California Fast Food Industry Bills Could Make Major Changes to Franchising Industry

California, with its huge population, large cities, and self-proclaimed “Birthplace of Fast Food” moniker, has been a haven for fast food restaurant franchises for many years, but recent legislation may shake up the industry in the Golden State. Last year, the state legislature enacted AB 257, which will establish the Fast Food Council to preside over employment standards and rules for all fast food franchises consisting of over 100 national establishments. However, many industry stakeholders pushed back against the new law and gathered enough signatures to place a statewide referendum on the bill, putting the bill temporarily on hold until the voters can decide its fate with a ballot measure in 2024. This year, another bill (AB 1228) could result in even more changes to California’s fast food industry.

California AB 257 and Its Challenges

AB 1228 emerged in February and was introduced by Assemblyman Chris Holden, a former fast food franchisee and author of AB 257. According to him, both bills were authored with hopes to improve working conditions in the industry. Initially, AB 1228 was included as part of the Fast Food Franchisor Responsibility Act (FFRA, AB 257) but was removed due to lack of support. The FFRA was introduced in January 2021 and creates a Fast Food Council to govern the industry within the state. Similar to sectoral bargaining practices in Europe, the bill brings together stakeholders from across the industry to create employment industry standards for all fast food restaurants within the state. Within the bill, a minimum wage for all fast food industry workers would be established at $22 an hour, and the Fast Food Council would implement new standards for working conditions and employee training.

The bill passed in September 2022 and was supposed to go into effect beginning January 1, 2023. However, opponents gathered enough signatures to place a referendum on AB 257 before the legislation could take effect as scheduled. As a result, the general public will vote on a 2024 ballot initiative referendum to decide whether or not AB 257 will go into effect. If it does, major changes to the fast food restaurant industry would occur when the bill is implemented in 2025.

It is under this backdrop that AB 1228 was introduced in February 2023. While AB 1228 is not considered in this referendum and may pass completely on its own, the legislation may present fast food restaurant franchisors, franchisees, and employees with additional changes to the industry. 

What Does California AB 1228 Do?

AB 1228 establishes joint liability for civil legal responsibility and civil liability between fast food franchisors and franchisees for all of a franchisee’s violations of laws and orders. Under this bill, the enforcement of any civil action brought against a fast food franchisee would be applied to the same extent against the franchisor. Specific violation targets of the bill include repeated violations of employment law, including minimum wage, overtime, off-the-clock, and meal break violations, as well as sexual harassment and discrimination and workplace injuries and violence.

Advocates of joint employer classification describe a fractured system where repeated employment violations from franchisees are not dealt with and hope to establish responsibility for franchisors to provide support and legal compliance with their franchisees. Union organizers believe AB 1228 will enhance responsibility from franchisors. Opponents argue that under this law, franchisors would create strict new regulations for franchisees to follow and fundamentally change the relationship between franchisees and franchisors. Without the liability distinction between franchisors and franchisees, franchisors might abandon the franchise model altogether and choose to own their facilities in California outright, depriving aspiring entrepreneurs a well-proven avenue to owning their own small business. The fast food industry sees this as an existential threat to their business model and has lobbied aggressively against the bill, with significant assets and millions being leveraged and spent to prevent AB 1228’s passage.

What Happens Next?

AB 1228 has passed the Assembly and is currently being held up in the legislative process as “secret negotiations” allegedly take place with Governor Gavin Newsom’s assistance. The bill was pulled from a Senate Judiciary Committee hearing back in July, but there is a chance that it may get a special waiver for later this year despite missing the July 14 deadline to be heard prior to the summer recess and bill hearing deadline.

California’s next major legislative deadline is quickly approaching. September 1 was the last day for fiscal committees to meet and report on bills. We’ve seen no movement since the bill was pulled in July. There is still a chance that even if the bill passes out of the judiciary committee, an amended version may not pass out of the Assembly again given that AB 1228 narrowly passed the Assembly in April when it cleared the 41 vote threshold needed to pass out by one vote.