California Gov. Gavin Newsom on September 5, 2022, signed into law AB 257, the Fast Food Accountability and Standards Recovery Act (FAST Act), which creates an unelected Fast Food Council to set minimum standards that affect the terms of employment for fast-food restaurant chains with 100 or more locations nationally and at least one in California. The FAST Act is union-backed and is said to be part of a larger effort to unionize the restaurant industry in California.

Opponents of the FAST Act quickly filed for a voter referendum on September 7, 2022, to thwart the bill before it was to take effect on January 1, 2023. They had 90 days from the date of the bill’s enactment to collect the number of signatures required to qualify for a ballot measure. California’s Department of Industrial Relations (DIR) acknowledged receipt of the signatures and it is currently validating that the requirements for a referendum have been met.

Notwithstanding, California announced its intent to proceed with the adoption of the FAST Act as of January 1, 2023, despite the constitutional requirements under California law, that a measure being put to a referendum vote be suspended until ballots are cast by the public. The coalition “Save Local Restaurants,” comprised of businesses and restaurant trade groups, filed a lawsuit in Sacramento Superior Court on December 28, 2022, to “ensure the democratic process established by the California Constitution is respected.” It asserts that it submitted more than 1 million unverified signatures this month, well above the required minimum to initiate a referendum, and that putting the law into effect would set a “dangerous precedent” that threatens voters’ right of referendum.

On January 13, 2023, the Superior Court of Sacramento ruled that the FAST Act must go through the referendum process before going into effect. County officials have until January 25, 2023 to verify signatures. If the signatures are verified, the next step is to put the proposed legislation to a vote.

The FAST Act establishes an unelected 10-member Fast Food Council within the California Department of Industrial Relations (DIR) that is authorized to set new minimum standards concerning the minimum wages, working hours, and other health and safety conditions of a fast-food chain with at least 100 establishments nationwide (and at least one in California) that (1) share a common brand or are characterized by standard décor, marketing, packaging, products and services; and (2) are fast-food restaurants, which are defined as establishments that provide food or beverages for immediate consumption on or off premises to customers who order and pay for food before eating, with items prepared in advance (including items that may be prepared in bulk).

Composition of the FAST Act’s Fast Food Council

All members of the Fast Food Council will be appointed by the governor. Four members will be industry representatives: two representatives of fast-food restaurant franchisors and two representatives of fast-food restaurant franchisees. Four members will be worker advocates: two representatives of fast-food restaurant employees and two representatives of advocates for fast-food restaurant employees. One member will be a representative from the DIR. The final member will be a representative from the Governor’s Office of Business and Economic Development.

The FAST Act clearly impacts large, national, franchised restaurant chains, but it will also impact non-franchised brands with more than 100 employees. Any new wage and hour standards implemented by the Fast Food Council will be enforced by its Division of Labor Standards Enforcement, which is currently responsible for enforcing various California wage and hour laws. The regulations passed by the Council will automatically become law unless the California Legislature votes to invalidate the regulations. New standards will be enforced by the Division of Occupational Safety and Health, which is currently responsible for enforcing California workplace safety laws and regulations.

The Council will also be tasked with conducting a full review of the adequacy of fast-food restaurant health, safety and employment standards every three years and holding public hearings every six months. The Council will also be required to provide a report to the California Legislature at least 60 days before a proposed standard is effective.

Immediately after the FAST Act takes effect, the Council will have the authority to raise the minimum wage for fast-food employees to $22 per hour in 2023. The Council may further increase the minimum wage each year by the lesser of (1) 3.5 percent or (2) the annual increase in the Consumer Price Index.

Exemptions from the FAST Act

The FAST Act exempts (1) certain bakeries; (2) restaurants within “grocery establishments” if they are staffed by employees of the grocer; and (3) restaurants subject to a collective bargaining agreement (CBA), where the CBA provides for wages, hours of work, and working conditions equivalent to standards set by the Council and a regular hourly rate of pay not less than 30 percent more than the state minimum wage.

Employees’ private right of action

The FAST Act creates a private right of action for fast-food restaurant workers discriminated or retaliated against or discharged for exercising their rights under the Act. It specifically creates a rebuttable presumption of unlawful discrimination or retaliation for any adverse action taken against a worker within 90 days of the franchisor or franchisee having knowledge of the worker exercising their rights, and it will allow the Labor Commissioner to enforce violations without first receiving a complaint.

Additionally, the FAST Act permits cities or counties with populations of more than 200,000 to establish local councils that will be authorized to make recommendations to the Fast Food Council. Currently, there are at least 20 eligible cities and nearly 30 eligible counties, which may lead to numerous local councils.

Joint liability provision stricken from the FAST Act

Initially, the FAST Act contained a joint liability provision that made every covered franchisor a joint employer and therefore liable for any unlawful actions committed by its franchisees. Prior versions also made any agreement that a franchisee indemnify a franchisor for liability under the FAST Act void and unenforceable as contrary to public policy. Both provisions would have disincentivized franchisors from expanding franchises in California or bringing new franchise concepts to the state.

Broader implications in the hospitality sector

While the FAST Act has taken aim at quick-service restaurants, its supporters have made no secret that California and the fast-food industry are only a starting point and that they intend to expand the model to other industries, including retail, as well as introduce similar bills in other jurisdictions. For restaurants that are already struggling to make ends meet in the COVID-19 era, the FAST Act could not come at a more difficult time. Franchisors doing business within California will have to find ways to operate their restaurants so that they remain profitable. This may mean reducing the cost of labor through job elimination as costs sharply escalate through enactment of the FAST Act.

What next?

As discussed above, if the signatures of those supporting a referendum on the FAST Act are verified by the County, the next step will be to put the legislation to a vote in November 2024.