE

Should the Legislature repeal, revise and recast provisions of the Fast Food Accountability and Standards Recovery Act (FAST Act) to codify changes that have been negotiated and agreed to by both proponents and opponents (seeking a referendum) of AB 257 but only if the referendum is withdrawn by January 1, 2024?

ANALYSIS

Existing law:

1. Provides that the California Occupational Safety and Health Act assures safe and healthful working conditions for all workers by authorizing the enforcement of effective standards, assisting and encouraging employers to maintain safe and healthful working conditions, and by providing for research, information, education, training, and enforcement in the field of occupational safety and health. (Labor Code §6300)
2. Establishes the Division of Occupational Safety and Health (known as Cal/OSHA) within the Department of Industrial Relations (DIR) to, among other things, protect and improve the health and safety of workers by proposing, administering, and enforcing occupational safety and health standards. (Labor Code §140 et seq.; §6300 et seq.)
3. Establishes, also within DIR, the Division of Labor Standards and Enforcement (DLSE) under the direction of the Labor Commissioner (LC), with the duty to investigate employee complaints and enforce labor laws. (Labor Code §79 et seq.)
4. Establishes the Fast Food Accountability and Standards Recovery Act or FAST Recovery Act to, among other things, create the Fast Food Council within the Department of Industrial Relations (DIR) for the purpose of establishing sectorwide minimum standards on wages, working hours, and other working conditions adequate to ensure and maintain the health, safety, and welfare of, and to supply the necessary cost of proper living to, fast food restaurant workers, as specified. (Labor Code §1470-1473)
5. Defines, for purposes of these provisions, the following:
   1. “Fast food chain” means a set of restaurants consisting of 100 or more establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services.
   2. “Fast food restaurant” means any establishment in the state that is part of a fast food chain and that, in its regular business operations, primarily provides food or beverages in the following manner:
      1. For immediate consumption either on or off the premises.
      2. To customers who order or select items and pay before eating.
      3. With items prepared in advance, including items that may be prepared in bulk and kept hot, or with items prepared or heated quickly.
      4. With limited or no table service. Table service does not include orders placed by a customer on an electronic device.

(Labor Code §1470)

1. Establishes, until January 1, 2029, the Fast Food Council (Council) as a 10-member council, comprising of fast food employees, worker advocates, franchisors, franchisees, and government officials within DIR and the Governor’s Office of Business and Economic Development (Go-Biz) to provide direction to, and coordinate with, the Governor, executive and local agencies regarding the health, safety, and employment of fast food restaurant workers. (Labor Code §1471)
2. Prohibits the Fast Food Council from promulgating, petitioning for, issuing, amending, or repealing, any standards, rules, or regulations, as specified, until after the Director of Industrial Relations receives a petition approving the creation of the Council signed by at least 10,000 California fast food restaurant employees. (Labor Code §1471)
3. Provides that any minimum wage established by the Council shall, from January 1, 2023, to December 31, 2023, inclusive, not be greater than twenty-two dollars ($22) per hour and provides that, on January 1, 2024 and annually thereafter, the highest hourly minimum wage that may be established by the council shall increase by no more than the lesser of one of the following, rounded to the nearest ten cents ($0.10):
   1. 3.5 percent.
   2. The rate of change in the averages of the most recent July 1 to June 30, inclusive, period over the preceding July 1 to June 30, inclusive, period for the United States Bureau of Labor Statistics nonseasonally adjusted United States Consumer Price Index for Urban Wage Earners and Clerical Workers (U.S. CPI-W).

(Labor Code §1471)

1. Specifies that nothing in the provisions governing the Council shall be construed to 1) give the Council the authority to create or amend statutes; 2) permit the Council to promulgate regulations creating new paid time off benefits, such as paid sick leave or paid vacation; or 3) permit the Council to promulgate regulations regarding predictable scheduling, as specified. (Labor Code §1471)
2. Provides that, to the extent that any minimum standards that the Council finds are reasonably necessary to protect fast food restaurant employee health and safety fall within the jurisdiction of the Occupational Safety and Health Standards Board, the Council is not authorized to promulgate the standards but rather shall petition the board to adopt, amend, or repeal any relevant standards. (Labor Code §1471)
3. Requires the Council to conduct a full review of the adequacy of the minimum fast food restaurant health, safety, and employment standards at least once every three years and, upon that review, make necessary changes and/or petitions for changes, as specified. (Labor Code §1471)
4. Authorizes a county, or a city with a population of greater than 200,000, to establish a Local Fast Food Council, as specified, to periodically hold meetings that are open to the public, at which the public, including fast food restaurant employees, shall have the opportunity to be heard on issues of local fast food restaurant health, safety, and employment conditions. A Local Fast Food Council may provide written recommendations to the state Council regarding minimum state health, safety, and employment standards, including training, that the Local Fast Food Council finds are reasonably necessary to protect the health, safety, and welfare of fast food restaurant workers. A Local Fast Food Council shall operate independently from the council. (Labor Code §1471)
5. Requires the Labor Commissioner, the Division of Labor Standards Enforcement, and the Occupational Safety and Health to enforce the fast food restaurant standards promulgated by the Council, including investigating an alleged violation, and ordering appropriate temporary relief to mitigate the violation, through the procedures set forth in existing law, as specified. (Labor Code §1471)
6. Provides that a standard promulgated by the Council shall not supersede a standard covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work, and working conditions of the employees, and a regular hourly rate of pay not less than 30 percent more than the state minimum wage for those employees, if the agreement provides equivalent or greater protection than the standards established by the council and if state law on the same issue authorizes an exception for employees covered by a collective bargaining agreement. (Labor Code §1471)
7. Provides that on January 1, 2029, the provisions creating the Council and its authorities shall become inoperative, and the council shall cease operations. (Labor Code §1471)
8. Prohibits a fast food restaurant operator from discharging or in any manner discriminating or retaliating against any employee for, among other things, making a complaint or disclosing information to a person with authority to investigate, discover, or correct the violation or noncompliance, to the media, to the Legislature, or to a watchdog or community based organization, or a governmental agency regarding employee or public health or safety. Also protects employees refusing to work in violation of public health and safety laws, as specified. (Labor Code §1472)
9. Provides that any employee discharged or otherwise discriminated or retaliated against, as specified, shall have a right of action for, and shall be entitled to, reinstatement, and treble the lost wages and work benefits caused by the discrimination or retaliation, and the employee’s reasonably incurred attorney’s fees and costs. Additionally, includes a rebuttable presumption of unlawful discrimination or retaliation if a fast food operator discharges or takes any other adverse action against an employee within 90 days of the operators’ knowledge that the employee took any of the protected actions specified in (18) above. (Labor Code §1472)
10. Pursuant to a referendum petition, the provisions of the FAST Recovery Act have been suspended and are effective only if approved as a referendum measure at the November 5, 2024 election.

This bill:

1. Repeals existing provisions of the FAST Recovery Act, Sections 1470, 1471, 1472, and 1473, revises and recasts these provisions to make several changes to the Act but only if Referendum No. 1939 (Attorney General No. 22-0005) has been withdrawn by its proponents by January 1, 2024.
2. Provides various relevant definitions, including, among others, the following:
   1. “National fast food chain” means a set of limited-service restaurants consisting of more than 60 establishments nationally (was previously 100) 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 these definitions, “limited-service restaurant” includes, but is not limited to, an establishment with the North American Industry Classification System Code 722513.
   2. “Fast food restaurant” means a limited-service restaurant in the state that is part of a national fast food chain. Exempts from this definition, an establishment operating as a bakery that produces bread for sale on the establishment’s premises, as specified.
      1. These definition updates do not change the nature of which fast food/quick service restaurants are covered and retains much of the existing definitions in the FAST Act.
3. Consistent with the existing FAST Act, specifies that the Council’s purposes are to establish fast food restaurant minimum standards on wages, and develop fast food restaurant minimum standards on working hours, and other working conditions adequate to ensure and maintain the health, safety, and welfare of, and to supply the necessary cost of proper living to, fast food restaurant workers and to ensure and effect interagency coordination and prompt agency responses regarding issues affecting the health, safety, and employment of fast food restaurant workers.
4. Modifies the composition of the Council to reduce its size form ten to nine members and remove the agency representatives (one from DIR and one from Go-Biz) as voting members of the Council and instead adds one unaffiliated member of the public to the Council, as specified. One representative from DIR and one representative from Go-Biz shall be nonvoting members of the Council.
5. Provides that the unaffiliated member of the public shall be the chairperson of the Council.
6. Specifies that the Council shall provide direction to, and coordinate with, state agencies regarding the health, safety and employment of fast food restaurant workers – striking (from the existing FAST Act) references to coordinating with the Governor and local agencies.
7. Strikes provisions from the existing FAST Act that would have required a petition signed by at least 10,000 California fast food restaurant employees before the Council could promulgate, petition for, issue, amend, or repeal any standards, rules or regulations.
8. Requires the Council to convene its first meeting by no later than March 15, 2024.
9. In developing minimum fast food restaurant employment standards, authorizes the Council to take account of regional difference.
10. Strikes from the existing FAST Act, the Council’s sole authority to promulgate minimum fast food restaurant standards to instead include state agency involvement by specifying that all standards, rules and regulations developed by the Council shall be issued, amended, or repealed per existing Administrative Procedure Act rulemaking provisions and subject to the following:
    1. With the exception of standards regarding the minimum wage, specifies that the Labor Commissioner shall be responsible for issuing, amending, or repealing, as applicable, standards developed by the Council, as specified.
    2. Requires the Council to send proposed written standards to the LC and request that the commissioner prepare a notice of proposed rulemaking action.
    3. Upon receiving such request, the LC shall determine whether the proposed written standards are consistent with the council’s authority and rulemaking law, as specified, and if it so, the LC shall prepare and submit to the Office of Administrative Law a notice of proposed rulemaking action, as specified.
11. Provides that, if the LC determines that the proposed standards are not consistent with the council’s authority or do not meet the rulemaking criteria, the LC shall, within 60 days of receiving the council’s rulemaking request, provide the council with a written explanation of the reasons for that determination and allows the council to modify its proposal as appropriate.
12. Grants the LC responsibility and authority to carry out the specified rulemaking requirements per Sections 11346.8 and 11346.9 of the Government Code.
13. Strikes from the existing FAST Act, provisions requiring the Council to submit, to the appropriate committees on labor of each house of the Legislature, a report that contains a copy of proposed standards, repeals, or amendments and a statement of the council’s reasons for adopting them by January 15 and prohibition on those going into effect before October 15 of that same year. Also strikes provisions specifying that nothing restrains the Legislature from enacting legislation that prevents a standard, repeal, or amendment from taking effect.
14. Maintains the requirement in the FAST Act that the Council provide information as requested by the appropriate committees of the Legislature on labor to facilitate a review of the council’s performance and standards, which review may be conducted in a joint hearing held every three years or as otherwise designated by the appropriate committees of the Legislature on labor.
15. Modifies the minimum wage provisions in the FAST Act to specify that, effective April 1, 2024, the hourly minimum wage for fast food restaurant employees shall be twenty dollars ($20) per hour. Thereafter, and only until January 1, 2029 when the Council ceases to operate, provides that the Council may establish annual fast food restaurant employee minimum wage increases as follows:
    1. No more than the lesser of the following, rounded to the nearest ten cents ($0.10):
       1. 3.5 percent; or
       2. The rate of change in the annual United States Consumer Price Index for Urban Wage Earners and Clerical Workers (U.S. CPI-W), as specified.
16. In establishing the annual minimum wage increases, authorizes the Council to elect to set minimum standards that vary by region or to set a statewide minimum wage increase.
17. Specifies that the minimum wage for fast food restaurant employees shall be enforced by the LC through the existing enforcement procedures of the Labor Code, or by a covered worker through a civil action, through the same means and with the same relief available for violations of any other state minimum wage requirement.
18. Requires DIR to update specified wage orders to be consistent with any minimum hourly wage adopted by the council and any other standards or requirements developed by the Council and adopted by the LC, as specified, except that any existing provisions providing greater protections or benefits shall continue in full force and effect.
19. Strikes provisions in the FAST Act requiring annual increases to the minimum wage, as specified, after January 1, 2029 when the Council is no longer operative.
20. Prohibits the Council from establishing any minimum wage increase that takes effect commencing on a date after the 2029 calendar year (when the provisions of the Council become inoperative), however, authorizes the Council to provide advice to any appropriate state agencies regarding minimum wage increases that would take effect commencing on a date on or after January 1, 2030.
21. Adds provisions specifying that to the extent that any minimum standards that the Fast Food Council finds are necessary fall within the jurisdiction of the Civil Rights Council, as defined, the Fast Food Council shall petition the Civil Rights Council for the adoption, amendment, or repeal of any such regulation.
22. Requires the Civil Rights Council to consider and respond to the petition no later than six months following receipt of the petition, or within no more than three months if the petition relates to an emergency, as defined, and prohibits the Civil Rights Council from adopting a recommended standard that would reduce protections provided under the California Fair Employment and Housing Act or other law within the Civil Rights Council’s jurisdiction.
23. Maintains from the FAST Act, provisions specifying that the Council does not have the authority to create or amend statutes; can’t set regulations creating new paid time off benefits, such as paid sick leave or paid vacation, or predictable scheduling.
24. Strikes from the FAST Act, provisions authorizing a county, or a city with a population of greater than 200,000, to establish a Local Fast Food Council to hold public meetings and provide written recommendation to the state Council regarding minimum health, safety and employment standards that the local council finds necessary but maintains local coordination provisions, outlined in (25) below.
25. Modifies FAST Act provisions around local agency meetings, to specify that the Council may coordinate with local agencies and request that they hold public meetings or hearings, at which the public, including fast food restaurant employees, shall have the opportunity to be heard on issues of fast food restaurant health, safety, and employment conditions. After these meetings or hearings, the Council may request information from the local agencies, including any recommendations for action by the council.
26. Maintains existing Labor Commissioner enforcement provisions, as specified, and remedies for violations as currently found in the FAST Act.
27. Provides that the Labor Commissioner is authorized to issue any other rules, regulations, and guidance necessary for the enforcement of these provisions, as specified.
28. Preempts any local municipalities from establishing higher minimum wages, by prohibiting any ordinance or regulation applicable to fast food restaurant employees that sets the amount of wages or salaries for fast food restaurant employees from being enacted or enforced by any city, county, or city and county, including charter cities, charter counties, and charter cities and counties. However, these provisions do not preclude any employer from establishing higher wage or compensation rates for its employees or contracted employees.
29. Specifies that the above prohibition does not preclude a city, county, or city and county, including charter cities, charter counties, and charter cities and counties, from establishing a minimum wage that is generally applicable to all industries.
30. Specifies that all provisions, with some exceptions, become inoperative as of January 1, 2029 (consistent with the existing FAST Act provisions) and the Council shall cease operations but specifies that any standards adopted by the appropriate agencies pursuant to these provisions shall not be impacted by the cessation of the Council.
31. Modifies but maintains provisions around unlawful discharge or discrimination of employees, to specify that, consistent with existing Labor Code protections, a fast food restaurant operator shall not discharge or in any manner discriminate or retaliate against any employee due to the employee’s participation in or testimony to any proceeding convened by the Council, as specified. The bill also deems the Council a governmental agency for purposes of these prohibitions.
32. Strikes from the FAST Act, provisions granting any employee of a fast food restaurant operator discharged or otherwise discriminated or retaliated against a right of action and prescribed remedies for such violations.
33. Strikes from the FAST Act, a rebuttable presumption of unlawful discrimination or retaliation if a fast food restaurant operator discharges or take any adverse employment action against one of its employees within 90 days following the date when the operator had knowledge of that employee’s action or actions, as specified.
34. Specifies that these new provisions of the FAST Act shall become operative and shall take effect commencing January 1, 2024, only if Referendum No. 1939 (Attorney General No. 22-0005) has been withdrawn by its proponents by January 1, 2024. If that referendum has not been withdrawn by its proponents by January 1, 2024, these new provisions shall become inoperative on January 1, 2024, and as of that date, are repealed.
35. Finds and declares that establishing uniform statewide regulation of certain aspects of minimum wage for fast food restaurant workers is a matter of statewide concern and directs specified provisions to apply to all cities, including charter cities.

COMMENTS

1. Background: Workplace Health and Safety of Fast Food Workers

California employers have a legal obligation to provide and maintain a safe and healthful workplace for their employees as well as abide by minimum wage and labor standards required under the Labor Code. In spite of these protections, wage theft and labor law violations continue to be a problem many workers face. According to a Department of Industrial Relations (DIR) Labor Enforcement Task Force April 16, 2021^[1] report to the Legislature, over the last couple of years, nine out of ten businesses inspected were found to be out of compliance by at least one LETF partner agency. In addition, LETF assessed over $8.3 million in wages due to workers.

Because of the continuing impacts of COVID-19 and increased costs of living, workers in California are struggling to make ends meet. A University of California Los Angeles Labor Center report, “The Fast-Food Industry and COVID-19 in Los Angeles,” found that “fast-food workers were more than twice as likely as other workers to fall below the federal poverty line, and more than one-and-one-half times more likely to be uninsured. Low wages caused two-thirds to enroll in a safety net program—at a public cost of $1.2 billion. Nearly seven in ten fast-food workers were women vulnerable to sexual harassment in the industry. Further, we reviewed studies that showed that even before COVID-19, fast-food workers in Los Angeles County faced disproportionately high rates of injury, workplace violence, harassment, retaliation, and wage theft.”

2. AB 257 FAST Recovery Act Passage and Referendum:

Last year, AB 257 (Holden, Chapter 246, Statutes of 2022) enacted the Fast Food Accountability and Standards Recovery Act or FAST Recovery Act. As noted under existing law above, the FAST Act created the Fast Food Council to establish sectorwide minimum standards on wages, working hours, and other working conditions adequate to ensure the health, safety, and welfare of, and to supply the necessary cost of proper living to, fast food restaurant workers. AB 257 was opposed by various organizations, including the California Chamber of Commerce, California Restaurant Association and the International Franchise Association.

Not long after AB 257 was signed by the Governor, a coalition of California small business owners, restauranteurs, franchisees and related entities, organized as Save Local Restaurants, submitted a referendum petition challenging AB 257. AB 257 was set to go into effect on January 1, 2023 before a Sacramento judge put it on hold on December 30, 2022 in response to a lawsuit filed by fast-food industry group Save the Restaurants seeking to halt the law from going into effect before it could collect 1 million petition signatures to qualify the referendum.

On January 24, 2023, the California Secretary of State completed its verification process and qualified the referendum (Referendum No. 1939 (Attorney General No. 22-0005)) for the November 5, 2024 ballot. The law will not take effect unless it is approved by voters in the November 2024 election.

3. Need for this bill?

This bill, AB 1228 (Holden), as introduced this year, would have required that a fast food restaurant franchisor share with its fast food restaurant franchisee all civil legal responsibility and civil liability for the franchisee’s violations of prescribed laws and orders or their implementing rules or regulations. These joint liability provisions were also in versions of AB 257 but were amended out of the bill on August 25, 2022.

On September 11, 2023, AB 1228 was amended to strike all the joint liability provisions and instead codify an agreement that has been reached between the proponents of AB 257 and opposition (Save Local Restaurants – seeking the referendum of AB 257) that would repeal the existing FAST Act provisions, revise and recast them but only if the AB 257 referendum has been withdrawn by its proponents by January 1, 2024.

According to the author, “AB 1228, as amended, creates a path forward to resolve employer community concerns around the content of AB 257 (2022) while preserving fast food workers' hard fought efforts to secure a seat at the table and means to raise standards. The joint liability provisions of AB 1228 will be replaced with an updated version of AB 257’s Fast Food Council that will go into effect providing the referendum is withdrawn by January 1, 2024.”

4. Proponent Arguments:

According to a coalition of labor and community advocates, “for the last decade, fast-food cooks, cashiers and baristas in California have been sounding the alarm on the poverty pay and unsafe working conditions plaguing the industry. Fast-food workers and community allies across the state have demanded that workers get a seat at the table to resolve these critical issues.” They argue that “new amendments to AB 1228, the Fast Food Franchisor Responsibility Act, were introduced to build on what was won under AB 257. Contingent upon the fast-food industry dropping their referendum against AB 257, the amendments to AB 1228 clear the path for fast-food workers to start making much-needed improvements to their wages and working conditions.”

According to the International Franchise Association, the National Restaurant Association and Save Local Restaurants, this agreement reflects the best interest of workers, local franchised restaurant owners and restaurant brands by: 1) protecting the franchise business model that provides opportunities for thousands of diverse Californians to become small business owners; 2) provides meaningful wage increases for workers; and 3) eliminates significant – and potentially existential – threats, costs, and regulatory burdens targeting local restaurants in California.

5. Opponent Arguments:

None received.

6. Prior and Related Legislation:

AB 1228 (Holden, 2023): the previous version of this bill also dealt with the fast food industry and would have required that a fast food restaurant franchisor share with its fast food restaurant franchisee all civil legal responsibility and civil liability for the franchisee’s violations of prescribed laws and orders or their implementing rules or regulations. Joint liability provisions were also in versions of AB 257 but were amended out of the bill on August 25, 2022.

AB 421 (Bryan, Chapter 162, Statutes of 2023), signed into law on September 8, 2023, requires the top funders be listed in the state voter information guide for a referendum measure, as specified. This bill also recasts the ballot question and responses for a referendum measure, as specified. Finally, this bill changes the certification timeline for statewide referendum allowing for additional time for proponents of a statewide referendum measure to withdraw the measure, as specified. AB 421 was a key to AB 1228 moving in this direction because it created a process for proponents of a referendum to withdraw their measure from the ballot until 131 days before the election, this process already existed for other statewide initiatives but not for efforts to overturn a law passed through the legislative process.

AB 257 (Holden, Chapter 246, Statutes of 2022) enacted the Fast Food Accountability and Standards Recovery Act to, among other things, establish the Fast Food Council within the Department of Industrial Relations, with a sunset date of January 1, 2029, for the purpose of establishing sectorwide minimum standards on wages, working hours, and other working conditions related to the health, safety, and welfare of, and supplying the necessary cost of proper living to, fast food restaurant workers.

SUPPORT

Action Center on Race and the Economy

Amigos de Guadalupe Center for Justice and Empowerment

California Alliance for Retired Americans

California Rural Legal Assistance Foundation

CARAS Gilroy

Clergy and Laity United for Economic Justice

Fight for $15

Indivisible CA: StateStrong

International Franchise Association

Media Alliance

National Restaurant Association

North Bay Jobs with Justice

PowerSwitch Action

Santa Cruz Climate Action Network

Save Local Restaurants

SEIU California

Silicon Valley Rising Action

United for Respect

Working Partnerships USA

Worksafe

OPPOSITION

None received

-- END --

1. Labor Enforcement Task Force Report to the Legislature, April 16, 2021. https://www.dir.ca.gov/letf/LETF-Legislative-Report-2021.pdf ↑

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: AB 1228 (Author:Holden)

Version: February 16, 2023

Hearing Date: July 11, 2023

Fiscal: Yes

Urgency: No

Consultant: ME

SUBJECT

Fast food restaurant franchisors and franchisees: joint liability

DIGEST

This bill increases fast food franchisors’ legal accountability for their franchisees’ compliance with labor standards through, among other things, imposition of joint and several liability on the franchisor for specified labor violations and other violations committed by the franchisee.

EXECUTIVE SUMMARY

There is evidence that workplace pay and safety violations are prevalent in the fast food industry. In an attempt to ensure specified labor laws and other laws are adhered to at fast food establishments, this bill makes fast food franchisors jointly and severally liable for specified violations committed by their franchisees and empowers fast food franchisees to sue their franchisor if the franchise terms make it impossible for the franchisee to comply with specified laws.

The bill is sponsored by the Service Employees International Union (SEIU) California and the Fight for $15 and a Union. Support comes from organized labor. Opposition comes from franchisors, fast food operators, and business associations. The bill passed out of the Senate Labor, Public Employment and Retirement Committee by a vote of 4 to 1.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Establishes, within the Department of Industrial Relations (DIR), the Division of Labor Standards and Enforcement under the direction of the Labor Commissioner and authorizes them to investigate employee complaints, conduct administrative law hearings, and enforce labor laws. (Lab. Code §§ 79 et seq.)
2. Establishes the Division of Occupational Safety and Health of California (Cal/OSHA) within the DIR to protect and improve the health and safety of workers by setting and enforcing standards, providing outreach, education, and assistance, and issuing permits, licenses and registrations. (Lab. Code §§ 140 et seq.)
3. Creates the California Retail Food Code which establishes uniform health and sanitation standards for retail food facilities, as defined. Requires a local health officer or a local law enforcement agency to notify the person in charge of the food facility, investigate conditions, and take appropriate action when a health officer is notified of an illness that can be transmitted by food or an employee in a food facility. (Health & Saf. Code §§ 113949.1 and 113949.2.)
4. Provides, pursuant to the California Franchise Relations Act, for a set of rules governing the termination, nonrenewal, and transfer of franchises between a franchisor, a subfranchisor (if any), and a franchisee. (Bus. & Prof. Code §§ 20000 et seq.)
5. Requires, under the California Franchise Investment Law, registration with the state, the disclosure of specified information, and the provisions of specified documentation as part of the offer or sale of franchise opportunities in California. (Corps. Code §§ 31000 et seq.)
6. Establishes the Fast Food Accountability and Standards Recovery Act which, among other things, establishes the Fast Food Council within the Department of Industrial Relations, with a sunset date of January 1, 2029, for the purpose of establishing sectorwide minimum standards on wages, working hours, and other working conditions related to the health, safety, and welfare of, and supplying the necessary cost of proper living to, fast food restaurant workers. Implementation and enforcement of the Act is on hold until it is approved by voters in November 2024.

This bill:

1. Provides that a fast food restaurant franchisor shall share with its fast food restaurant franchisee all civil legal responsibility and civil liability for the fast food restaurant franchisee’s violations of specified laws and orders or their implementing rules or regulations.
2. Provides that the laws, orders, rules, and regulations in subdivision 1) may be enforced against a fast food restaurant franchisor, including administratively or by civil action, to the same extent that they may be enforced against the fast food restaurant franchisor’s franchisee.
3. Prohibits a civil action from being commenced against a fast food restaurant franchisor for the violation of the specified laws prior to 30 days after written notice of the alleged violation of any of the laws and orders set forth in 1), or their implementing rules or regulations, has been given to the fast food restaurant franchisor by a person commencing the action. That time period shall be extended to 60 days if a fast food restaurant franchisor, within 30 days of receiving a written notice, makes a written request to the noticing person for additional time to complete an investigation.
4. Provides that a fast food restaurant franchisor shall not be liable in a civil action if the fast food restaurant franchisor cures the alleged violation within the applicable time period in paragraph 3).
5. Provides that “cure” means that the fast food restaurant franchisor abates each violation alleged and ensures that its fast food restaurant franchisee is in compliance with the underlying laws, orders, rules, or regulations specified in the notice, and that any fast food restaurant workers against whom a violation was committed are made whole.
6. Provides that a waiver of the provisions of this bill, or any agreement by a fast food restaurant franchisee to indemnify its fast food restaurant franchisor for liability under this section, is contrary to public policy and is void and unenforceable.
7. Allows the fast food restaurant franchisee to file an action against its fast food restaurant franchisor for monetary or injunctive relief necessary to ensure compliance if the terms of a fast food restaurant franchise prevent or create a substantial barrier to a fast food restaurant franchisee’s compliance with the laws and orders set forth in subdivision 1) and their implementing rules and regulations, or any changes to them, including, but not limited to, because the franchise does not provide for funds sufficient to allow the fast food restaurant franchisee to comply with the laws, orders, rules, and regulations, or any changes to them.
8. Provides that there is a rebuttable presumption that any changes in the terms of a franchise that increase the costs of the franchise to the fast food restaurant franchisee create a substantial barrier to compliance with the laws and orders set forth in 1) and their implementing rules and regulations, or any changes to them.
9. Specifies that “fast food chain” means a set of restaurants consisting of 100 or more establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services.
10. Specifies that “fast food restaurant” means any establishment in the state that is part of a fast food chain and that, in its regular business operations, primarily provides food or beverages in the following manner:

(A) for immediate consumption either on or off the premises;

(B) to customers who order or select items and pay before eating;

(C) with items prepared in advance, including items that may be prepared in bulk and kept hot, or with items prepared or heated quickly; and

(D) with limited or no table service, as specified.

1. “Fast food restaurant franchisee” means a person to whom a fast food restaurant franchise is granted.
2. “Fast food restaurant franchisor” means a person who grants or has granted a fast food restaurant franchise.
3. “Franchise,” “franchisee,” and “franchisor” have the definitions set forth in Article 1 (commencing with Section 20000) of Chapter 5.5 of Division 8 of the Business and Professions Code.
4. Makes findings and declarations highlighting the low wages and poor working conditions in the fast food industry and stressing the inadequacy of existing enforcement and regulatory mechanisms to address these problems.

COMMENTS

1. Evidence of low wages, poor conditions, and labor violations in the fast food sector

The author states that California’s fast food industry employs over 556,000 Californians, the majority of whom are over 23 years old and nearly 70 percent are people of color.

There is evidence that wages are generally low and working conditions are often poor in the fast food industry. The COVID-19 pandemic exacerbated these problems. As explained by the Senate Labor, Public Employment and Retirement Committee in its analysis of AB 247 (Holden, 2023):

A University of California Los Angeles Labor Center report, “The Fast-Food Industry and COVID-19 in Los Angeles,” reveals alarming data about fast-food workers in particular. According to the report, “A growing body of research reveals workplaces, and food service in particular, to be a common vector of COVID-19 transmission. Research published early in 2021 found that cooks had the highest increase in mortality—up by 39% from 2019—of any occupation during the pandemic. Occupations with frequent interactions with the public and close proximity among workers increase the likelihood of transmission. This is the case for food preparation workers and servers, dominated by Latinx and Black workers, who are particularly vulnerable to workplace exposure. Further, an analysis of fast-food worker complaints found that those worksites had multiple elements of noncompliance such as lack of adequate PPE, physical distancing, screening, and exposure notification.”

Additionally, the report finds that “fast-food workers were more than twice as likely as other workers to fall below the federal poverty line, and more than one-and-one-half times more likely to be uninsured. Low wages caused two-thirds to enroll in a safety net program—at a public cost of $1.2 billion. Nearly seven in ten fast-food workers were women vulnerable to sexual harassment in the industry. Further, we reviewed studies that showed that even before COVID-19, fast-food workers in Los Angeles County faced disproportionately high rates of injury, workplace violence, harassment, retaliation, and wage theft.”

There is also evidence that labor violations are rampant in the fast food industry. In a survey of over a thousand fast food employees across the nation in 2014, 90 percent of those workers reported being forced to work off the clock, denied breaks, or refused overtime pay.^[1] A 2015 survey of well over a thousand fast food workers nationwide revealed that 87 percent had experienced at least one workplace injury over the course of the last year.^[2] And a 2016 survey of over a thousand female fast food workers showed that 60 percent had endured sexual harassment on the job.^[3]

2. The components of this bill

a. Joint and several liability between franchisor and franchisee for labor and other specified violations of the law

This bill makes franchisors jointly and severally liable for specified labor violations committed by their franchisees and for their franchisees’ violation of unfair competition law, discrimination law, and pay data reporting law. In other words, if a franchisee engages in wage theft of their employee then the franchisor is also on the hook for the wage theft. The idea is that the franchisor bears the burden of the wage theft instead of the worker and their family.

Liability refers to the legal responsibility to compensate someone for harm that happens to them, to pay a penalty for breaking the law, or both. In most scenarios, the law assigns liability to the person or entity who caused the harm or who violated the law. Joint and several liability refers to scenarios in which the law assigns full responsibility to compensate someone or to pay for a violation to more than one person or entity.

In the context of businesses operating under the franchise model, the current default rule in California is that only the franchisee is responsible for any labor violations that take place at franchise locations. However, where the franchisor exerts sufficient control over the working conditions at a franchise, the California courts have held that the franchisor can be held joint and severally liable for labor violations that occur at that franchise. (Patterson v. Domino’s Pizza (2014) 60 Cal. 4th 474.)

Opponents argue that this dynamic encourages franchisors to stay out of the franchisee’s way, at least with respect to labor practices. They contend that this space provides franchisees with a feeling of entrepreneurial freedom. In this sense, opponents note that franchisees are not merely managers carrying out orders from the franchisor, but independent proprietors.

By contrast, the proponents emphasize that the current rule about joint and several liability for labor violations creates a financial incentive for franchisors to avoid exercising control over the labor practices taking place at their franchises. Proponents note that the less the franchisor can claim to know or do anything about working conditions at their franchises, the safer the franchisor is from sharing liability. Indeed, when it comes to the possibility that there are labor violations taking place among their franchisees, the current legal dynamic rewards franchisors for burying their head in the sand.

This bill proposes, instead, that franchisors would always be jointly and severally liable for their franchisees’ labor law violations, regardless of the degree of control that the franchisor exercises over day-to-day working conditions at their franchise locations. Almost certainly, this move would increase compliance with labor laws in the fast food sector. The imposition of joint and several liability would strongly incentivize franchisors to monitor their franchisees closely for labor violations because the franchisors would now have skin in that game. Proponents note that monitoring pay and working conditions at the franchises should not be especially difficult for franchisors to manage; after all, in many cases they already monitor and audit an extraordinary number of details about how their franchises operate, from menu options down to the type of lightbulbs used.^[4] And, if that increased vigilance fails to prevent the labor violations from occurring in the first place, making the franchisor jointly and severally liable for these violations makes it more likely that the workers actually receive their unpaid wages or penalties, since collection would no longer depend on the financial responsibility and solvency of the franchisee alone.

To the opponents of this bill, however, imposition of joint and several liability for labor law violations strikes at a core aspect of the franchise business model. It would, the opponents assert, completely undermine the entrepreneurial independence that characterizes the franchise business model for both franchisees and franchisors. If this component of the bill is enacted, the opponents say, one of two things would happen: either franchisors would swoop in and begin to micromanage their franchisees’ labor practices or the franchisors would abandon the franchise model altogether and simply own and manage each of their outlets themselves.

Whether these things would indeed come to pass is hard to say. Staff notes that the bill does not require or even incentivize franchisors to take responsibility for every aspect of their franchisees’ business operations. The bill only makes franchisors legally responsible for ensuring that the franchisees are obeying labor laws – something franchisees are already obligated to do.

There is a mechanism whereby the franchisor can avoid liability pursuant to the bill. The bill provides that a franchisor shall not be liable in a civil action under the bill if the franchisor cures the alleged violation within a specified period of time. In order to cure, the franchisor must abate each violation alleged and ensure that the franchisee is in compliance with the underlying laws, orders, rules, or regulations that were alleged to be violated and the franchisor must make whole any fast food restaurant workers against whom a violation was committed.

b. Cause of action by franchisee against franchisor for franchise terms that render compliance with labor laws impossible

The bill creates a new civil cause of action that a franchisee could bring against a franchisor for imposition of franchise terms that either create a substantial barrier for the franchisee to comply with the specified laws. Prevailing franchisees could get monetary or injunctive relief sufficient to enable the franchisees to return to compliance with the law.

According to the proponents of the bill, this component of the bill is intended to get at franchisor practices that effectively push franchisees to ignore the law. For example, the proponents report that at least one fast food franchisor requires its franchisees to use employee monitoring software that will not track meal and rest breaks, thus complicating the franchisees’ ability to comply with state law that mandates such breaks.

Up to this point, this aspect of the bill might be seen as essentially reiterating, in the fast food franchise context, the general contract law principle that contractual terms which violate public policy are void and unenforceable. (Civ. Code § 1667.) Thus, a term within a franchise agreement that genuinely forced a franchisee to disobey the laws presumably could not be enforced, since it would violate the public policy expressed through the law. The challenge in such cases is not the legal standard, but convincing a court that the franchise terms truly left the franchisee with no reasonable alternative other than to break labor laws.

Perhaps because of that challenge, the bill pairs this new cause of action with a related rebuttable presumption: any change in the terms of the franchise agreement that increases the costs of the franchise to the franchisee is presumed to force the franchisee out of compliance with labor laws. Now, rather than the franchisee having to convince the court that it had no reasonable alternative for complying with the franchise agreement other than to violate the law, the onus would be on the franchisor to convince the court that the franchisee did have other options. This switch would likely cause franchisors to be far more careful when altering the terms of their franchise agreements.

In reaction to this component of this bill, the opponents raise concerns that franchisees could easily allege that franchise fees or other franchise agreement terms caused workplace violations, when in fact the franchisee’s own performance shortcomings or financial management are to blame. While such a scenario seems plausible, it also seems to be addressed within the statutory framework: the franchisor could rebut the presumption by showing that the real source of the problem is the franchisee, not the terms of the franchisee agreement. Still, the opponents argue that the existence of the rebuttable presumption and cause of action would “chill” the franchisor from ever making adjustments to the franchise agreement terms, even when those changes might be to the franchisee’s benefit.

3. Proponents arguments in support of the bill

According to the author:

AB 1228 is a bill aimed at protecting workers and supporting local businesses by ending corporations’ ability to exploit the franchise system. As a former fast-food franchisee, I know how much pressure maintaining a safe and healthy working environment puts on local owner-operators, especially when global corporations refuse to contribute their share.

The fast food restaurant industry has long been rampant with employment law violations, including wage theft that includes violations such as minimum wage, overtime, off-the-clock, and meal break violations, sexual harassment and discrimination, and workplace injuries and violence.

Franchisee-owned fast food restaurants experience systematically higher levels of noncompliance with minimum wage and overtime than do comparable establishments owned and managed by the franchisor.

The franchise model under which those fast food restaurants are operated contributes to the high rate of employment violations. Fast food franchisors wield substantial financial, informational, and legal power relative to their franchisees. Fast food restaurant franchisors control, or exercise substantial control and oversight over, many aspects of their franchisees’ operations, including as documented in the terms of their franchise agreements.

Fast food restaurant franchisors’ ability to impose strict franchise terms and conditions on franchisees that siphon profits to the franchisors and restrict franchisees’ business operations directly impacts those franchisees’ ability to pay, support, and protect their workers.

The pressure these conditions place on franchisees’ profit margins increases the likelihood that franchisees will have difficulty complying with regulatory protections.

Despite their contributions to the problem, fast food restaurant franchisors often avoid liability, and disavow any responsibility, for the employment violations affecting the fast food restaurant workers in their franchised stores.

As sponsors of the bill, Service Employees International Union – California and Fight for $15 jointly write:

[ . . . ]

A study examining how the franchise model affects compliance with basic labor standards found that franchisee-owned fast-food restaurants experience systematically higher levels of noncompliance with minimum wage and overtime laws than comparable, corporate-owned establishments. This research posits that pressure from corporations to cut costs and keep profits high creates environments ripe for exploitation, abuse and rampant violations of employment laws.

Rather than take responsibility for the conditions they have created, corporate franchisors have designed the franchise system to shield themselves from liability for labor violations. These billion-dollar corporations have written the rules so that they can enjoy maximum control and maximum profits while leaving small businesses owners and workers to fend for themselves. This power imbalance hurts local economies as well as California taxpayers, who foot a bill of $4 billion annually for the portion of social safety net programs that subsidize the fast-food industry’s workers. Robert Zarco, an attorney for a trade group representing McDonald’s franchisees, told the Wall Street Journal, “legislation can address the ‘unequal bargaining power’ that franchisers have over franchisees.”

Across the state, it’s communities of color that bear the largest impact of the industry’s low wages, dangerous working conditions and rampant labor violations. With more than 557,000 workers across more than 30,000 locations, California’s fast food industry stands out as one of the largest, fastest growing low-wage workforces in the state. In our state, fast food workers are nearly 80 percent people of color and more than 60 percent Latino/Latina; 25 percent of them are the main income earner in their family.

A recent report from Economic Roundtable, a leading nonprofit urban research organization, finds the fast-food industry has a larger share of workers in poverty than any other industry, with 1 in 9 unhoused California workers employed in fast-food. A report from the Fight for $15 and a Union suggests that roughly 85% of California’s fast food workers have been victims of wage theft, which has been deemed the nation’s costliest crime. These workers also struggle with the lowest wages and least predictable schedules in the state, leaving more than half of the workers living in poverty. In addition, violence, harassment and retaliation for speaking out about these issues have become unnecessary hazards of this job.

AB 1228 marks a pivotal next step in California fast-food workers’ fight for respect and a stronger voice on the job. Last year, Gov. Gavin Newsom signed AB 257, the FAST Recovery Act, creating a statewide Fast Food Council that brings together fast-food employers, workers and state regulators to work together to improve conditions in the industry. To skirt accountability and delay implementation of AB 257, fast-food corporations have funneled millions of dollars into a deceptive and misguided campaign to overturn the landmark labor law.

California has led the nation in recovering from the economic crises of the past few years. In order to continue building a more equitable California, we must look to creative ways to support our small businesses and frontline workers. Currently, California fast-food workers and franchisees lack adequate power and protections necessary to hold global fast-food companies accountable. The Fast Food Corporate Franchisor Responsibility Act aims to protect workers and support local business by ending corporations’ ability to exploit the franchise system that has created so many jobs in our communities. For this reason, we ask that you support this bill when it is heard in front of your committee.

[ . . . ]

4. Opponents arguments against the bill

In opposition to the bill, the International Franchise Association, California Chamber of Commerce, California Restaurant Association, their members, and coalition partners write:

[ . . . ]

In reality, franchise establishments across the state are locally owned small businesses operating under a national brand or identity. The local business owners are in charge of all employment decisions, including hiring, firing, wages and benefits. It is the local franchisee who owns and operates the establishment, not the franchisor. In fact, the national brands have no role whatsoever in determining wages or any other day-to-day operations of a franchisees’ employees and/or employment practices of a franchisee.

With establishment of joint liability of franchisors by AB 1228, California is making a per se determination that franchisors are the joint employers of franchisees. In doing so, California is also making a per se determination that these owners and entrepreneurs are not small business owners, but middle managers of large corporations. These small business owners made the decision to get into business for themselves. If AB 1228 is signed into law, California would be removing the equity and livelihood of business owners that make the franchise model a melting pot of entrepreneurship.

Making labor decisions for franchisees is not a brand standard franchisors can establish or enforce under any law. AB 1228 makes the improper assumption, and reaches the improper conclusion, that franchisors and franchisees have some collective control over each other’s day-to-day business affairs.

This is absolutely untrue. Additionally, passage of AB 1228 would make California an outlier: no other city, state or federal government has passed or even contemplated a similar law, primarily due to the realization that franchisors do not in fact employ those who work in a franchisee’s establishment. The per se liability imposed by AB 1228 is unprecedented at any level of government and completely ignores the case-by-case factual analysis that is required, and which has been used in this context in the past.

Franchisees and franchisors are in no way employment partners with each other. No franchisor has any authority over how their franchisees choose to manage their employees on a day-to-day basis.

Independent franchisees are no different than any other independent business owner, and despite what AB 1228 is attempting to do, the legal, contractual, operational, and economic realities of the relationship will not change. AB 1228 will impose a per se liability rule on entities and principals that have no role whatsoever in the issues addressed in the legislation.

We agree with your efforts to protect workers in the state, but we urge you to adopt policies that ensure the viability of the vibrant and diverse franchise community. Ensuring a level playing field for all California businesses is paramount and assigning liability only to the responsible party is in the interest of all involved. Dismantling a business model that provides upward mobility and entrepreneurial opportunities to thousands of Californians is misguided public policy and will only serve to hamper job growth and opportunities across the state.

SUPPORT

SEIU California (sponsor)

The Fight for $15 and a Union (sponsor)

California Labor Federation, AFL-CIO
California School Employees Association

OPPOSITION

Alhambra Chamber of Commerce
Amador County Chamber of Commerce
Anaheim Chamber of Commerce
Arby's
Asian McDonald’s Operator Association
Asian/pacific Islander American Chamber of Commerce and Entrepreneurship
Bad-Ass Breakfast Burritos
Baskin-Robbins
Bay Area Salvadoran American Chamber of Commerce
Brea Chamber of Commerce
Buffalo Wild Wings
California African American Chamber of Commerce
California Asian Pacific Chamber of Commerce
California Business Properties Association
California Business Roundtable
California Fuels and Convenience Alliance
California Hispanic Chambers of Commerce
California Lawyers Association, Business Law Section
California NAACP
California Retailers Association
California Small Business Association
California-Hawaii State Conference of The National Association for The Advancement of Colored People (NAACP)
Campbell Chamber of Commerce
Carlsbad Chamber of Commerce
Chick-fil-a
Chino Valley Chamber of Commerce
Civil Justice Association of California
Coalition of California Chambers – Orange County
Compton Latino Chamber of Commerce
Corona Chamber of Commerce
Dave's Hot Chicken
Del Taco
Deli Delicious
Diversified Restaurant Group
Dog Hause
Dunkin’
Egg Bred
El Dorado County Chamber of Commerce
El Dorado Hills Chamber of Commerce
El Pollo Loco
El Pollo Loco Franchisee Association
Elk Grove Chamber of Commerce
Elmer’s Breakfast·Lunch·Dinner
Family Business Association of California
Folsom Chamber of Commerce
Fountain Valley Chamber of Commerce
Fresno Chamber of Commerce
Gateway Chambers Alliance
Gilroy Chamber of Commerce
Glendora Chamber of Commerce
Greater Conejo Valley Chamber of Commerce
Greater High Desert Chamber of Commerce
Greater Los Angeles African American Chamber of Commerce
Greater Riverside Chamber of Commerce
Greater San Fernando Valley Chamber of Commerce
Guatemalan American Chamber of Commerce
Hispanic Chambers of Commerce of San Francisco
Hollywood Chamber of Commerce
Imperial Valley Regional Chamber of Commerce
International Franchise Association
Jack in The Box INC.
Jimmy John’s
LA Canada Flintridge Chamber of Commerce
Lake Elsinore Valley Chamber of Commerce
Latin American & Caribbean Business Chamber
Latino Food Industry Association
Latino Restaurant Association
League of United Latin American Citizens (LULAC)
Lincoln Chamber of Commerce
Livermore Chamber of Commerce
Long Beach Chamber of Commerce
Los Angeles Area Chamber of Commerce
Los Angeles County Business Federation (BIZFED)
Los Angeles Latino Chamber of Commerce
Manteca Chamber of Commerce
McDonald's
McDonald's Hispanic Owner-operators Association
McDonald's Owner-operators of California
Mission Viejo Chamber of Commerce
Modesto Chamber of Commerce
Mountain View Chamber of Commerce
Murrieta Wildomar Chamber of Commerce
National Action Network
National Action Network - Sacramento Chapter
National Action Network Los Angeles
National Action Network Orange County
National Action Network – Oakland
National Action Network – San Bernardino County
National Action Network – Solano County
National Black McDonald's Operators Association
National Council of Chain Restaurants
National Federation of Independent Business (NFIB)
National Latina Business Women Association of Los Angeles
National Owners Association (NOA)
National Restaurant Association
Newport Beach Chamber of Commerce
Nicaraguan American Chamber of Commerce, Northern California
Oceanside Chamber of Commerce
Orange County Business Council
Orange County Hispanic Chamber of Commerce
Palos Verdes Peninsula Chamber of Commerce
Pasadena Chamber of Commerce and Civic Association
Paso Robles Chamber of Commerce
Patterson- Westley Chamber of Commerce
Pizza Factory
Porterville Chamber of Commerce
Rancho Cordova Area Chamber of Commerce
Regional Chamber of Commerce San Gabriel Valley (RCCSGV)
Restaurant Brands International
Ridgecrest Chamber of Commerce
Riverside County Black Chamber of Commerce
Rocklin Area Chamber of Commerce
Roseville Area Chamber of Commerce
Sacramento Asian Pacific Chamber of Commerce
San Diego Regional Chamber of Commerce
San Francisco Filipino American Chamber of Commerce
San Joaquin County Hispanic Chamber of Commerce
San Jose Chamber of Commerce
San Juan Capistrano Chamber of Commerce
San Marcos Chamber of Commerce
Santa Ana Chamber of Commerce
Santa Barbara South Coast Chamber of Commerce
Santa Clarita Valley Chamber of Commerce
Santa Cruz County Chamber of Commerce
Santa Maria Valley Chamber of Commerce
Santee Chamber of Commerce
Shingle Springs/Cameron Park Chamber of Commerce
Solano County Black Chamber of Commerce
Sonic Drive-in
South Bay Association of Chambers of Commerce
Southern California KFC Franchisee Association
Southwest California Legislative Council
Subway
Tastee Freez
Templeton Chamber of Commerce
Teriyaki Madness
The Greater Coachella Valley Chamber of Commerce
Torrance Area Chamber of Commerce
Tri County Chamber Alliance
Tulare Chamber of Commerce
United Chamber Advocacy Network
United States Black Chamber of Commerce
United States Hispanic Chamber of Commerce
Valley Industry & Commerce Association
Vitality Bowls
Walnut Creek Chamber of Commerce
Wendy’s
Wienerschnitzel
Wingstop
Women Operators Network
Yorba Linda Chamber of Commerce
Yuba Sutter Chamber of Commerce
Yum! Brands

RELATED LEGISLATION

Pending Legislation: None known.

Prior Legislation:

AB 257 (Holden, Ch. 246, Stats. 2022) enacted the Fast Food Accountability and Standards Recovery Act to, among other things, establish the Fast Food Council within the Department of Industrial Relations, with a sunset date of January 1, 2029, for the purpose of establishing sectorwide minimum standards on wages, working hours, and other working conditions related to the health, safety, and welfare of, and supplying the necessary cost of proper living to, fast food restaurant workers. Implementation and enforcement of the Act is on hold until November 2024 when an election will take place and a referendum on the matter will be on the statewide ballot.

SB 62 (Durazo, Ch. 329, Stats. 2021) required a garment manufacturer who contracts with another person for the performance of garment manufacturing to jointly and individually share all civil legal responsibility and civil liability for all workers in that other person’s employ. Also prohibited the practice of piece-rate compensation for garment manufacturing, except in the case of worksites covered by a valid collective bargaining agreement.

AB 1701 (Thurmond, Ch. 804, Stats. 2017) held general contractors and subcontractors in the construction industry jointly liable for unpaid wages, including fringe benefits, and authorized civil actions to enforce the joint liability.

AB 1897 (R. Hernández, Ch. 728, Stats. 2014) established joint liability between employers and labor contractors for unpaid wages and failure to secure worker’s compensation insurance.

PRIOR VOTES:

Senate Labor, Public Employment and Retirement Committee (Ayes 4, Noes 1)

Assembly Floor (Ayes 42, Noes 22)

Assembly Appropriations Committee (Ayes 11, Noes 4)

Assembly Judiciary Committee (Ayes 6, Noes 3)

Assembly Labor and Employment Committee (Ayes 5, Noes 2)

**************

1. Tiffany Hsu, Nearly 90% of Fast-Food Workers Allege Wage Theft, Survey Finds (Apr. 1, 2014) Los Angeles Times https://www.latimes.com/business/la-fi-mo-wage-theft-survey-fast-food-20140331-story.html (as of July 9, 2023). ↑

2. Memorandum Regarding Key Findings from a Survey on Fast Food Worker Safety (Mar. 16, 2015) Hart Research Associates https://www.coshnetwork.org/sites/default/files/FastFood_Workplace_Safety_Poll_Memo.pdf (as of July 9, 2023). ↑

3. Memorandum Regarding Key Findings from a Survey of Women Fast Food Workers (Oct. 5, 2016) Hart Research Associates https://hartresearch.com/wp-content/uploads/2016/10/Fast-Food-Worker-Survey-Memo-10-5-16.pdf (as of July 9, 2023). ↑

4. Hsu and Abrams. Subway Got Too Big. Franchisees Paid a Price. (Jun. 28, 2019) New York Times https://www.nytimes.com/2019/06/28/business/subway-franchisees.html (as of July 9, 2023). ↑

SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Dave Cortese, Chair

2023 - 2024 Regular

Bill No: AB 1228 Hearing Date: June 28, 2023

SUBJECT: Fast food restaurant franchisors and franchisees: joint liability

KEY ISSUES

Should the Legislature require fast food restaurant franchisors to share with its franchisees all civil legal responsibility and civil liability for the fast food restaurant franchisee’s violations of specified labor and employment laws?

Should fast food restaurant franchisors be authorized to cure alleged violations within a specified time prior to a civil action against them commencing?

Should there be a rebuttable presumption that any changes in the terms of a franchise that increase the costs to franchisees create a substantial barrier to compliance with specified labor and employment laws?

ANALYSIS

Existing law:

1. The California Occupational Safety and Health Act, assures safe and healthful working conditions for all California workers by authorizing the enforcement of effective standards, assisting and encouraging employers to maintain safe and healthful working conditions, and by providing for research, information, education, training, and enforcement in the field of occupational safety and health. (Labor Code §6300)
2. Establishes the Division of Occupational Safety and Health (known as Cal/OSHA) within the Department of Industrial Relations (DIR) to, among other things, protect and improve the health and safety of workers by proposing, administering, and enforcing occupational safety and health standards, providing outreach, education, and assistance, and issuing permits, licenses and registrations. (Labor Code §140 et seq.; §6300 et seq.)
3. Establishes, also within DIR, the Division of Labor Standards and Enforcement (DLSE) under the direction of the Labor Commissioner (LC) and authorizes them, as specified, to investigate employee complaints and enforce labor laws. (Labor Code §79 et seq.)
4. Authorizes citations to be issued to employers when Cal/OSHA has evidence that an employee was exposed to a hazard in violation of any requirement enforceable by the division, including the exposing, creating and controlling employer. (Labor Code §6400)
5. Prohibits a person from discharging or in any manner discriminating against any employee because the employee, among other things, reported a work-related fatality, injury, or illness, requested access to occupational injury or illness reports and records, or exercised any other rights protected by the federal Occupational Safety and Health Act (29 U.S.C. Sec. 651 et seq.), as specified. (Labor Code §6310)
6. Prohibits an employee from being laid off or discharged for refusing to perform work in violation of prescribed safety standards, where the violation would create a real and apparent hazard to the employee or fellow employees. (Lab. Code, § 6311)
7. Requires the LC and authorized deputies and representatives, upon the filing of a claim by an employee, as specified, to, among other things, take assignments of:
   1. Wage claims and incidental expense accounts and advances.
   2. Mechanics’ and other liens of employees.
   3. Claims based on “stop orders” for wages and on bonds for labor.
   4. Claims for damages for misrepresentations of conditions of employment.
   5. Claims for penalties for nonpayment of wages.
   6. Claims for vacation, severance, or other supplemental compensation, as specified.
   7. Claims for loss of wages as the result of discharge from employment for the garnishment of wages.
   8. Claims for loss of wages as the result of demotion, suspension, or discharge from employment for lawful conduct occurring during nonworking hours away from the employer’s premises.

(Labor Code §96)

1. Establishes the Private Attorneys General Act (PAGA), which, among other things, authorizes an aggrieved employee to bring a civil action to recover specified civil penalties that would otherwise be assessed and collected by the Labor and Workforce Development Agency (LWDA), on behalf of the employee and other current or former employees for certain violations of the Labor Code. (Lab. Code, § 2698 et seq.)

This bill:

1. Makes various findings and declarations regarding the fast food restaurant industry, and the degree of employment law violations found in the industry, as well as the role of franchisors in facilitating these violations.
2. Requires a fast food restaurant franchisor to share with its fast food restaurant franchisee all civil legal responsibility and civil liability for the fast food restaurant franchisee’s violations of specified state laws and orders or their implementing rules or regulations pertaining to, among other things, the following:
   1. Regulation of unfair competition;
   2. Employment discrimination;
   3. Specified pay data reporting requirements;
   4. Wages, hours, and working conditions;
   5. Private Attorneys General Act (PAGA);
   6. Workplace health and safety;
   7. Orders issued by the Governor regarding employment standards, worker health and safety, or public health and safety; and
   8. Orders issued by a county or municipality regarding employment standards, worker health and safety, or public health and safety.
3. Permits the enforcement of laws, orders, rules, and regulations, as specified, against a fast food restaurant franchisor, including administratively or by civil action, to the same extent that they may be enforced against the fast food restaurant franchisor’s franchisee.
4. Prohibits a civil action from being commenced against a fast food restaurant franchisor under the provisions of this bill prior to 30 days after written notice of the alleged violation of any of the laws and orders, as specified, or their implementing rules or regulations, has been given to the fast food restaurant franchisor by a person commencing the action.
   1. Requires the time period to be extended to 60 days if a fast food restaurant franchisor, within 30 days of receiving a written notice, makes a written request to the noticing person for additional time to complete an investigation.
5. Protects a fast food restaurant franchisor from liability in a civil action, per these provisions, if the fast food restaurant franchisor cures the alleged violation within the applicable time period, as specified.
   1. Defines “cure” to mean that the fast food restaurant franchisor abates each violation alleged and ensures that its fast food restaurant franchisee is in compliance with the underlying laws, orders, rules, or regulations specified in the notice, and that any fast food restaurant workers against whom a violation was committed are made whole.
6. Makes a waiver of these provisions, or any agreement by a fast food restaurant franchisee to indemnify its fast food restaurant franchisor for liability under these provisions, contrary to public policy and void and unenforceable.
7. Authorizes a fast food restaurant franchisee to file an action against its fast food restaurant franchisor for monetary or injunctive relief necessary to ensure compliance if the terms of a fast food restaurant franchise prevent or create a substantial barrier to a fast food restaurant franchisee’s compliance with the laws and orders set forth pursuant to 2) and their implementing rules and regulations, or any changes to them, including, but not limited to, because the franchise does not provide for funds sufficient to allow the fast food restaurant franchisee to comply with the laws, orders, rules, and regulations, or any changes to them.
8. Establishes a rebuttable presumption that any changes in the terms of a franchise that increase the costs of the franchise to the fast food restaurant franchisee create a substantial barrier to compliance with the prescribed laws and orders and their implementing rules and regulations, or any changes to them.
9. For purposes of these provisions, defines the following, among other, terms:
   1. “Fast food chain” means a set of restaurants consisting of 100 or more establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services.
   2. “Fast food restaurant” means any establishment in the state that is part of a fast food chain and that, in its regular business operations, primarily provides food or beverages in the following manner:
      1. For immediate consumption either on or off the premises.
      2. To customers who order or select items and pay before eating.
      3. With items prepared in advance, including items that may be prepared in bulk and kept hot, or with items prepared or heated quickly.
      4. With limited or no table service. Table service does not include orders placed by a customer on an electronic device.

COMMENTS

1. Background: Workplace Health and Safety of Fast Food Workers

California employers have a legal obligation to provide and maintain a safe and healthful workplace for their employees as well as abide by minimum wage and labor standards required under the Labor Code. In spite of these protections, wage theft and labor law violations continue to be a problem many workers face.

According to a U.S. Bureau of Labor Statistics report from 2021, California is one of the states with the highest levels of employment in the fast food industry. California fast food and counter workers earn an average hourly mean wage of $15.61 amounting to an annual mean wage of $32,640.^[1] A report by the UC Berkeley Labor Center found that despite high levels of employment in the fast food industry, “People working in fast-food jobs are more likely to live in or near poverty. One in five families with a member holding a fast-food job has an income below the poverty line, and 43 percent have an income two times the federal poverty level or less. Even full-time hours are not enough to compensate for low wages. The families of more than half of the fast-food workers employed 40 or more hours per week are enrolled in public assistance programs.”^[2]

Occupational safety and health also appears to be struggling, especially because of the continuing impacts of COVID-19. A University of California Los Angeles Labor Center report, “The Fast-Food Industry and COVID-19 in Los Angeles,” reveals that the food service sector in particular, is a common vector of COVID-19 transmission. Research published early in 2021 found that cooks had the highest increase in mortality—up by 39% from 2019—of any occupation during the pandemic. Additionally, the report found that “Fast-food workers face an array of workplace challenges. More than half experienced wage theft, such as being paid late or unpaid overtime rates, denied meal breaks or reimbursement for uniforms or equipment. Workers also reported insufficient hours to make ends meet. More than half experienced a health and safety hazard, and 43% were injured at work. Half of workers faced verbal abuse, particularly from customers. Many also witnessed or experienced violence or harassment, such as racial slurs, assault, and robbery.”^[3]

Additionally, another report by the Center for American progress found that “60 percent of fast-food workers in California are Latinx, more than 80 percent are nonwhite, two-thirds are women, and 20 percent have children. The typical fast-food worker brings in one-third of their family’s income, and more than half of fast-food worker households spend more than 30 percent of their income on rent.”^[4]

2. Franchisor and Franchisee Business Model & Joint Liability:

The business model of a franchise consists of one where one business owner (“franchisor”) sells the rights to their business logo, name, and model to an independent entrepreneur (“franchisee”). Restaurants, hotels, and service-oriented businesses are commonly franchised. Two common forms of franchising are:

• Product/trade name franchising: The franchisor owns the right to the name or trademark of a business, and sells the right to use that name and trademark to a franchisee. This style of franchising normally focuses on supply chain management. Typically, products are manufactured or supplied by the franchisor and delivered to the franchisee to sell.
• Business format franchising: The franchisor and franchisee have an ongoing relationship. This style of franchising normally focuses on full-spectrum business management. Typically, the franchisor offers services like site selection, training, product supply, marketing plans, and even help getting funding.

Franchising grants entrepreneurs, through the payment of a fee, the right to use the name, logo, and products of a larger brand benefiting from brand recognition, promotions, and marketing. However, it also means the entrepreneur will have to follow brand rules about how to run their business and these vary and are determined by the contract to which the parties enter with the franchisor. The franchisor does not own the particular establishment, but rather owns the brand and effectively licenses it to the franchisee who operates the establishment. The franchisee’s degree of autonomy can vary, but it is determined largely by the contract and any operational or training guidelines provided by the franchisor. According to the opposition, California has over 15,000 franchised restaurants that employ over 500,000 people across the state.

Franchisor and Franchisee Joint Liability

This bill would require a fast food restaurant franchisor to share with its fast food restaurant franchisee all civil legal responsibility and civil liability for the fast food restaurant franchisee’s violations of specified labor and employment laws and order. This provision essentially makes franchisors and franchisees “joint employers” responsible for ensuring that wage and hour and workplace safety laws and regulations are followed at every level of employment. According to opponents of the measure, this change in the law would dismantle the restaurant franchise model in California. As noted above, the franchise model affords a franchisee some degree of autonomy, depending on the terms and conditions entered into with the franchisor. This bill would require the franchisor to take on the responsibility of ensuring labor law compliance by its contracted franchisees.

Joint liability, although an ambitious undertaking, is not unprecedented. Existing Labor Code § 218.7 extends liability for unpaid wages, interest and benefits to a “direct contractor,” as defined, for any debt owed to a wage claimant or third party that is incurred by a subcontractor at any tier, as specified. Essentially, holding general contractors and subcontractors jointly liable for unpaid wages, including fringe benefits, and authorizes civil actions to enforce the joint liability. Additionally, existing Labor Code §2673.1 specifies that a garment manufacturer, contractor, or brand guarantor who contracts with another person for the performance of garment manufacturing operations shares joint and several liability with any manufacturer and contractor for the full amount of unpaid wages, and any other compensation, including interest, due to any and all employees who performed manufacturing operations for any violation, attorney’s fees, and civil penalties, as specified.

Existing case law on the matter, however, has generally refused to hold franchisors accountable for a franchisee’s failure to comply with labor laws (see Assembly Judiciary Committee analysis of AB 257 (Holden, 2022) for more background information on this).

3. Who is the employer? Joint-employer rules at question at the federal level

Federal Trade Commission Investigating Franchisor Control

A March 10, 2023 press release from the Federal Trade Commission sought public input on franchise agreements and franchisor business practices, including how franchisors may exert control over franchisees and their workers.^[5] Specifically, the FTC is interested in how franchisors disclose certain aspects and contractual terms of the franchise relationship, as well as the scope, application, and effect of those aspects and contractual terms.  The press release notes, ““It’s clear that, at least in some instances, the promise of franchise agreements as engines of economic mobility and gainful employment is not being fully realized,” said Elizabeth Wilkins, Director of the FTC’s Office of Policy Planning. “This RFI [Request for Information] will begin to unravel how the unequal bargaining power inherent in these contracts is impacting franchisees, workers, and consumers.””

Through the RFI, the FTC asked franchisors, franchisees, current and past employees of franchisors and franchisees, government entities, economists, attorneys, academics, consumers, and other interested parties to weigh in on a wide array of issues that affect franchisees and their workers, including, among others, the franchisors’ control over the wages and working conditions in franchised entities, other than through the terms of franchise agreements. The FTC provided a 60-day window to provide comments and those have been posted online.

National Labor Relations Board (NLRB) Proposed Rule Change

As noted by the Assembly Labor and Employment Committee analysis of this bill, “The legal threshold for triggering a joint-employer relationship under labor law for liability has changed frequently in recent years, depending on the political composition of the NLRB. In September 2022, the NLRB announced that it was proposing to change the joint-employer standard. ^[6] “The NLRB’s proposed rule would expand the factors that can establish a joint employment relationship to include indirect and unexercised control over the terms and conditions of a job. Companies would be considered joint employers if they co-determine ‘essential terms and conditions of employment,’ such as scheduling, wages, and benefits.”^[7] Under the previous joint-employer rule set by the NLRB, “the parent company could be held liable for such labor law violations only if it exerted direct control over the franchisee’s employees — such as directly determining their schedules and pay.”^[8]”

4. AB 257 (Holden): FAST Recovery Act

AB 257 (Holden, Chapter 246, Statutes of 2022) enacted the Fast Food Accountability and Standards Recovery Act to, among other things, establish the Fast Food Council within the Department of Industrial Relations, with a sunset date of January 1, 2029, for the purpose of establishing sectorwide minimum standards on wages, working hours, and other working conditions related to the health, safety, and welfare of, and supplying the necessary cost of proper living to, fast food restaurant workers. In its original form, AB 257, in addition to other provisions, established the Fast Food Sector Council and held fast food franchisors jointly and severally liable for penalties or fines imposed on their franchisees. The sponsors of AB 257 (SEIU California) argued that “fast food franchisees – the small business owners who operate the vast majority of fast food locations in the state - struggle under a franchise system where global corporations set most of the terms and receive most of the profits while leaving franchisees solely liable for labor law compliance. Even well-meaning franchisees often find themselves squeezed to the point of cutting corners and skirting laws at the expense of worker pay and safety.”

Ultimately, the joint and several liability language was amended out of the FAST Recovery Act [AB 257], and the bill was signed into law in September 2022. On January 24, 2023, a group known as the Save Local Restaurants coalition successfully gathered a sufficient amount of valid voter signatures, verified by the California Secretary of State, which allowed them to place a referendum to overturn the FAST Recovery Act on the 2024 ballot.^[9] The qualification of the referendum for the 2024 ballot effectively suspends implementation of the FAST Act until California voters decide whether or not to repeal the law in 2024.^[10]

5. Need for this bill?

This bill would require a fast food franchisor to share responsibility and liability for their franchisee’s violations of a number of specified labor and employment laws and orders. In an attempt to ensure equitable enforcement, the bill requires any individual who seeks to bring a civil claim to first give 30 days’ written notice of the alleged violation to the franchisor. During this time, the franchisor would have the opportunity to investigate the alleged violation and would have the ability to extend the timeline by 60 days, if needed, to complete the inquiry. The franchisor would then be allowed to cure the alleged violation and, if cured, would no longer be subject to liability under these provisions.

According to the author, “AB 1228 is a bill aimed at protecting workers and supporting local businesses by ending corporations’ ability to exploit the franchise system. As a former fast-food franchisee, I know how much pressure maintaining a safe and healthy working environment puts on local owner-operators, especially when global corporations refuse to contribute their share.”

6. Proponent Arguments:

According to the sponsors of the measure, SEIU California and the Fight for $15 and a Union, “Rather than take responsibility for the conditions they have created, corporate franchisors have designed the franchise system to shield themselves from liability for labor violations. These billion-dollar corporations have written the rules so that they can enjoy maximum control and maximum profits while leaving small businesses owners and workers to fend for themselves. This power imbalance hurts local economies as well as California taxpayers, who foot a bill of $4 billion annually for the portion of social safety net programs that subsidize the fast-food industry’s workers.”

Proponents argue that, “AB 1228 marks a pivotal next step in California fast-food workers’ fight for respect and a stronger voice on the job. Last year, Gov. Gavin Newsom signed AB 257, the FAST Recovery Act, creating a statewide Fast Food Council that brings together fast-food employers, workers and state regulators to work together to improve conditions in the industry. To skirt accountability and delay implementation of AB 257, fast-food corporations have funneled millions of dollars into a deceptive and misguided campaign to overturn the landmark labor law.

California has led the nation in recovering from the economic crises of the past few years. In

order to continue building a more equitable California, we must look to creative ways to support our small businesses and frontline workers. Currently, California fast-food workers and franchisees lack adequate power and protections necessary to hold global fast-food companies accountable. The Fast Food Corporate Franchisor Responsibility Act aims to protect workers and support local business by ending corporations’ ability to exploit the franchise system that has created so many jobs in our communities. For this reason, we ask that you support this bill when it is heard in front of your committee.”

They conclude by stating that, AB 1228, “will improve conditions across the state’s fast-food restaurants by ensuring global fast-food corporations share liability for health and safety violations at franchise locations.”

7. Opponent Arguments:

The measure is opposed by a large coalition of franchisor employers, including the International Franchise Association, California Chamber of Commerce & California Restaurant Association, among others. They argue that “While the purported purpose of the legislation of providing safe working standards is something we all support and strive to provide on a daily basis, AB 1228 equates to a dismantling of the franchise business model in California.” They continue, “During a time when all small franchised business owners are doing everything possible to keep the lights on and the doors open coming out of the COVID-19 pandemic, this legislation is ill- timed and would do more to hurt businesses and their employees then help them.”

According to the coalition, “These independently-owned and operated businesses employ workers in a range of jobs – from those just entering the workforce to managers to specialized professionals. Recent statistics show growing numbers of women and minorities owning franchise establishments, underscoring the importance of preserving the small business franchise model to promote minority and female entrepreneurship as well as continuing an economic recovery from the pandemic.” They argue that “this potential for continued growth is threatened by a common misconception of the franchise business model. This misconception, which clearly serves as the underpinning of AB 1228 is that the owner of the franchise brands – the “franchisors” – actually own and operate the stores and make employment decisions for them. In reality, franchise establishments across the state are locally owned small businesses operating under a national brand or identity. The local business owners are in charge of all employment decisions, including hiring, firing, wages and benefits. It is the local franchisee who owns and operates the establishment, not the franchisor. In fact, the national brands have no role whatsoever in determining wages or any other day-to-day operations of a franchisees’ employees and/or employment practices of a franchisee.”

They argue that, “With establishment of joint liability of franchisors by AB 1228, California is making a per se determination that franchisors are the joint employers of franchisees. In doing so, California is also making a per se determination that these owners and entrepreneurs are not small business owners, but middle managers of large corporations. These small business owners made the decision to get into business for themselves. If AB 1228 is signed into law, California would be removing the equity and livelihood of business owners that make the franchise model a melting pot of entrepreneurship.” Additionally, they argue, “passage of AB 1228 would make California an outlier: no other city, state or federal government has passed or even contemplated a similar law, primarily due to the realization that franchisors do not in fact employ those who work in a franchisee’s establishment. The per se liability imposed by AB 1228 is unprecedented at any level of government and completely ignores the case-by-case factual analysis that is required, and which has been used in this context in the past.”

Opponents conclude by stating that, “Independent franchisees are no different than any other independent business owner, and despite what AB 1228 is attempting to do, the legal, contractual, operational, and economic realities of the relationship will not change. AB 1228 will impose a per se liability rule on entities and principals that have no role whatsoever in the issues addressed in the legislation.”

8. Double Referral:

This bill has been double referred and if approved by this Committee today, will be sent to Senate Judiciary Committee for a hearing.

9. Committee Consideration:

Fast food workers serve on the front lines of our economy even during the dangers of the historic COVID-19 pandemic. The pandemic has exacerbated issues in what was already a low-paid sector of employment. With this bill, the author and proponents put at question the level of control that franchisors currently have over franchisees and whether or not they should be held liability for labor violations of the franchisees, whether or not they knew about them. The sponsors argue that “these billion-dollar corporations have written the rules so that they can enjoy maximum control and maximum profits while leaving small businesses owners and workers to fend for themselves. This power imbalance hurts local economies as well as California taxpayers.” Additionally, a 2021 report by the Center for American Progress states, “The franchising model not only tends to drive down labor standards but also creates conditions that make raising standards particularly difficult. Many of the individual franchises have little ability to raise wages on their own, even if they wanted to. Their franchise agreements dictate many of their business decisions and provide little room to make profits with higher labor costs.”^[11]

As mentioned previously, this level of control is something currently being explored by the Federal Trade Commission. If in fact the franchisor is imposing such strict rules and guidelines upon franchisees, such that it creates pressures on the franchisee to meet those obligations and indirectly impacts their ability to meet payroll responsibilities or leads to them cutting corners on other employment safety and work conditions, then perhaps being jointly liable makes sense.

Should the bill move forward, the author may wish to consider additional protections for franchisees that could face franchisor contract terminations as a result of the imposition of joint liability. Specifically, addressing any franchisor termination or declined renewal of the franchise for the purpose of seeking to avoid responsibility or liability for the labor and employment laws specified in this bill.

10. Prior Legislation:

AB 257 (Holden, Chapter 246, Statutes of 2022) enacted the Fast Food Accountability and Standards Recovery Act to, among other things, establish the Fast Food Council within the Department of Industrial Relations, with a sunset date of January 1, 2029, for the purpose of establishing sectorwide minimum standards on wages, working hours, and other working conditions related to the health, safety, and welfare of, and supplying the necessary cost of proper living to, fast food restaurant workers. AB 257 is currently suspended pending the 2024 ballot proposition to overturn the law.

SUPPORT

Fight for $15 and a Union (Co-Sponsor)

SEIU California (Co-Sponsor)

Alameda Labor Council
California Alliance for Retired Americans
California Labor Federation, AFL-CIO
California Rural Legal Assistance Foundation, INC.
Clergy and Laity United for Economic Justice
Courage California
Indivisible Sacramento
Indivisible San Francisco
Indivisible Yolo
NorCal Resist
North Bay Jobs With Justice
North Bay Labor Council
Our Revolution
Our Revolution North Bay Jobs with Justice
PowerSwitch Action
Santa Clara County Wage Theft Coalition
The Restaurant Opportunity Center of The Bay

Voices for Progress
Worksafe

OPPOSITION

Alhambra Chamber of Commerce
Amador County Chamber of Commerce
Arby's
Asian McDonald's Operators Association
Asian/Pacific Islander American Chamber of Commerce and Entrepreneurship
Bad-Ass Breakfast Burritos
Baskin-Robbins
Bay Area Council
Bay Area Salvadoran American Chamber of Commerce
Brea Chamber of Commerce
Buffalo Wild Wings
CalAsian Chamber of Commerce
California African American Chamber of Commerce
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
California Fuels and Convenience Alliance
California Hawaii State Conference of the NAACP
California Hispanic Chambers of Commerce
California Lawyers Association, Business Law Section
California McDonald’s
California Restaurant Association
California Retailers Association
California Small Business Association
Campbell Chamber of Commerce
Carlsbad Chamber of Commerce

Central Valley BizFed
Chick-fil-A
Chino Valley Chamber of Commerce
Civil Justice Association of California
Coalition of California Chambers – Orange County
Corona Chamber of Commerce
Dave's Hot Chicken
Del Taco
Deli Delicious
Diversified Restaurant Group
Dog Hause
Dunkin’
El Dorado County Chamber of Commerce
El Dorado Hills Chamber of Commerce
El Pollo Loco
Elk Grove Chamber of Commerce
Elmer’s Breakfast·Lunch·Dinner
Family Business Association of California
Folsom Chamber of Commerce
Fountain Valley Chamber of Commerce
Fresno Chamber of Commerce
Gilroy Chamber of Commerce
Glendora Chamber of Commerce
Greater Coachella Valley Chamber of Commerce
Greater Conejo Valley Chamber of Commerce
Greater High Desert Chamber of Commerce
Greater Los Angeles African American Chamber of Commerce
Greater Riverside Chamber of Commerce
Greater San Fernando Valley Chamber of Commerce
Guatemalan American Chamber of Commerce – San Francisco
Hispanic Chambers of Commerce of San Francisco
Hollywood Chamber of Commerce
Imperial Valley Regional Chamber of Commerce
International Franchise Association
Jack in the Box INC.
Jimmy John’s
LA Cañada Flintridge Chamber of Commerce
Lake Elsinore Valley Chamber of Commerce
Latin American & Caribbean Business Chamber of Commerce
Latino Food Industry Association
Latino Restaurant Association
League of United Latin American Citizens (LULAC)
Lincoln Chamber of Commerce
Livermore Chamber of Commerce
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
Los Angeles County Business Federation (LA BizFed)
Los Angeles Latino Chamber of Commerce
Manteca Chamber of Commerce
McDonald's
McDonald's Hispanic Owner-Operators Association
McDonald's Owner-Operators of California

McDonald’s Women Operators Network

McDonald’s Women Owners Network
Mission Viejo Chamber of Commerce

Modesto Chamber of Commerce
Murrieta-Wildomar Chamber of Commerce
National Action Network – Western Regional Conference
National Action Network – Sacramento Chapter
National Action Network – Los Angeles
National Action Network – Orange County
National Action Network – Oakland
National Action Network – San Bernardino County
National Action Network – Solano County
National Black Mcdonald's Operators Association
National Council of Chain Restaurants
National Federation of Independent Business
National Restaurant Association
Newport Beach Chamber of Commerce
Nicaraguan American Chamber of Commerce, Northern California
Oceanside Chamber of Commerce
Orange County Business Council
Palos Verdes Peninsula Chamber of Commerce
Pasadena Chamber of Commerce and Civic Association
Paso Robles Chamber of Commerce
Patterson- Westley Chamber of Commerce
Pizza Factory
Porterville Chamber of Commerce
Rancho Cordova Area Chamber of Commerce
Regional Chamber of Commerce San Gabriel Valley (RCCSGV)
Restaurant Brands International
Ridgecrest Chamber of Commerce
Riverside County Black Chamber of Commerce
Rocklin Area Chamber of Commerce
Roseville Area Chamber of Commerce
San Diego Regional Chamber of Commerce
San Francisco Filipino American Chamber of Commerce
San Joaquin County Hispanic Chamber of Commerce
San Jose Chamber of Commerce
San Juan Capistrano Chamber of Commerce
San Marcos Chamber of Commerce
Santa Ana Chamber of Commerce
Santa Barbara South Coast Chamber of Commerce
Santa Clarita Valley Chamber of Commerce
Santa Cruz County Chamber of Commerce
Santa Maria Valley Chamber of Commerce
Santee Chamber of Commerce
Shingle Springs/Cameron Park Chamber of Commerce
Simi Valley Chamber of Commerce
Solano County Black Chamber of Commerce
Sonic Drive-In
South Bay Association of Chambers of Commerce
Southern California KFC Franchisee Association
Southwest California Legislative Council
Subway
Tastee Freez
Templeton Chamber of Commerce
Teriyaki Madness
Torrance Area Chamber of Commerce
Tri-County Chamber Alliance
Tulare Chamber of Commerce
United Chamber Advocacy Network (UCAN)
United States Black Chamber of Commerce
United States Hispanic Chamber of Commerce
Valley Industry & Commerce Association
Vitality Bowls
Waba Grill
Walnut Creek Chamber of Commerce
Wendy’s
Wienerschnitzel
Yorba Linda Chamber of Commerce
Yuba Sutter Chamber of Commerce
Yum! Brands

-- END --

1. U.S. Bureau of Labor Statistic. Occupational Employment and Wages, May 2021. ↑

2. Allegretto, Sylvia, et al. Fast Food, Poverty Wages: The Public Cost of Low-Wage Jobs in the Fast Food Industry. UC Berkeley Labor Center, October 2013. ↑

3. Justice, Brian, et al. Fast Food Frontline: COVID-19 and Working Conditions in Los Angeles. UCLA Labor Center, January 2022. ↑

4. Madland, David. Raising Standards for Fast-Food Workers in California. Center for American Progress, April 2021. ↑

5. FTC Seeks Public Comment on Franchisors Exerting Control Over Franchisees and Workers. March 10, 2023. https://www.ftc.gov/news-events/news/press-releases/2023/03/ftc-seeks-public-comment-franchisors-exerting-control-over-franchisees-workers ↑

6. Scheiber, Noam. Labor Board Proposes to Increase Legal Exposure for Franchised Chains. New York Times, September, 2022. ↑

7. Iafolla, Robert, et al. Labor Board Proposes Tossing Trump Joint Employer Regulation (3). Bloomberg Law, September 2022. ↑

8. Scheiber, Noam. Labor Board Proposes to Increase Legal Exposure for Franchised Chains. New York Times, September, 2022. ↑

9. Hussain, Suhauna. Californians to vote on overturning a new law that could raise fast-food worker wages. Los Angeles Times, January 2023. ↑

10. Ibid. ↑

11. Madland, David. Raising Standards for Fast-Food Workers in California. Center for American Progress, April 2021. ↑

ASSEMBLY THIRD READING

ATR Bill Id:AB 1228

Author:(Holden)

As Introduced Ver:February 16, 2023

Majority vote

SUMMARY

Requires a fast food restaurant franchisor to share with its fast food restaurant franchisee all civil legal responsibility and civil liability for the franchisee's violations of prescribed laws and orders, or their implementing rules or regulations.

Major Provisions

1. Finds and declares, among other things, that franchisee-owned fast food restaurants experience systematically higher levels of noncompliance with minimum wage and overtime than do comparable establishments owned and managed by the franchisor.
2. Defines "fast food chain" as a set of restaurants consisting of 100 or more establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services.
3. Defines "fast food restaurant" as any establishment in the state that is part of a fast food chain and that, in its regular business operations, primarily provides food or beverages in the following manner:
   1. For immediate consumption either on or off the premises.
   2. To customers who order or select items and pay before eating.
   3. With items prepared in advance, including items that may be prepared in bulk and kept hot, or with items prepared or heated quickly.
   4. With limited or no table service. Table service does not include orders placed by a customer on an electronic device.
4. Defines "fast food restaurant franchisee" as a person to whom a fast food restaurant franchise is granted.
5. Defines "fast food restaurant franchisor" as a person who grants or has granted a fast food restaurant franchise.
6. Defines "franchise" as a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which:
   1. A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and
   2. The operation of the franchisee's business pursuant to that plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate; and
   3. The franchisee is required to pay, directly or indirectly, a franchise fee.
7. Requires a fast food restaurant franchisor to share with its fast food restaurant franchisee all civil legal responsibility and civil liability for the fast food restaurant franchisee's violations of specified state laws and orders or their implementing rules or regulations pertaining to, among other things, the following:
   1. Regulation of unfair competition;
   2. Employment discrimination;
   3. Specified pay data reporting requirements;
   4. Wages, hours, and working conditions;
   5. Private Attorneys General Act (PAGA); and
   6. Workplace health and safety.
8. Requires a fast food restaurant franchisor to share with its fast food restaurant franchisee all civil legal responsibility and civil liability for the fast food restaurant franchisee's violations of:
   1. Orders, including emergency and executive orders, issued by the Governor regarding employment standards, worker health and safety, or public health and safety.
   2. Orders issued by a county or municipality regarding employment standards, worker health and safety, or public health and safety.
9. Permits the enforcement of laws, orders, rules, and regulations, as specified, against a fast food restaurant franchisor, including administratively or by civil action, to the same extent that they may be enforced against the fast food restaurant franchisor's franchisee.
10. States that no civil action may be commenced against a fast food restaurant franchisor under this section prior to 30 days after written notice of the alleged violation of any of the laws and orders, as specified, or their implementing rules or regulations, has been given to the fast food restaurant franchisor by a person commencing the action.
    1. Requires the time period to be extended to 60 days if a fast food restaurant franchisor, within 30 days of receiving a written notice, makes a written request to the noticing person for additional time to complete an investigation.
11. States that a fast food restaurant franchisor shall not be liable in a civil action under this section if the fast food restaurant franchisor cures the alleged violation within the applicable time period, as specified.
    1. Defines "cure" to mean that the fast food restaurant franchisor abates each violation alleged and ensures that its fast food restaurant franchisee is in compliance with the underlying laws, orders, rules, or regulations specified in the notice, and that any fast food restaurant workers against whom a violation was committed are made whole.
12. States that a waiver of this section, or any agreement by a fast food restaurant franchisee to indemnify its fast food restaurant franchisor for liability under this section, is contrary to public policy and is void and unenforceable.
13. Permits a fast food franchisee, if the terms of a fast food restaurant franchise prevent or create a substantial barrier to a fast food restaurant franchisee's compliance with the laws and orders, as specified, and their implementing rules and regulations, or any changes to them, including, but not limited to, because the franchise does not provide for funds sufficient to allow the fast food restaurant franchisee to comply with specified laws and orders, to file an action against its fast food restaurant franchisor for monetary or injunctive relief necessary to ensure compliance.
14. Establishes a rebuttable presumption that any changes in the terms of a franchise that increase the costs of the franchise to the fast food restaurant franchisee create a substantial barrier to compliance with the prescribed laws and orders and their implementing rules and regulations, or any changes to them.

COMMENTS

Suspension of the Fast Food Accountability and Standards (FAST) Recovery Act

AB 257 (Holden) Chapter 246, Statutes of 2022, termed the Fast Food Accountability and Standards Recovery Act or the FAST Recovery Act, proposes to, among other things, establish a Fast Food Sector Council to regulate California's fast food restaurants. The law was signed by Governor Newsom on September 5, 2022.

On January 24, 2023, a group known as the Save Local Restaurants coalition successfully gathered a sufficient amount of valid voter signatures, verified by the California Secretary of State, which allowed them to place a referendum to overturn the FAST Recovery Act on the 2024 ballot.^[1] The qualification of the referendum for the 2024 ballot effectively suspends implementation of the FAST Act until California voters decide whether or not to repeal the law in 2024.^[2]

Fast Food Workers and Working Conditions

According to a United States Bureau of Labor Statistics report from 2021, California is one of the states with the highest levels of employment in the fast food industry. California fast food and counter workers earn an average hourly mean wage of $15.61 amounting to an annual mean wage of $32,640.^[3]

A report by the UC Berkeley Labor Center found that despite high levels of employment in the fast food industry, "People working in fast-food jobs are more likely to live in or near poverty. One in five families with a member holding a fast-food job has an income below the poverty line, and 43 percent have an income two times the federal poverty level or less. Even full-time hours are not enough to compensate for low wages. The families of more than half of the fast-food workers employed 40 or more hours per week are enrolled in public assistance programs."^[4]

Additionally, another report by the Center for American progress found that "60 percent of fast-food workers in California are Latinx, more than 80 percent are nonwhite, two-thirds are women, and 20 percent have children. The typical fast-food worker brings in one-third of their family's income, and more than half of fast-food worker households spend more than 30 percent of their income on rent."^[5]

According to a report by the UCLA Labor Center, "Fast-food workers face an array of workplace challenges. More than half experienced wage theft, such as being paid late or unpaid overtime rates, denied meal breaks or reimbursement for uniforms or equipment. Workers also reported insufficient hours to make ends meet. More than half experienced a health and safety hazard, and 43% were injured at work. Half of workers faced verbal abuse, particularly from customers. Many also witnessed or experienced violence or harassment, such as racial slurs, assault, and robbery."^[6]

Fast-Food Franchise Model

Franchising is the dominant mode of industrial organization in the fast-food industry, with 73 percent of the 3.58 million fast food workers in the United States employed in franchised chains.^[7] According to a report by the Washington Center for Equitable Growth, "Contract terms known as vertical restraints – controls on franchisee decision-making such as on prices, suppliers, and customers – remove franchisee discretion over their 'independent' businesses and focus their efforts on just a handful of areas."^[8]

A 2021 report by the Center for American Progress states, "The franchising model not only tends to drive down labor standards but also creates conditions that make raising standards particularly difficult. Many of the individual franchises have little ability to raise wages on their own, even if they wanted to. Their franchise agreements dictate many of their business decisions and provide little room to make profits with higher labor costs."^[9]

National Labor Relations Board (NLRB) Proposed Rule Change

The legal threshold for triggering a joint-employer relationship under labor law for liability has changed frequently in recent years, depending on the political composition of the NLRB. In September 2022, the NLRB announced that it was proposing to change the joint-employer standard. ^[10] "The NLRB's proposed rule would expand the factors that can establish a joint employment relationship to include indirect and unexercised control over the terms and conditions of a job. Companies would be considered joint employers if they co-determine 'essential terms and conditions of employment,' such as scheduling, wages, and benefits."^[11] Under the previous joint-employer rule set by the NLRB, "the parent company could be held liable for such labor law violations only if it exerted direct control over the franchisee's employees — such as directly determining their schedules and pay."^[12]

According to the Author

"[This bill] is aimed at protecting workers and supporting local businesses by ending corporations' ability to exploit the franchise system. As a former fast-food franchisee, I know how much pressure maintaining a safe and healthy working environment puts on local owner-operators, especially when global corporations refuse to contribute their share."

In addition, the author points out that this bill will promote equity solutions and maximize benefits for underserved and marginalized communities because "Pressure from corporations to cut costs and keep profits high creates environments ripe for exploitation, abuse and rampant violations of employment laws. The effects of these issues fall disproportionately on the state's low-income and immigrant workers who make up the vast majority of the state's fast-food workforce. [This bill] ensures global fast-food corporations pay their fair share and take part in ensuring franchisees have the support they need to run safe, compliant restaurants."

Arguments in Support

According to SEIU California and Fight for 15 and a Union, co-sponsors of the bill, "For too long, local franchise operators have shouldered sole liability for compliance with our labor laws and the well-being of workers, while their parent companies enjoy massive profits without risk or responsibility. This groundbreaking legislation corrects this imbalance of power by ensuring global fast-food corporations share liability for employment law violations that occur under the umbrella of their brands.

Global fast-food corporations have designed a franchise system in which they dictate so many aspects of a restaurant's operations while exempting themselves from legal and financial liability for labor violations. For example, McDonald's and Burger King's corporate offices dictate things from royalty fees and vendor relationships down to the speed of orders, the lettuce on burgers and even whether workers smile and make eye contact with guests. However, when it comes to responsibility for issues endemic to the fast-food industry (wage theft, violence, harassment, discrimination, and other violations of employment law), small business franchisees and frontline workers are left to fend for themselves.

[This bill] marks a pivotal next step in California fast-food workers' fight for respect and a stronger voice on the job. Last year, Gov. Gavin Newsom signed AB 257, the FAST Recovery Act, creating a statewide Fast Food Council that brings together fast-food employers, workers and state regulators to work together to improve conditions in the industry. To skirt accountability and delay implementation of AB 257, fast-food corporations have funneled millions of dollars into a deceptive and misguided campaign to overturn the landmark labor law."

Arguments in Opposition

A coalition of employer organizations, including the California Chamber of Commerce and International Franchise Association, state, "While the purported purpose of the legislation of providing safe working standards is something we all support and strive to provide on a daily basis, [This bill] equates to a dismantling of the franchise business model in California. Employees are the backbone of the franchisee business model and their rights, working conditions and overall protections are of the utmost importance to all involved.

With establishment of joint liability of franchisors by [this bill], California is making a per se determination that franchisors are the joint employers of franchisees. In doing so, California is also making a per se determination that these owners and entrepreneurs are not small business owners, but middle managers of large corporations. These small business owners made the decision to get into business for themselves. If [this bill] is signed into law, California would be removing the equity and livelihood of business owners that make the franchise model a melting pot of entrepreneurship.

Making labor decisions for franchisees is not a brand standard franchisors can establish or enforce under any law. [This bill] makes the improper assumption, and reaches the improper conclusion, that franchisors and franchisees have some collective control over each other's day-to-day business affairs."

FISCAL COMMENTS

According to the Assembly Appropriations Committee:

1. Annual costs of an unknown, but likely significant amount, potentially in excess of $150,000, to the Division of Labor Standards Enforcement to investigate complaints and undertake enforcement actions against a franchisor for alleged violations by the franchisee (special fund).
2. Annual cost pressures (General Fund (GF) or Trial Court Trust Fund), potentially in the mid-hundreds of thousands of dollars, to the courts in additional workload. This bill authorizes a cause of action against a franchisor for alleged violations of business and labor laws by a franchisee. It is unclear how many actions may be filed statewide, but the estimated workload cost of one hour of court time is $1,000. If 10 cases are filed statewide resulting in 20 hours of court time for each case, costs would be approximately $200,000. Although courts are not funded on the basis of workload, increased pressure on staff and the TCTF may create a need for increased court funding from the GF to perform existing duties. The Governor's 2023-24 state budget already proposes $109.3 million in ongoing GF revenue to continue backfilling the TCTF for expected revenue declines.

VOTES

ASM LABOR AND EMPLOYMENT: 5-2-0

YES: Kalra, Haney, Ortega, Reyes, Ward

NO: Flora, Chen

ASM JUDICIARY: 6-3-2

YES: Maienschein, Connolly, Haney, Kalra, Reyes, Robert Rivas

NO: Essayli, Dixon, Sanchez

ABS, ABST OR NV: Pacheco, Papan

ASM APPROPRIATIONS: 11-4-1

YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Papan, Pellerin, Weber, Ortega

NO: Megan Dahle, Dixon, Mathis, Sanchez

ABS, ABST OR NV: Robert Rivas

UPDATED

VERSION: February 16, 2023

CONSULTANT: Martin Vindiola / L. & E. / (916) 319-2091 FN: 0000515

1. Hussain, Suhauna. Californians to vote on overturning a new law that could raise fast-food worker wages. Los Angeles Times, January 2023. ↑

2. Ibid. ↑

3. U.S. Bureau of Labor Statistic. Occupational Employment and Wages, May 2021. ↑

4. Allegretto, Sylvia, et al. Fast Food, Poverty Wages: The Public Cost of Low-Wage Jobs in the Fast Food Industry. UC Berkeley Labor Center, October 2013. ↑

5. Madland, David. Raising Standards for Fast-Food Workers in California. Center for American Progress, April 2021. ↑

6. Justice, Brian, et al. Fast Food Frontline: COVID-19 and Working Conditions in Los Angeles. UCLA Labor Center, January 2022. ↑

7. Callaci, Brian. New research shows the franchise business model harms workers and franchisees, with the problem rooted in current antitrust law. Washington Center for Equitable Growth, December 2018. ↑

8. Ibid. ↑

9. Madland, David. Raising Standards for Fast-Food Workers in California. Center for American Progress, April 2021. ↑

10. Scheiber, Noam. Labor Board Proposes to Increase Legal Exposure for Franchised Chains. New York Times, September, 2022. ↑

11. Iafolla, Robert, et al. Labor Board Proposes Tossing Trump Joint Employer Regulation (3). Bloomberg Law, September 2022. ↑

12. Scheiber, Noam. Labor Board Proposes to Increase Legal Exposure for Franchised Chains. New York Times, September, 2022. ↑

Date of Hearing: May 10, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 1228

Author:(Holden) – As Introduced Ver:February 16, 2023

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill provides that a fast food restaurant franchisor shares all civil legal responsibility and civil liability for a franchisee’s violations of specified business and labor laws.

Specifically, this bill:

1. Authorizes enforcement against a franchisor, including administratively or by civil action, to the same extent that enforcement may be taken against a franchisee for the franchisee’s violations of business and labor laws. A franchisor must be given written notice of the alleged violation and granted the opportunity to cure before being subject to civil action.
2. Provides that any agreement by a franchisee to indemnify the franchisor for liability is contrary to public policy, void, and unenforceable.
3. Authorizes a franchisee to file an action against its franchisor for monetary or injunctive relief if the terms of a franchise contract prevent or create a substantial barrier to the franchisee’s compliance with business and labor laws. There is a rebuttable presumption that any changes to the terms of a franchise that increase franchisee costs create a substantial barrier to compliance.

FISCAL EFFECT:

1. Annual costs of an unknown, but likely significant amount, potentially in excess of $150,000, to the Division of Labor Standards Enforcement to investigate complaints and undertake enforcement actions against a franchisor for alleged violations by the franchisee (special fund).
2. Annual cost pressures (General Fund (GF) or Trial Court Trust Fund), potentially in the mid-hundreds of thousands of dollars, to the courts in additional workload. This bill authorizes a cause of action against a franchisor for alleged violations of business and labor laws by a franchisee. It is unclear how many actions may be filed statewide, but the estimated workload cost of one hour of court time is $1,000. If 10 cases are filed statewide resulting in 20 hours of court time for each case, costs would be approximately $200,000. Although courts are not funded on the basis of workload, increased pressure on staff and the TCTF may create a need for increased court funding from the GF to perform existing duties. The Governor’s 2023-24 state budget already proposes $109.3 million in ongoing GF revenue to continue backfilling the TCTF for expected revenue declines.

COMMENTS:

1. Purpose. According to the author:

AB 1228 is a bill aimed at protecting workers and supporting local businesses by ending corporations’ ability to exploit the franchise system. As a former fast-food franchisee, I know how much pressure maintaining a safe and healthy working environment puts on local owner-operators, especially when global corporations refuse to contribute their share.

1. Support and Opposition. This bill is co-sponsored by SEIU California and Fight for $15 and a Union, which argue “For too long, local franchise operators have shouldered sole liability for compliance with our labor laws and the well-being of workers, while their parent companies enjoy massive profits without risk or responsibility.” This bill is also supported by many other labor organizations and economic justice groups.

This bill is opposed by a large coalition of business organizations led by the International Franchise Association, California Chamber of Commerce, and California Restaurant Association, which argues this bill “equates to a dismantling of the franchise business model in California” by “making a per se determination that franchisors are the joint employers of franchisees” and “removing the equity and livelihood of business owners that make the franchise model a melting pot of entrepreneurship.”

1. Background.

Franchise Business Model. The franchise business model is a contractual relationship in which a “franchisee” pays a fee for the right to operate a business under a brand name or trademark. The franchisor does not own the particular establishment, but rather owns the brand and effectively licenses it to the franchisee who manages the day-to-day operations of the establishment. The franchisee’s degree of autonomy can vary, and is determined by the contract and any operational or training guidelines provided by the franchisor. This bill provides that a fast food restaurant franchisor shares all civil legal responsibility and civil liability for a franchisee’s violations of specified business or labor laws.

Fast Food Accountability and Standards Recovery Act. AB 257 (Holden), Chapter 246, Statutes of 2022, established the Fast Food Council to establish sectorwide minimum standards on wages, working hours, and other working conditions for fast food restaurant workers. AB 257 originally contained a provision similar to this bill to hold fast food franchisors jointly and severally liable for penalties or fines imposed on their franchisees. However, this provision was stricken from AB 257 prior to its passage. Regardless, AB 257’s opponents gathered signatures to qualify a statewide referendum against the law, which has the effect of staying the operation of a duly enacted state law until voters decide whether to approve or reject the law during the November 2024 election.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: April 25, 2023

ASSEMBLY COMMITTEE ON JUDICIARY

Brian Maienschein, Chair

ABPCA Bill Id:AB 1228

Author:(Holden) – As Introduced Ver:February 16, 2023

SUBJECT: Fast food restaurant franchisors and franchisees: joint liability

KEY ISSUE: IN ORDER TO curb LABOR LAW VIOLATIONS IN THE FAST FOOD INDUSTRY, SHOULD franchisors share civil responsibility and liability for SPECIFIED VIOLATIONS OF WORKPLACE REQUIREMENTS AND PROTECTIONS?

SYNOPSIS

The fast food industry is infamous for not just its catchy slogans and universally recognizable logos, but also for the amount of abuse suffered by its workforce. According to a report by the UCLA Labor Center, commissioned by the Los Angeles County Department of Health, these workers face mistreatment from customers, as well as their employers, a trend that only worsened during the COVID-19 pandemic. In 2021, the Legislature passed the FAST Recovery Act (AB 257 (Holden)). In its original form, AB 257 would have established a Fast Food Sector Council to represent government, industry, and worker stakeholder interests in the development of fast food sector standards and held fast food franchisors jointly and severally liable for penalties or fines imposed on their franchisees. The rationale behind this legal frame work rests on the concept that to the degree franchisors, knowingly or otherwise, ultimately derive some financial benefit from labor law violations, they should be disincentivized from turning a blind eye to the conditions that promote them. Ultimately, the joint and several liability language was amended out of the FAST Recovery Act, and the bill was signed into law in September 2022. Despite its legislative success, the FAST Recovery Act is now in legal limbo. Opponents of the Act (now proponents of a referendum seeking to repeal the law) spent nearly $14 million on the ballot measure challenging the law, and succeeded in gathering sufficient signatures to trigger a statewide referendum. Whether the remaining half of AB 257, which was approved by both the Legislature and the Governor, will ultimately be enacted, is to be determined by the voters in the fall 2024 elections.

This bill would require a fast food franchisor to share responsibility and liability for their franchisee’s violations of a number of state laws and agency orders. The state laws and orders range from wage and hour requirements, employment discrimination, specified pay data reporting requirements, and workplace health and safety violations, among other items. In an attempt to ensure equitable enforcement of its provisions, this bill requires any individual who seeks to bring a civil claim to first give 30 days’ written notice of the alleged violation to the franchisor. During this time, the franchisor would be tasked with investigating the violation (and would have the ability to extend the timeline by 60 days in order to complete the investigation). In the event the franchisor cures the alleged violation, they would no longer be subject to liability under this bill. Finally, the bill establishes a rebuttable presumption that any changes in the terms of a franchise that increase costs to the franchisee create a substantial barrier to compliance with the specified laws for which the franchisor and franchisee share responsibility and liability.

This bill is sponsored by Service Employees International Union (SEIU) California and Fight for $15 and a Union. It is supported by a coalition of labor organizations and workers’ rights and social justice advocates. It is heavily opposed by the International Franchise Association, the coalition of franchises, and business advocates. This bill was previously heard by the Assembly Committee on Labor and Employment and passed on a vote of 5-2.

SUMMARY: Subjects franchisors and franchisees to joint and several liability for various labor law violations, as specified. Specifically, this bill:

1. Makes various findings and declarations regarding the fast food restaurant industry, and the degree of employment law violations found in the industry, as well as the role of franchisors in facilitating these violations.
2. Requires a fast food restaurant franchisor to share with its fast food restaurant franchisees all civil legal responsibility and civil liability for the fast food restaurant franchisee’s violations of any of the specified laws and orders or their implementing rules or regulations.
3. Authorizes the laws, orders, rules, and regulations covered by the provisions of this bill to be enforced against a fast food restaurant franchisor, including administratively or by civil action, to the same extent that they may be enforced against the fast food restaurant franchisor’s franchisee.
4. Prohibits a civil action from being commenced against a fast food restaurant franchisor under the provisions of this bill prior to 30 days after written notice of the alleged violation of any of the laws and orders covered by 2), or their implementing rules or regulations, has been given to the fast food restaurant franchisor by a person commencing the action. That time period shall be extended to 60 days if a fast food restaurant franchisor, within 30 days of receiving a written notice, makes a written request to the noticing person for additional time to complete an investigation.
5. Protects a fast food restaurant franchisor from liability in a civil action under the provisions of this bill if the fast food restaurant franchisor cures the alleged violation within the applicable time period in 4). For purposes of this provision, “cure” means that the fast food restaurant franchisor abates each violation alleged and ensures that its fast food restaurant franchisee is in compliance with the underlying laws, orders, rules, and regulations specified in the notice, and that any fast food restaurant workers against whom a violation was committed are made whole.
6. Makes a waiver of this section, or any agreement by a fast food restaurant franchisee to indemnify its fast food restaurant franchisor for liability under this section, contrary to public policy and void and unenforceable.
7. Authorizes a fast food restaurant franchisee to file an action against its fast food restaurant franchisor for monetary or injunctive relief necessary to ensure compliance if the terms of a fast food restaurant franchise prevent or create a substantial barrier to a fast food restaurant franchisee’s compliance with the laws and orders set forth pursuant to 2) and their implementing rules and regulations, or any changes to them, including, but not limited to, because the franchise does not provide for funds sufficient to allow the fast food restaurant franchisee to comply with the laws, orders, rules, and regulations, or any changes to them.
8. Defines the following for the purposes of this bill:
   1. “Fast food chain” means a set of restaurants consisting of 100 or more establishments nationally that share a common brand, or that are characterized by standardized options for décor, marketing, packaging, products, and services.
   2. “Fast food restaurant” means any establishment in the state that is part of a fast food chain and that, in its regular business operations, primarily provides food or beverages in a manner, as specified.
   3. “Fast food restaurant franchisee” means a person to whom a fast food restaurant franchise is granted.
   4. “Fast food restaurant franchisor” means a person who has granted a fast food restaurant franchise.
   5. “Franchise,” “franchisee,” and “franchisor” have definitions consistent with existing law.

EXISTING LAW:

1. Establishes, within the Department of Industrial Relations, the Division of Labor Standards and Enforcement (DLSE) under the direction of Labor Commissioner (LC). Authorizes the LC and the DLSE, as specified, to investigate employee complaints and enforce labor laws. (Labor Code Sections 79 et seq. Unless otherwise noted all future references are to the Labor Code.)
2. Establishes the Cal/OSHA within the Department of Industrial Relations to protect and improve the health and safety of workers by setting and enforcing standards, providing outreach, education, and assistance, and issuing permits, licenses and registrations. (Sections 140, 6300 et seq.)
3. Requires the LC and authorized deputies and representatives, upon the filing of a claim by an employee, as specified, to, among other things, take assignments of:
   1. Wage claims and incidental expense accounts and advances.
   2. Mechanics’ and other liens of employees.
   3. Claims based on “stop orders” for wages and on bonds for labor.
   4. Claims for damages for misrepresentations of conditions of employment.
   5. Claims for penalties for nonpayment of wages.
   6. Claims for vacation, severance, or other supplemental compensation, as specified.
   7. Claims for loss of wages as the result of discharge from employment for the garnishment of wages.
   8. Claims for loss of wages as the result of demotion, suspension, or discharge from employment for lawful conduct occurring during nonworking hours away from the employer’s premises. (Section 96.)
4. Requires, under the California Occupational Safety and Health Act, an employer to:
   1. Furnish employment and a place of employment that is safe and healthful for its employees.
   2. Furnish and use safety devices and safeguards, and to adopt and use practices, means, methods, operations, and processes, which are reasonably adequate to render employment and the place of employment safe and healthful.
   3. Do everything reasonably necessary to protect the life, safety, and health of employees. (Sections 6300 et seq.)
5. Prohibits an employee from being laid off or discharged for refusing to perform work in violation of prescribed safety standards, where the violation would create a real and apparent hazard to the employee or fellow employees. (Section 6311.)
6. Establishes PAGA, which, among other things, authorizes an aggrieved employee to bring a civil action to recover specified civil penalties that would otherwise be assessed and collected by the Labor and Workforce Development Agency (LWDA), on behalf of the employee and other current or former employees for certain violations of the Labor Code. (Section 2698 et seq.)
7. Establishes the Civil Rights Department (CRD) to, among other things, enforce California’s civil rights laws and protect Californians from discrimination in employment, housing, businesses, state-funded programs, and from bias-motivated violence, and from human trafficking. (Government Code Section 12930 et seq.)
8. Provides that it is an unlawful employment practice for an employer to refuse to hire or employ a person, on account of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status. (Government Code Section 12940 (a).)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: In 2021, the Legislature passed the FAST Recovery Act (AB 257 (Holden), 2021). In its original form, AB 257 would have established a Fast Food Sector Council to represent government, industry, and worker stakeholder interests in the development of fast food sector standards; and held fast food franchisors jointly and severally liable for penalties or fines imposed on their franchisees. The rationale behind this legal frame work rests on the concept that to the degree franchisors--knowingly or otherwise--ultimately derive some financial benefit from labor law violations, they should be disincentivized from turning a blind eye to the conditions that allow or promote them. Ultimately, the joint and several liability language was removed from the FAST Recovery Act, and the remaining portion of the bill was signed into law in September 2022.

The fast food industry is infamous not just for its catchy slogans and universally recognizable logos, but also for the amount of abuse suffered by its workforce. According to a report by the UCLA Labor Center, commissioned by the Los Angeles County Department of Health, these workers face mistreatment from customers, as well as their employers, a trend which was only exacerbated during the COVID-19 pandemic. (Fast Food Frontline: COVID-19 and Working Conditions in Los Angeles, UCLA Labor Center, January 2022 available at: https://www.labor.ucla.edu/wp-content/uploads/2022/01/Fast-Food-Frontline-Report-1-3-22.pdf.) According to the study, workers reported being yelled at, threatened, and physically assaulted when they asked a customer or co-worker to follow a COVID-19 guideline. (Fast Food Frontline, supra, at p. 11.) With regard to the availability of personal protective equipment (PPE), only half of interviewed workers reported that their employers ultimately provided enough. (Id. at p. 10.) Considering the degree of contact with the public, particularly during the time of the pandemic that saw some of the highest COVID infection rates, the lack of consideration shown to employees by these employers is striking. The UCLA study further reflected that 63% experienced wage theft, and 31% were denied paid sick time. Further, over half of the interviewed workers reported health and safety hazards in their work places, such as unsafe floors, broken equipment, and pressure to work quickly. These conditions are conducive to the type of injury that many also reported, including 43% reporting workplace injury or illnesses such as burns and cuts. The UCLA study also identified that nearly half of interviewed workers experienced verbal abuse, and 13% experienced sexual abuse. Overall, 37% of workers experienced violence, including threats, racial slurs, assaults, and robberies. Finally, at least for the purposes of this analysis, when workers who experienced these conditions attempted to raise these concerns with their employers, 36% reported that their employer failed to act to resolve the issue, and 25% experienced retaliation as a result of their reporting, including by having their hours cut or being reassigned. (Id. at pp. 4 – 5.) According to the author:

AB 1228 is a bill aimed at protecting workers and supporting local businesses by ending corporations’ ability to exploit the franchise system. As a former fast-food franchisee, I know how much pressure maintaining a safe and healthy working environment puts on local owner-operators, especially when global corporations refuse to contribute their share.

2022 Referendum on AB 257. Despite its legislative success, the FAST Recovery Act is now in legal limbo. Opponents of the Act (now proponents of the referendum to repeal it) spent nearly $14 million on the ballot measure challenging the law, and succeeded in gathering sufficient signatures to trigger a statewide referendum. (Groundbreaking California fast-food law heads to statewide referendum and big political fight, Emily Peck (Axios) January 25, 2023 available at: https://www.axios.com/2023/01/25/california-fast-food-law-statewide-referendum.) Whether the remaining half of AB 257, which was approved by both the Legislature and the Governor, will ultimately be enacted is to be determined by the voters in the fall 2024 election.

This bill would require a fast food franchisor to share civil legal responsibility and liability for their franchisee’s violations of a number of state laws and agency orders. The relevant state laws and orders range from wage and hour requirements, employment discrimination, specified pay data reporting requirements, and workplace health and safety, among other items. In an attempt to ensure equitable enforcement of its provisions, this bill requires any individual who would seek to bring a claim to first give 30 days’ written notice of the alleged violation to the franchisor. During this time, the franchisor would be tasked with investigating the violation, and could have an additional 60 days in order to complete the investigation. In the event the franchisor cures the alleged violation, they would no longer be subject to liability under this bill. Finally, the bill establishes a rebuttable presumption that any changes in the terms of a franchise that increases costs to the franchisee create a substantial barrier to compliance with the specified laws for which the franchisor and franchisee share responsibility and liability.

Franchise business model and franchisor liability. Under this bill, the franchisor and franchisee would effectively become “joint employers” of fast food workers and, as such, would share responsibility for ensuring that fast food restaurants comply with state labor laws and health and safety standards. In this regard, the bill wades into the controversial issue of franchisor liability that has been the subject of substantial case law and, most notably, flip-flopping federal rule changes (discussed below). The International Franchise Association, one of the key opponents to this bill, contends that this change in the law would greatly disrupt, if not destroy, the franchise business model in California. To understand this issue, it is necessary to understand characteristics of the franchise business model and its implications for labor law compliance.

The franchise business model is a contractual relationship in which a “franchisee” pays a fee for the right to operate a business under a brand name or trademark. The franchisor does not own the particular establishment, but rather owns the brand and effectively licenses it to the franchisee who operates the establishment. This allows the franchisor to focus on advertising, raising capital, and otherwise maintaining the brand name and customer goodwill, while leaving the day-to-day operations of the business to the franchisee. The franchisee’s degree of autonomy can vary, but it is determined largely by the contract and any operational or training guidelines provided by the franchisor. (For a general discussion of the business model see Patterson v. Domino’s Pizza (2014) 60 Cal. 4^th 474, at 489-491.) California’s past legislation on this topic has been directed toward regulating the relationship between the franchisor and franchisee. California’s Franchise Investment Law generally requires the franchisor to provide certain information to the franchisee so that the latter can make a fully informed decision about becoming a franchisee. The California Franchise Relations Act, especially as amended by AB 525 (Chap. 776, Stats. 2015), places parameters around the ability of the franchisor to unilaterally terminate or refuse to renew a franchise agreement. This bill, on the other hand, speaks to the relationship, and the respective responsibilities, of the franchisor and franchisee. It would effectively make them “joint employers” for purposes of labor law compliance.

California case law has generally refused to hold franchisors accountable for a franchisee’s failure to comply with labor laws, although the wisdom of granting such a protective shield to franchisors has been questioned by some courts. For example, in Patterson v. Domino’s Pizza (2012) 207 Cal. App. 4^th 385, a California Court of Appeal considered a case in which a teenage employee was sexually harassed and sexually assaulted by an assistant manager. Although the trial court granted summary judgement to the Domino’s franchisor, the California Court Appeal reversed this decision. Domino’s pointed to the words in the franchise agreement stating that the franchisee was “solely responsible” for hiring, supervising, paying, and disciplining employees. The employee, on the other hand, pointed to countervailing provisions in the agreement, as well as Domino’s Manager’s Reference Guide (MRG), which gave the franchisor the right to set qualifications and standards for the franchisee’s employees and requiring the franchisee to use a computer training system designated by the franchisor. The Court of Appeal concluded that provisions of the franchise agreement and the MRG gave sufficient control to make the franchisor a joint employer of – and thus vicariously liable for – the assistant manager who committed the harassment and assault.

However, the California Supreme Court reversed the decision of the Court of Appeal, holding that a franchisor was only liable for sexual harassment committed by an employee “if [the franchisor] has retained or assumed the right of general control over the relevant day-to-day operations at is franchised locations.” The California Supreme Court did not find the requisite “control,” and thus found, in this case at least, that the franchisor could not be held vicariously liable for the assistant manager’s conduct. (Patterson v. Domino’s Pizza (2014) 60 Cal. 4^th 474, 503.) While the California Supreme Court’s ruling in the Domino’s case supersedes the ruling of the California Court of Appeals, the Legislature is not bound by the California Supreme Court’s decision and is free to adopt the reasoning of the Court of Appeal by establishing franchisor liability legislatively. The question, however, is whether this is good policy. Not surprisingly, the opponents of this bill, and especially the International Franchise Association (IFA), argue that making franchisors responsible for labor and health violations at the independent franchisee’s location is bad policy.

The IFA has communicated its belief that this bill will destroy the franchise business model in the state and will eventually result in franchisor’s terminating franchisee locations and replacing them with corporate-run locations. Currently most fast food companies rely almost exclusively on franchisee-operated restaurants, but if this bill passes, the IFA contends that an increasing number of franchised establishments in California, and perhaps a majority of them, will become corporate-run locations. Whether this scenario would likely unfold is difficult to say. It seems odd that making franchisors jointly liable with franchisees for complying with California labor law will cause them to shift to corporate-run operations, for in that case the franchisor would have all of the responsibility for complying with California law. Would franchisors take direct control of establishments and give up all of the many advantages that led the industry to create this model in first place? That seems unlikely.

Recent changes in federal rules on franchisor status as a joint employer. Finally, the question of franchisor liability and joint employer responsibility has also been debated at the federal level. In January of 2020, the Trump Administration’s U.S. Department of Labor issued a new rule that made it more difficult to assign “joint employer” status to a franchisor under the federal Fair Labor Standards Act (FLSA). The new rule created a four-factor balancing test which provided that a franchisor could only be an “employer” (and thus subject to vicarious liability) if the franchisor exercised “significant” control over employment, including firing and hiring, supervision, setting pay, maintaining records, and setting schedules. The new test overturned long-standing FLSA rules that set a much lower threshold for finding joint employment status. In response to this new rule, sixteen states, including California, joined New York State in challenging the new rule. In September of 2020, a federal district court in New York sided with the several states and voided the new rule as “arbitrary and capricious,” inconsistent with long-standing FLSA interpretations, and in violation of federal rule-making procedures. (State of New York v. Eugene Scalia, 2020 U.S. Dist. LEXIS 163498 (SDNY, September 8, 2020.)

Most recently, on September 6, 2022, the National Labor Relations Board (NLRB) issued a notice of proposed rulemaking to address the standard for determining “joint-employer” under the National Labor Relations Act (NLRA). Under the proposed rule, “two or more employers would be considered joint employers if they ‘share or codetermine those matters governing employees’ essential terms and conditions of employment,’ such as wages, benefits and other compensation, work and scheduling, hiring and discharge, discipline, workplace health and safety, supervision, assignment, and work rules.” (NLRB Issues Notice of Proposed Rulemaking on Joint-Employer Standard, NLRB Office of Public Affairs, September 6, 2022 available at: NLRB Issues Notice of Proposed Rulemaking on Joint-Employer Standard | National Labor Relations Board.) In sum, this bill’s provisions making franchisors responsible for the practices of their franchisees is not entirely unprecedented.

The opposition appears to rely on an apparent lack of control over day-to-day decisions of a franchisee. The opposition argues that it is an “improper assumption […] that franchisors and franchisees have some collective control over each other’s day-to-day business affairs.” However, it is arguable that this position and the structure of the franchise model cannot both be true. By its nature, the franchise model grants franchisors at least some control over franchisees’ day-to-day affairs. This control manifests in the fact that a consumer’s experience in a McDonalds in Poughkeepsie, New York, will be as close to identical as humanly possible to a consumer’s experience in a McDonalds in Carlsbad, California. It strains credulity to conclude that the franchisors are entirely isolated from any day-to-day decision of a franchisee that would in any way impact the franchisee’s decisions regarding its workforce.

Further, a number of franchisee-owners and organizations representing franchisees have voiced opposition to this bill, based on the concern that the increased responsibility and liability imposed on the franchisor would decrease their autonomy in running their franchises. However, as discussed previously, it seems unlikely that franchises would opt to assume full control over the individual franchises, thereby assuming all responsibility for complying with California law. Moreover, it is reasonable to conclude that by establishing shared legal responsibility and liability bill would functionally decrease many franchisees’ liability for violations of California law.

Joint and several liability is not a novel concept in California law. Further, while the opposition seems concerned that the bill proposes a novel approach to liability (“passage of AB 1228 would make California an outlier: no other city, state or federal government has passed or even contemplated a similar law”), it is not so novel that this Legislature has not considered similar measures in the past. For example, Labor Code Section 218.7 imposes liability for unpaid wages, interests and benefits to a “direct contractor,” for a debt incurred by a subcontractor. Additionally, Labor Code Section 2673.1 imposes joint and several liability on a garment manufacturer who contracts with a contractor or subcontractor for unpaid minimum, regular, overtime, and other wages, reimbursement for expenses, and any other compensation, including interest, in addition to other specified remedies. To be sure, both the direct contractor-subcontractor and the garment manufacturer-subcontractor relationships can be distinguished to some extent from that of a franchisor-franchisee relationship. However, AB 1228 does not by any means constitute the first time the concept of joint and several liability has been considered in an effort to protect an industry’s workforce.

ARGUMENTS IN SUPPORT: This bill is co-sponsored by the Service Employees International Union (SEIU) California and The Fight For $15 and a Union. In support of the legislation they write:

For too long, local franchise operators have shouldered sole liability for compliance with our labor laws and the well-being of workers, while their parent companies enjoy massive profits without risk or responsibility. This groundbreaking legislation corrects this imbalance of power by ensuring global fast-food corporations share liability for employment law violations that occur under the umbrella of their brands.

Global fast-food corporations have designed a franchise system in which they dictate so many aspects of a restaurant’s operations while exempting themselves from legal and financial liability for labor violations. For example, McDonald’s and Burger King’s corporate offices dictate things from royalty fees and vendor relationships down to the speed of orders, the lettuce on burgers and even whether workers smile and make eye contact with guests. However, when it comes to responsibility for issues endemic to the fast-food industry (wage theft, violence, harassment, discrimination, and other violations of employment law), small business franchisees and frontline workers are left to fend for themselves.

[…]

The state’s fast food industry employs over 556,000 Californians, the highest number of any state in the country. Of those workers, nearly 80% are people of color and two-thirds are women. Despite being one of the largest and fastest growing groups of low-wage workers in the state, fast-food workers lack much needed protections.

[…]

AB 1228 marks a pivotal next step in California fast-food workers’ fight for respect and a stronger voice on the job. Last year, Gov. Gavin Newsom signed AB 257, the FAST Recovery Act, creating a statewide Fast Food Council that brings together fast-food employers, workers and state regulators to work together to improve conditions in the industry. To skirt accountability and delay implementation of AB 257, fast-food corporations have funneled millions of dollars into a deceptive and misguided campaign to overturn the landmark labor law.

California has led the nation in recovering from the economic crises of the past few years. In order to continue building a more equitable California, we must look to creative ways to support our small businesses and frontline workers. Currently, California fast-food workers and franchisees lack adequate power and protections necessary to hold global fast-food companies accountable. The Fast Food Corporate Franchisor Responsibility Act aims to protect workers and support local business by ending corporations’ ability to exploit the franchise system that has created so many jobs in our communities. For this reason, we ask that you support this bill when it is heard in front of your committee.

ARGUMENTS IN OPPOSITION: This bill is opposed by the International Franchise Association (IFA), numerous franchises, and a coalition of business advocates. Arguing against the bill, the coalition writes:

While the purported purpose of the legislation of providing safe working standards is something we all support and strive to provide on a daily basis, AB 1228 equates to a dismantling of the franchise business model in California. Employees are the backbone of the franchisee business model and their rights, working conditions and overall protections are of the utmost importance to all involved.

During a time when all small franchised business owners are doing everything possible to keep the lights on and the doors coming out of the COVID-19 pandemic, this legislation is ill-timed and would do more to hurt businesses and their employees then help them.

California has over 15,000 franchised restaurants that employ over 500,000 people across the state. These independently-owned and operated businesses employ workers in a range of jobs – from those just entering the workforce to managers to specialized professionals. Recent statistics show growing numbers of women and minorities owning franchise establishments, underscoring the importance of preserving the small business franchise model to promote minority and female entrepreneurship as well as continuing an economic recovery from the pandemic. Over the last five years, minority and women franchise ownership has grown by more than 50% across the country. Nearly 33% of all franchises across the country are owned by minorities, compared to just 18% of non-franchise businesses. Franchising – and franchise ownership – is a path toward increased job creation and economic growth among people from all walks of life and socioeconomic backgrounds.

This potential for continued growth is threatened by a common misconception of the franchise business model. This misconception, which clearly serves as the underpinning of AB 1228 is that the owner of the franchise brands – the “franchisors” – actually own and operate the stores and make employment decisions for them. In reality, franchise establishments across the state are locally owned small businesses operating under a national brand or identity. The local business owners are in charge of all employment decisions, including hiring, firing, wages and benefits. It is the local franchisee who owns and operates the establishment, not the franchisor. In fact, the national brands have no role whatsoever in determining wages or any other day-to-day operations of a franchisees’ employees and/or employment practices of a franchisee.

With establishment of joint liability of franchisors by AB 1228, California is making a per se determination that franchisors are the joint employers of franchisees. In doing so, California is also making a per se determination that these owners and entrepreneurs are not small business owners, but middle managers of large corporations. These small business owners made the decision to get into business for themselves. If AB 1228 is signed into law, California would be removing the equity and livelihood of business owners that make the franchise model a melting pot of entrepreneurship.

Making labor decisions for franchisees is not a brand standard franchisors can establish or enforce under any law. AB 1228 makes the improper assumption, and reaches the improper conclusion, that franchisors and franchisees have some collective control over each other’s day-to-day business affairs.

This is absolutely untrue. Additionally, passage of AB 1228 would make California an outlier: no other city, state or federal government has passed or even contemplated a similar law, primarily due to the realization that franchisors do not in fact employ those who work in a franchisee’s establishment. The per se liability imposed by AB 1228 is unprecedented at any level of government and completely ignores the case-by-case factual analysis that is required, and which has been used in this context in the past.

Franchisees and franchisors are in no way employment partners with each other. No franchisor has any authority over how their franchisees choose to manage their employees on a day-to-day basis.

Independent franchisees are no different than any other independent business owner, and despite what AB 1228 is attempting to do, the legal, contractual, operational, and economic realities of the relationship will not change. AB 1228 will impose a per se liability rule on entities and principals that have no role whatsoever in the issues addressed in the legislation.

REGISTERED SUPPORT / OPPOSITION:

Support

SEIU California (co-sponsor)

Fight for 15 and A Union (co-sponsor)

Alameda Labor Council
California Alliance for Retired Americans
California Labor Federation
California Rural Legal Assistance Foundation, INC.
Clergy and Laity United for Economic Justice
Clue (Clergy and Laity United for Economic Justice)
Indivisible Sacramento
Indivisible San Francisco
Indivisible Yolo
Jobs With Justice
Norcal Resist
North Bay Jobs With Justice
North Bay Labor Council
Our Revolution
Our Revolution North Bay
Powerswitch Action
Santa Clara Wage Theft Coalition
The Restaurant Opportunity Center of The Bay
Worksafe

Opposition

Alhambra Chamber of Commerce
Arby's
Asian McDonald's Operator Association
Asian/pacific Islander American Chamber of Commerce and Entrepreneurship
Baskin-Robbins
Bay Area Council
Bay Area Salvadoran American Chamber of Commerce
Bizfed Central Valley
Brea Chamber of Commerce
Buffalo Wild Wings
Cal Asian Chamber of Commerce
Cal Asian Pacific Islander Chamber of Commerce
California African American Chamber of Commerce
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
California Fuels and Convenience Alliance
California Hispanic Chambers of Commerce
California Operators Association
California Restaurant Association
California Retailers Association
California Small Business Association
Carlsbad Chamber of Commerce
Chick-fil-a
Chino Valley Chamber of Commerce
Civil Justice Association of California
Coalition of California Chambers – Orange County
Corona Chamber of Commerce
Del Taco
Deli Delicious
Diversified Restaurant Group
Dunkin’
El Dorado County Chamber of Commerce
El Dorado Hills Chamber of Commerce
El Pollo Loco
Elk Grove Chamber of Commerce
Elmer’s Breakfast·Lunch·Dinner
Family Business Association of California
Folsom Chamber of Commerce
Fresno Chamber of Commerce
Gilroy Chamber of Commerce
Glendora Chamber of Commerce
Greater Coachella Valley Chamber of Commerce
Greater High Desert Chamber of Commerce
Greater Riverside Chamber of Commerce
Greater San Fernando Valley Chamber of Commerce
Guatemalan American Chamber of Commerce
Hispanic Chambers of Commerce of San Francisco
Hollywood Chamber of Commerce
Imperial Valley Regional Chamber of Commerce
International Franchise Association
Jack in The Box INC.
Jimmy John’s
LA Canada Flintridge Chamber of Commerce
Lake Elsinore Valley Chamber of Commerce
Latin American and Caribbean Business Chamber of Commerce
Latino Food Industry Association
Latino Restaurant Association
League of United Latin American Citizens (LULAC)
Lincoln Chamber of Commerce
Livermore Chamber of Commerce
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
Los Angeles County Business Federation (BIZFED)
McDonald's
McDonald's Hispanic Owner-operators Association
Mission Viejo Chamber of Commerce
Murrieta Wildomar Chamber of Commerce
National Council of Chain Restaurants
National Federation of Independent Business
National Restaurant Association
Newport Beach Chamber of Commerce
Nicaraguan American Chamber of Commerce, Northern California
Oceanside Chamber of Commerce
Orange County Business Council
Pasadena Chamber of Commerce and Civic Association
Paso Robles Chamber of Commerce
Porterville Chamber of Commerce
Rancho Cordova Area Chamber of Commerce
Restaurant Brands International
Ridgecrest Chamber of Commerce
Rocklin Area Chamber of Commerce
Roseville Area Chamber of Commerce
San Diego Regional Chamber of Commerce
San Joaquin Hispanic Chamber of Commerce
San Jose Chamber of Commerce
San Juan Chamber of Commerce
San Marcos Chamber of Commerce
Santa Barbara South Coast Chamber of Commerce
Santa Clarita Valley Chamber of Commerce
Santa Maria Valley Chamber of Commerce
Santee Chamber of Commerce
Shingle Springs/Cameron Park Chamber of Commerce
Simi Valley Chamber of Commerce
Solano County Black Chamber of Commerce
Sonic Drive-in
South Bay Association of Chambers of Commerce
Southwest California Legislative Council
Subway
Templeton Chamber of Commerce
Torrance Area Chamber of Commerce
Tri County Chamber Alliance
United Chamber Advocacy Network
Walnut Creek Chamber of Commerce
Wendy’s
Women Operators Network
Women Owners Network
Yorba Linda Chamber of Commerce
Yuba Sutter Chamber of Commerce
Yum! Brands