California’s $20 minimum wage law has workers, franchisees and politicians divided

California’s $20 minimum-wage mandate officially went into effect on April 1, much to the dismay of major franchisees and Republican critics. AB 1228, hailed as “extraordinarily beneficial” by Gov. Gavin Newsom, faced immense backlash amid its initiative process back in Sept. 2022. That backlash has only intensified as fast-food chains scramble to offset the bigger pay checks.

In anticipation of the minimum wage hike, several franchises in the state laid off their workers in an effort to cut costs and remain profitable. Pizza chains, notably Pizza Hut and Round Table Pizza, began by cutting an estimated 1,280 delivery jobs this year, per a Wall Street Journal report. Southern California Pizza Co. announced layoffs in December of around 841 drivers across the state, FOX Business said. Small restaurants also followed suit. Two San Jose-based Vitality Bowls restaurants are currently being operated by two employees instead of the typical four. The restaurants’ owner, Brian Hom, told the WSJ that he is “definitely not going to hire anymore.”

AB 1228 is essentially a collective deal between state lawmakers, labor unions and franchisees following a months-long battle regarding a wage increase for local fast-food workers. Business owners opposed the initially proposed $22 per hour rate by raising $71.8 million to fight the law, $50 million of which were loans from giant corporations. In response, labor unions sponsored legislation that would have forced fast-food corporations to share liability for labor violations with franchise owners. Democratic lawmakers also restored funding to the Industrial Welfare Commission for the first time in almost 20 years. The IWC, originally established in 1913, has the power to set wage and workplace standards for multiple industries.

A compromise was finally reached on Sept. 11, 2023. Under the revised bill, fast-food workers will be awarded a 25% hourly raise, increasing the previous $16 per hour rate by $4. California’s newly created Fast Food Council can also increase the minimum wage by up to 3.5% yearly, depending on inflation.

Despite the agreement, fast-food franchisees say AB 1228 still comes with its fair share of financial consequences. Scott Rodrick, the owner of 18 McDonald’s restaurants in Northern California, told CNN that he raised menu prices in response to the minimum wage hike. “We have looked at price, although I can’t charge $20 for a Happy Meal,” he said. “My customers’ appetite to absorb menu-board prices is not unlimited.” That price is nearly three times more than the current cost of a hamburger Happy Meal at a McDonald’s in Sacramento, California.

Additionally, Rodrick said he plans to make diners pay for at least some of the wage increase and for the time being, will hold off on costly renovations like updating dining rooms and buying new grills. 

“I’ve got to look at every option for business survivability. I’ve got to be aggressive in seeking labor-efficient growth,” he told FOX News. “I’m going to have to explore more digital and delivery avenues. I’m going to obviously have to make, like any smaller-business owner, harder choices around big capital expenditures.”

Harris Liu, who owns 21 McDonald’s restaurants in the Sacramento area, called the minimum-wage mandate “totally unfair” to businesses across the state. “This is really hitting family-owned businesses,” Liu told the National Review. “You have to be a larger business to survive this kind of environment. If I was a one- or two-unit franchisee, I don’t know if I would be able to make it. Even as it stands, I’m not sure I’m going to make it long-term.”

Alex Johnson, who owns 10 Auntie Anne’s Pretzels and Cinnabon restaurants in the San Francisco Bay Area, expressed similar sentiments, telling Fortune that he had to lay off his office staff and is now relying on his parents to help with payroll and human resources. Johnson said he’ll have to raise menu prices anywhere from 5% to 15% at his stores in order to stay in business. Increasing his employees’ wages will also cost him about $470,000 each year.

Other companies are taking extra measures, like installing more digital kiosks, expanding in other states, cutting back on employee hours, closing stores during slower periods and no longer hiring additional staff.

On the flip side, fast-food workers who still have their jobs praised the new law. The increase in pay allows workers more flexibility and the ability to work fewer jobs, both within and outside the fast-food industry.

AB 1228 applies to fast-food chains with 60 or more locations around the country. Chains exempted from the new law include those that “prepare and bake bread on-site to be sold as a standalone menu item,” FOX Business explained. Panera Bread was initially given a pass until February, when Gov. Newsom said the chain must now comply with the law. The change came after Bloomberg reported that Newsom pushed for the exemption on behalf of billionaire Greg Flynn, a longtime donor of the governor, who owns two dozen Panera locations across the state.

Newsom once again came under fire for paying workers of his own luxury restaurants less than the state standard. Active job listings for PlumpJack Cafe, an Olympic Valley-based restaurant partially owned by the governor, recently advertised several open positions (including “busser,” “host,” “server” and “food runner”) with $16 hourly wages. Another Newsom-owned restaurant, the Balboa Cafe, based in San Francisco’s Marina district, is hiring an “on-call cocktail server” for $18.07 per hour, per an online posting.

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Newsom described AB 1228 as “a big deal” and proof that the “future happens [in California] first.” The governor’s prior Panera exemption has been heavily criticized by Republicans, who also sought to shut down the law. Critics claimed the bill would replace workers with self-checkouts and “robot cooks.”

“Nearly everyone will be worse off: higher prices, fewer jobs, fewer eating options as places close, and fewer small businesses,” Doug LaMalfa (R-Calif.) told the DailyMail. “Ultimately this new $20 minimum wage will affect nearly every job, with similar results.”

On his podcast “The Verdict,” Sen. Ted Cruz (R-Texas) claimed minorities and teenagers would be most impacted by the law: “The statistics tell us [they] are very likely to be Hispanic or African American, to be teenagers with limited skills. And this was their first job where they were getting skills and Democrats are pulling up the ladder and saying you don’t get to get skills. Instead you should be unemployed but guess what? We got a welfare check for you.”

He continued, “The argument lefties say is, well you know, if you’re making 10 bucks an hour flipping burgers, you can’t feed a family of four on 10 bucks an hour. You know what, they’re right. It’s actually very hard to feed a family of four on 10 bucks an hour.”

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