Hot Take(out): California Fast Food Franchises Could Face Increased Liability

It’s been a busy spring at the California state capitol.  Among the few thousand bills being considered by California’s legislature this year, AB 1228 stands out.  The bill would essentially create joint liability for employment-related claims in the fast food industry for both a franchisee and its franchisor.  The bill continues to work its way through the legislature and represents a dramatic change in California employment law.

AB 1228 is the latest chapter in a somewhat convoluted history.  Last year, Assemblymember Christopher Holden sponsored AB 257, the Fast Food Accountability and Recovery Act or “FAST” Act.  That law created a “council” that was given the authority to set minimum working standards and wages in the fast food industry.  Earlier versions of the bill included joint liability provisions similar to those found in AB 1228.  Those were dropped as AB 257 worked its way through the legislative process.  Governor Newsom eventually signed AB 257, sans joint liability, into law on Labor Day, September 5, 2022. 

In turn, a referendum was qualified for the ballot; voters will decide whether to retain or reject the FAST Act when they go to the polls in November 2024.  In the meantime, the FAST Act is not in effect. Following the qualification of that referendum, Assemblymember Holden introduced AB 1228, resurrecting the joint liability provisions, which had previously been dropped from AB 257.

AB 1228 (like AB 257) applies to a “fast food restaurant.” A fast food restaurant is defined as any establishment in California that is part of a fast food chain and that primarily provides food or beverages prepared in advance or quickly for immediate consumption (either on or off the premises) to customers who order or select items and pay before eating, with no (or limited) table service.

Franchising Industry Targeted

Franchising is unique because the entities share the brand but not the operational control of the local business itself.  The franchisor is a separate business from the local franchise, which is relatively free to operate its own local fast food restaurant.  This is a widely popular and successful model for small business owners nationwide.  Many small business success stories have sprung from the franchise model.  Franchise owners in California reflect the cultural diversity of the state.

This bill’s joint employer provisions apply only to the fast food franchise model, and not to any other form of business, or any other type of restaurant.  AB 1228 requires that the fast food franchisor jointly share the civil legal liability for employment law violations of the local franchisee restaurant owner.  If the local franchisee, either intentionally or negligently, violates one of the enumerated employment laws in the bill (of which there are many, including wage and hour violations, PAGA claims and employment discrimination laws) the franchisor is liable for the violation, along with the franchisee.

The bill contains a “right to cure.”  Prior to bringing a claim against a franchisor for alleged employment law violations of a franchisee, an employee must provide 30 days’ written notice to the franchisor of the alleged violations of law.  The franchisor may then avoid liability by “abat[ing] each violation alleged and ensur[ing] that … any fast food restaurant workers against whom a violation was committed are made whole.”  Accordingly, a “cure” is equivalent to admitting liability and paying all damages claimed.  If no cure is provided, the employee may proceed to file suit against both the franchisor and the franchisee.  There are no guardrails, however, to prevent the assertion of unsupported claims, or unsupported amounts of damages.  Litigation will no doubt ensue against the franchisor each time a claimed violation is alleged against a franchisee.

This bill would have a significant impact on small business owners across the state who are operating fast food franchise restaurants. The impact of joint employer liability on a franchisor who is not running the day-to-day operations of a restaurant could potentially jeopardize the franchisor model.

AB 1228 passed out of the Assembly Labor and Employment Committee last week and currently sits in the Judiciary Committee, where it awaits a hearing.  Littler Workplace Policy Institute will continue to watch this bill closely and report on amendments or committee outcomes.

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.