Struggling CA Restaurants Will Face Higher Costs, Crippling New Regulations Under AB 257

After suffering through two statewide lockdowns and a year of draconian Covid-19 restrictions, around 1/3 of California restaurants were forced to permanently close their doors. For the few eateries that made it through, a new battle for survival is underway as rampant inflation, supply chain disruptions, and a historic labor shortage drive up food prices across the industry.

But a new proposal under consideration by the California legislature would make problems worse. AB 257, also known as the Fast Food Accountability and Standards Recovery Act (FAST Act), would upend the franchise business model and create a new council with sweeping authority to impose strict new labor standards on the majority of restaurants in California.

For more than a century, the franchise business model has given countless budding entrepreneurs the opportunity to own and operate independent businesses while utilizing the name and image of their parent corporation. But AB 257 would make California the first state in the country to assign labor liability to fast food corporations, and not just their individual franchise owners. This would effectively relegate franchise owners to the status of middle-managers, as corporations begin to micro-manage daily operations from the top under the threat of becoming a party to lawsuits against individual franchises.

AB 257 would tear down a business model proven to offer superior pay and opportunity. Franchises are proven to pay 2-3% higher wages than their non-franchised counterparts and provide vacation, holiday, and sick leave to 76% of their employees.

The bill will also establish a powerful, unaccountable “Fast Food Sector Council” to create one-size-fits-all labor standards for all restaurants where customers order and pay for their food at the counter. This misleadingly named council would dictate wages, hours, and other normal operating decisions for an expansive collection of businesses – coffee shops, pizzerias, smoothie bars, bakeries, ice cream parlors, delis, salad bars, burger joints, and all other quick service restaurants in the state. Although California already features the strongest wage and labor standards in the country, AB 257 gives lawmaking authority to an unelected council of political appointees to foist even stricter rules upon a critical California industry.

Increased costs from implementation of AB 257 will be passed down to the consumer, effectively creating a new tax on casual restaurants and their millions of customers. A recent UC Riverside study found that food prices could increase as much as 22% if the law were to take effect, even as inflation continues to take its toll.

Moreover, the counter-service restaurant industry is not particularly prone to labor violations, as proponents of AB 257 claim. The Employment Policies Institute points out that “no credible data have been presented to justify why the industry should be singled out for special regulatory attention and oversight.” In fact, of all successful lawsuits alleging wage and hour violations, the limited-service restaurant industry accounts for just 1.5%, despite their 3.2% share of total employment in California.

Even Gov. Newsom’s Department of Finance opposes AB 257. According to a recent report, the California DOF found that the legislation would lead to “significant and ongoing costs” at the Department of Industrial Relations, create a “fragmented regulatory and legal environment for employers,” and “raise long-term costs across industries.”

AB 257 is nothing more than a poorly disguised attempt by the SEIU and other powerful California unions to secure a political and economic advantage, as any company operating under a collective bargaining agreement is exempt from labor standards imposed by the new sector council.

ATR is strongly urging California legislators to oppose AB 257. A recent letter to state representatives reads as follows:

“At a time when California residents and businesses are struggling with the highest inflation rate in 40 years, enactment of AB 257 would exacerbate the pain caused by rising prices. By artificially inflating the cost of food, AB 257 will act as a regressive tax hike that does the greatest harm to low- and middle-income households who can least afford the added cost. Lawmakers should vote against the FAST Act and give struggling restaurants a chance to thrive.”