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California Governor Gavin Newsom is on the verge of signing a bill to set the minimum wage for fast food workers at $22 an hour, raising it $7 above the state’s $15 minimum wage.
The FAST Recovery Act, the law that will raise wages in the fast-food industry starting in 2023, will establish a panel comprised of the governor and delegates from labor unions and the fast-food industry, which will set wage increases starting at $22 and must be equal to the rise in inflation but capped at 3.5%.
The panel in charge of creating the commission will not only be responsible for determining the remuneration of workers in the fast-food industry but also for establishing the regulations that will govern working hours and working conditions in franchises.
An earlier draft of the bill also stipulated that chain restaurants could be held liable for abuses and misconduct committed within their franchises; however, this article was removed thanks to lobbying by companies such as McDonald’s and Yum! Brands and Chipotle Mexican Grill.
The final version of the bill passed both Democratic-controlled California legislatures on Monday. In either case, the California Assembly or Senate, Democrats passed the legislation unanimously, while the entire Republican Party opposed its passage.
These are the consequences of the FAST Recovery Act for the fast-food industry.
A study conducted by the International Franchise Association with the University of California Riverside School of Business estimated that hiring costs could increase by up to 60% due to the measure. In comparison, the cost of fast food could increase by between 7% and 20%, depending on the type of restaurant.
The measure may also disproportionately affect franchise businesses, as the legislation only covers businesses with more than 100 locations nationwide.
According to the California Restaurant Association, if the bill passes, the fast-food industry will have to take drastic measures that involve raising prices, reducing hiring, and cutting shifts to remain profitable.
According to a survey conducted by the Labor Policy Institute on 658 economists: 93% of respondents believe that the law will increase operating costs for franchises; 83% of respondents believe that fewer chains will be willing to expand their operations in California; as many as 73% agree that some franchises would cease operating in California; and 49% believe that the law will hurt hiring, while another 39% believe it will have a very negative impact.
If Governor Newsom ratifies the bill, employers would have to raise wages for fast food workers in 2023, just after fast food businesses endured a substantial price hike that squeezed many restaurants’ profit margins and forced them to raise prices.
California’s fast-food industry is embroiled in a lobbying war between unions and restaurant guilds.
Several representatives of the fast-food industry have mobilized to persuade Governor Newsom to veto the bill. The California Restaurant Association has openly opposed the bill, backed by fast-food industry unions.
Brands such as Burger King, Chipotle, and Chick-fil-A Inc have invested up to $1,000,000 in lobbying against the bill. However, they have been overshadowed by unions that have spent up to $5 million to support the passage of the legislation.
On its part, McDonald’s has urged its franchisees to demonstrate against the legislation; according to the hamburger giant, if Governor Newsom ratifies the bill, it could end its expansion of restaurants in California.
Governor Newsom, who has until September 30th to ratify the bill, has not yet stated whether or not he supports the legislation that just passed the California Assembly and Senate.