Burgers, fries and a new minimum wage. California fast-food bill could raise worker pay, prices

Medora Lee
USA TODAY
  • California's fast food law would allow a 10-member appointed council to lift hourly wages to $22.
  • Unions say the law gives workers a voice in issues like wages and work conditions.
  • Critics say it unfairly targets some small businesses, lifts costs and ultimately, consumer prices.

Fast food equals cheap food. That may no longer be the case soon, at least in California, where some say a new bill could push up the cost of burgers, fries and milkshakes.

California Gov. Gavin Newsom signed a bill this week that would allow a 10-member council to set working conditions and wages for fast-food restaurants with more than 100 locations nationwide. The council could, among other things, raise the minimum wage in those restaurants to $22 an hour next year from $15 now. 

The Service Employees International Union says the bill gives workers more power to force major corporations to address issues like wage theft, sexual harassment, discrimination and violence in the workplace.

"We look forward to having a say in creating safe and healthy workplaces across the fast-food industry,"  said Anneisha Williams, a Los Angeles fast-food worker and leader in the Fight for $15, in a statement.

Critics argue this legislation hurts small businesses and consumers already facing 40-year high inflation, said Matthew Haller, International Franchise Association president and chief executive.

“Operating on single-digit profit margins, they can’t absorb cost increases without passing them to consumers," he said.

What is AB 257, or the FAST Act, also known as Fast Food Recovery Act? 

The legislation gives an appointed 10-member state council, or “Fast Food Council,” comprised of four business, four employee, and two California agency representatives wide-ranging authority over fast food and fast casual restaurants in California with more than 100 locations nationwide.  

The council can raise the minimum wage to $22 per hour in 2023 and up to 3.5% annually after that. It can also set minimum standards for working conditions, maximum hours worked, security, and more. 

“For the first time ever, an unelected council will both set sweeping standards for a specific industry’s wages, hours, and working conditions that prevail over existing laws and have the power to repeal or amend laws and regulations created by the Legislature or a regulatory agency,” said Ashley Hoffman, California Chamber of Commerce policy advocate. The chamber opposed the bill. 

A new California fast-food minimum wage bill could push up the cost of burgers, fries, and milkshakes.

How does this fast-food act affect small businesses? 

Increased costs ultimately mean fewer small, local restaurants, studies show. 

If wages rise to around $22 per hour, labor costs could increase by more than 60% for these businesses, wrote Christopher Thornberg, director of the University of California, Riverside School of Business Center for Economic Forecasting and Development in a study this year supported by the International Franchise Association.

California’s Department of Finance opposed the bill in June, saying it would be expensive to enforce and “could lead to a fragmented regulatory and legal environment for employers and raise long-term costs across industries.” The department also questioned if the bill would even accomplish its goal. 

Of 67 economists in an August Employment Policies Institute survey, 93% expect operating costs will rise, 84% said fewer restaurant chains would want to operate in California and 73% said franchisees will close restaurants. 

Franchise-focused research firm FRANdata estimates the bill will affect 16,753 franchised locations in California operated by 5,820 franchisees. 

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How does this affect consumers? 

About 70% of Californians, or 28 million people, eat at quick service restaurants each week. Underrepresented communities, and those who can afford it least, will be hit hardest as businesses pass on higher costs to consumers.

For every 20% to 60% increase in wages, Thornberg estimates restaurant prices will rise 7% to 22%. Some International Franchise Association members forecast prices could rise more, possibly as much as 40%. 

Households with an average annual income of $35,000 would pay an extra $184 per year to maintain their current levels of consumption if wages rose 20%, Thornberg estimates.

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Who could the bill hurt?

“If you are a small business owner running two restaurants that are part of a national chain, like McDonald’s, you can be targeted by the bill,” Joe Erlinger, McDonald’s USA president, wrote. “But if you own 20 restaurants that are not part of a large chain, the bill does not apply to you.” 

Additionally, many business groups representing minority communities said the law would kill opportunity. "Not only do franchise models provide minority entrepreneurs with uncharted economic opportunity, but the franchise model represents a key pathway towards achieving the American Dream while also generating employment, revenue, and opportunity for their immediate communities,” they said. 

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Who does the bill help? 

The Service Employees International Union says California’s 550,000 fast-food workers, most of them Black or Hispanic, would benefit “with a seat at the table to help set minimum industry standards around wages, safety and training.”

The minimum wage in California is $15 an hour. The average fair-market rent for a two-bedroom apartment in the state is $1,526, according to RentData.org, which provides free rental price data for homes and apartments across the country 

But opponents say unions are the main benefactors. Typically, employees at one location must organize with labor unions negotiating for them.

Under the FAST Act, though, unions can skip the organizing and instead go straight to negotiating, Sean Redmond, vice president of Labor Policy at the U.S. Chamber of Commerce, said. 

 “Labor unions and their political allies want to impose a form of sectoral bargaining that runs afoul of American labor policy,” Redmond said. 

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What happens next? 

The Service Employees International Union hopes states across the country will adopt similar legislation.  

“The follow-through impact, given the strong union push behind the legislation, could ripple beyond quick service restaurants to other parts of restaurant industry, retail, home health care and other sectors, with California increasingly becoming the template for other "Blue" states to look at "copycat" legislation,” said Andy Barish, Jefferies analyst, in an analyst note. 

If that happens, Barish said, it would “clearly” have “anti-growth ramifications.” 

Hoffman expects a legal challenge to its constitutionality because it allows an unelected body to resolve policy issues without direction for implementation.  

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.