California Legislature Advances Fast Food Industry Regulation Bill

UPDATE: On September 5, 2022, Governor Newsom signed AB 257 into law.

A bill with significant implications for California’s fast food industry is on its way to Governor Newsom’s Desk. On August 29, 2022, the State Senate passed the Fast Food Accountability and Standards Recovery Act (AB 257). Among other things, the bill establishes a state Fast Food Council within the Department of Industrial Relations (DIR.)  The Council will be empowered to impose sector-wide minimum standards on wages, working hours, and other conditions related to the health, safety, and welfare of fast food restaurant workers.  If the governor signs this bill, it will take effect on January 1, 2023, without any required phase-in.    

Days prior to the bill’s senate passage, the legislature released 93 amendments to AB 257.  The following are key takeaways if the measure is enacted:

Who will be on the Council?

There will be 10 members on the Council: one from the DIR, two representing fast food restaurant franchisors, two representing fast food franchisees, two representing fast food restaurant employees, two advocates for fast food restaurant employees, and one from the governor’s Office of Business and Economic Development (“GoBiz”).  The governor can appoint all members (including the Council chair) except the advocates for fast food restaurant employees, who are to be appointed by the speaker of the Assembly and the Senate Rules Committee.

What will the Council do?

The Council “shall promulgate minimum fast food restaurant employment standards, including… standards on wages, working conditions, and training, as are reasonably necessary and appropriate to protect and ensure the welfare, including the physical well-being and security, of fast food restaurant workers.”  The Council can amend or repeal any regulation as it finds necessary. To the extent they conflict with regulations of another state agency, this Council’s regulations will prevail.  The Council may mandate employee health and safety standards except those that fall under CalOSHA jurisdiction. To alter such standards the Council must petition CalOSHA for adoption, amendment or repeal of any CalOSHA standard.  CalOSHA has six months (or three months in an emergency) to adopt the Council’s recommendation.  No change to existing regulations proposed by the Council may be less protective of or less beneficial to the health, safety, or fast food worker employment terms, conditions or privileges, including wages, than existing standards.

The state Council may increase the minimum wage for fast food workers up to $22 per hour as of January 1, 2023.  That’s potentially a $6.50 increase in one year for these establishments.  And, on January 1, 2024 and each year thereafter, the rate may be increased by the lesser of 3.5% or the increase in the Consumer Price Index. 

Every new standard issued by the Council must go through the rulemaking process in the Office of Administrative Law (OAL).  This bill requires application of the Administrative Procedure Act to the enactment of all “standards, rules and regulations.” Any such “standard, repeal, or amendment,” however, “shall not take effect before October 15 of that same year.”  Further, nothing “…restrains the legislature from enacting legislation that prevents a standard, repeal, or amendment from taking effect.”  

This implementation process is confusing for two reasons: 1) the Council is free to adopt a standard unless the legislature acts quickly enough to pass a bill that prevents it from doing so; and 2) a standard will become legally implemented once it gets through OAL approval as a regulation – a process in which the legislature has no involvement.  The only legislative “oversight” over the Council appears to be for it to enact a law invalidating a regulation after it has been implemented.  This not only complicates the rulemaking process under the Administrative Procedure Act, but does so without providing clear, cohesive oversight over the Council’s standards.   

There’s another catch: this bill creates local fast food councils, too. AB 257 allows any county or city with 200,000 or more residents to form a local fast food council.  There were over 24 cities in California with a population exceeding 200,000 as of 2020.  This creates the potential for 24 different councils all recommending their own standards to the statewide Council.  Each county is permitted to have a council as well, potentially adding 58 different councils (one for each county).  The local and county councils can make recommendations to the state Council on minimum state, health, safety, and employment standards. Taking the local and county councils together, the state Council could end up receiving recommendations from 82 different sources.  To complicate matters further, each local and county council would be subject to the Ralph M. Brown Act (open/public meeting) law.  

Moreover, the bill contains a provision that states: “Nothing in this section shall restrict local jurisdictions’ exercise of police powers to establish more protective local standards.” Thus, California could expect the passage of city ordinances that create their own minimum wage standards for the fast food industry, which may or may not conflict with the state standards.    

Do these new rules apply to all fast food restaurants?

This bill covers restaurants that are part of a fast food chain (100 or more establishments nationally that share a common brand, decor, marketing and packaging) if the restaurant provides food or beverages in the following manner: 1) for immediate consumption either on or off the premises; 2) to customers who order select items and pay before eating; 3) with items prepared in advance, including items 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).

Bakeries that sell only bread, rolls and buns are not included.  Subsection (i) states, however, that the exemption applies only where the establishment produces and sells bread as a stand-alone menu item, not if the bread is available for sale solely as part of another menu item.  

There is also an exemption for restaurants that are located and operate within a grocery establishment, so long as the grocery store employs the individuals who work in the restaurant.

How does the act impact bargaining?

According to bill, the standards set by the Council “shall not” supersede a collective bargaining agreement (CBA) so long as the CBA provides for wages, hours of work, and working conditions equivalent to standards set by the Council, and a regular hourly rate of pay not less than 30% more than the state minimum wage.  So long as those conditions are met, the CBA is not usurped by this bill. However, what if the CBA changes each year due to negotiations?  If the CBA drops some rules but not others, is it still bound by the Council’s rules? If not, which rules apply? These questions remain unanswered.

Is the Council subject to the open meeting laws and California Public Records Act?

Yes. All records reviewed by the Council are subject to the Bagley-Keene and Public Records Acts, making franchisors’ corporate records and data considered by the Council in its deliberations potentially available to the public and competitors.

Open meeting laws apply to the Council, such that all its meetings are open to members of the public, including all writings prepared for or by the Council.  The Public Records Act also applies, meaning any member of the public can send a request to the Council for records and documents maintained by the Council.  Therefore, any document submitted by franchisors or franchisees for the Council’s review in ascertaining whether a rule shall be adopted is likely to be available to the public.  Knowing this, many corporate entities may refrain from providing certain materials to the Council. No subpoena power has been given to the Council, so documents will have to be turned over voluntarily.  If a franchisee produces a contract with their franchisor to the Council, even if the franchisor considers the contract proprietary, it may become part of the Council’s public record.  Although there are exceptions to the Public Record Act and Bagley-Keene Act regarding confidential and private information, the franchisor would likely have to seek court intervention to protect their rights to confidentiality.  The Council has no legal obligation to notify anyone that they have received a public records act request, so the franchisor may not even know their documents are being produced to the public.

How long will the Council exist?

If the bill is signed by the governor, the Council still must be officially established. For that to happen, 10,000 fast food restaurant employees must sign a petition approving the creation of the Council, and the petition must be submitted to the DIR.  The DIR then has 45 days to verify that the petition meets the signature requirements, using a random sampling technique to verify whether the signatures contain the required information. Electronic signatures suffice. If the director verifies the petition meets these signature requirements, members shall be appointed and the Council shall convene within 60 days of the verification.

The SEIU has largely been the mover behind this bill and it is no secret that it plans to use the 10,000 or more signatures on the petition as a contact roster for unionization drives.  There is nothing in the legislation preventing SEIU from obtaining all signatures on this petition and using the data for its organizing efforts.  The bill leaves unclear who may obtain the signatures or how they are to be physically recorded.  Can the member drive take place inside the restaurants with a right of access for signature purposes? Is that an activity protected by state or federal labor law?  The bill does not say.

This bill has a sunset date for certain provisions, but the sunset language is not entirely clear. The bill states, “On January 1, 2029, subdivisions (a) to (j), inclusive, shall become inoperative, and the council shall cease operations.”  This language may contain drafting errors or be deliberately vague, but it omits any reference to subsection (k), which pertains to the labor commissioner’s authority to enforce the bill.  It also omits subsection (l), which empowers the Council to issue any other rules, regulations or guidance necessary for the enforcement of this act.  It remains confusing how the Council could be sunset but not the related enforcement, nor the anti-retaliation provisions, which arguably would continue after the sunset date.  

Even after the law sunsets, guaranteed wage increases for fast food workers would apparently live on.  “On January 1, 2029, and annually thereafter, if the Council is no longer operative, the minimum wage for fast food restaurant employees …shall be increased by the lesser of . . .”  3.5% or the increase in CPI.

How will this new law be enforced?

The Labor Commissioner (LC) has the power of enforcement. The bill reads: “…the Labor Commissioner shall enforce this part, including investigating an alleged violation, and ordering appropriate temporary relief to mitigate the violation or to maintain the status quo pending the completion of a full investigation or hearing…including issuance of a citation against an employer, fast food restaurant operator, fast food franchisee, fast food franchisor, or any other liable person under this part, and by filing a civil action.”  And, “[i]f a citation is issued, the procedures for issuing, contesting, and enforcing judgments for citations and civil penalties issued by the Labor Commissioner shall be the same as those set out in Section 98.74 or 1197.1, as appropriate. In any successful civil action to enforce this section by the Labor Commissioner or an employee, the court may grant injunctive relief in order to obtain compliance with this part, and shall award costs and reasonable attorney’s fees.”

This new language strongly suggests the LC can file a claim against a franchisor or franchisee potentially alleging joint liability under the new act.  The LC has wide power and discretion in their enforcement and claims pursued against the employer.  The LC can conduct its own investigation, make its own findings either through use of the franchise contract or other evidence, and then sue both the franchisor and franchisee.  The LC can also ask a court to issue a temporary restraining order or permanent injunction halting practices it believes are improper.  Superior Courts give wide discretion and deference to the LC on these matters. 

In addition to designating the LC as the enforcer, this bill creates a private right of action.  AB 257 prohibits a fast food restaurant operator from discharging or in any manner discriminating or retaliating against any fast food restaurant employee for: (1) making a complaint or disclosing information (or is believed to have made such a complaint/disclosure) “to a person with authority over the employee or another employee who has the authority at the fast food restaurant 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”; (2) instituting, testifying in, or otherwise participating in a proceeding relating to employee or public health or safety, or any council or Local Fast Food Council proceeding; or (3) refusing to perform work the employee believes would violate worker or public health and safety laws or standards.

This bill also creates a cause of action and right to reinstatement, treble damages and attorney’s fees awards for employees asserting violations.  Furthermore, there is a rebuttable presumption embedded in this bill that states that if a fast food operator discharges or takes other adverse action against an employee within 90 days following when the operator had knowledge of that employee’s protected actions, it is presumed to be unlawful discrimination and retaliation.

What else do fast food employers need to know?

This bill is long and complex, so fast food entities seeking more information on its provisions and/or a determination of whether they would be covered by the potential law should consult counsel.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.