California’s Legislature on Monday passed a bill to create a government commission that would set wages for the state’s half a million fast-food workers, an American-first approach to workplace regulation that labor union supporters hope will spread nationally.
The bill, known as the FAST Act, would create a committee with members appointed by the governor and legislative leaders comprised of labor, union representatives, employers and business attorneys. Starting next year, hourly wages for fast-food workers will be set at $22 an hour, and can increase at the same rate as the Consumer Price Index, up to a maximum of 3.5% annually.
An earlier version of the bill passed by the state Legislature in January allowed the council to oversee workplace conditions, such as scheduling and making restaurant chains joint employers of their franchisees, opening them up to liability for labor violations.
Representatives of companies including
Yum Brands Inc.
They succeeded in removing those provisions through amendments in the state Senate last week, although they opposed the bill.
“This is the biggest lobbying battle the franchise industry has ever seen,” said Matthew Haller, president of the International Franchise Association, a trade group whose members own many fast-food restaurants.
A study commissioned by the University of California, Riverside School of Business Franchise Association found that raising the minimum wage from $22 to $43 would increase labor costs by 60% and raise fast food prices by about 20%.
California’s current minimum wage is $15 and is set to increase by 50 cents on January 1.
The final form of the FAST legislation passed both houses of the Democratic-controlled state legislature on Monday. In both the House and Senate, all “yes” votes came from Democrats and every Republican who voted opposed the bill.
Democratic Gov. Gavin Newsom has until Sept. 30 to decide whether to sign or veto the bill.
Mr. Newsom has not taken a public position on the current version of the bill, but his Treasury Department opposed the original version.
Labor unions backing the move have long struggled to organize fast-food workers because the industry’s ownership model includes multiple employers.
California lawmakers first introduced the bill last year, with supporters arguing that tighter regulations are needed to protect fast-food workers who are increasingly black or Latino and experience unpaid overtime and other labor violations.
Despite the recent changes, supporters said the bill is still a significant step forward. Lorena Gonzalez Fletcher, a former Democratic legislator who introduced the bill while she was in the Legislature, moves California closer to the labor model used in Europe, where unions negotiate wages and working conditions across an entire sector rather than by company. Company.
“It’s still a big bold idea. Giving workers a voice at the table is going to be fundamentally different for those workers,” said Ms. Gonzalez Fletcher, who now leads the California Federation of Labor, the state’s largest union umbrella group.
The council will close in 2028 if it is not renewed, although the latest amendments will see inflation-adjusted wage increases for workers continue.
The bill covers fast-food restaurants that are part of a chain, have limited or no table service, and places where customers pay for their food before ordering and eating. The chain must have 100 or more locations nationally, up from 30 in the previous version of the bill.
California accounts for about 14% of total U.S. restaurant sales, and policy in the state could affect other sectors, according to Citigroup Global Markets Inc. analysts wrote in a client note earlier this month.
Mary Kay Henry, president of the Service Employees International Union, said she hopes the bill will be a catalyst for similar movements across the country.
Investors are starting to ask about the law’s potential implications for restaurant chains at a time when companies are grappling with higher food and labor costs, Wall Street analysts said.
“Obviously, we think it’s problematic on a number of fronts,” Paul Brown, chief executive of Dunkin’ and Arby’s owner Inspire Brands Inc., said in an interview. “I think it’s trying to solve a problem that doesn’t really exist.”
Chipotle, Yum Brands, Chick-fil-A Inc., In-N-Out Burgers,
Jack in the box Inc.,
and Burger King parents
Lawmakers have spent more than $1 million between 2021 and June 30 of this year, primarily on the FAST Act, state records show.
The International Franchise Association, which represents about 1,200 franchise brands, has spent $615,000 lobbying against the FAST Act and other legislation at the time.
Disclosures about lobbying spending since July 1 did not come until later this year, but industry advocacy against the bill has increased significantly by then, people familiar with the effort said.
Since the start of 2021, labor unions have collectively spent more than $5 million, mostly through the FAST Act, to lobby the Legislature, state records show.
According to a report seen by The Wall Street Journal, McDonald’s has encouraged franchisees across the country to email California lawmakers urging them to vote against the bill.
State Sen. Shannon Crowe, a Republican, said on the Senate floor Monday that McDonald’s representatives told him the company could stop expanding in California or leave altogether if the FAST Act becomes law.
“Can We Really Live Without The Golden Arches?” Mrs. Crowe said.
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