Fast Food Restaurants Could Disappear Fast

Barry Kurtz | Shareholder

September 16, 2022

Assembly Bill 257, the Fast Food Accountability and Standards Recovery Act (“FAST Recovery Act,” or the “Act”) became law in California on September 5, 2022.

According to the California legislature and Governor Gavin Newsom, the new law was necessary to stop abuses such as low pay, few benefits, minimal job security, physical well-being and security, wage theft, sexual harassment, discrimination, and health and safety violations rampant in the fast food restaurant business in California.

Effective January 1, 2023, the FAST Recovery Act is supposed to rescue employees at fast food chains in California by establishing a 10-member Fast Food Sector Council within the Department of Industrial Relations (DIR). The Council will set minimum standards on wages, working hours, and other working conditions related to the health, safety and welfare of fast food workers if the DIR receives a petition signed by at least 10,000 fast-food employees.

Council members will be appointed by the Governor, the Speaker of the Assembly, and the Senate Rules Committee, and will include representatives from the DIR, fast-food restaurant franchisors, fast-food restaurant franchisees, fast-food restaurant employees, and advocates for fast-food restaurant employees.

Fast Food Restaurants and Fast Food Chains

For purposes of the Act, a “fast food chain” is a set of fast-food restaurants with 100 or more national locations that share a common brand or have standardized options for décor, marketing, packaging, products and services – generally, but not always – a franchise.

With some exceptions, a “fast food restaurant” is any establishment in the state that is part of a fast-food chain. A fast food restaurant is further defined as one that in its regular business operations, primarily provides food or beverages for immediate consumption, either on premises or off premises, to customers who order and pay for their food on premises or off premises before eating, whose food and beverages are prepared in advance or prepared in bulk and kept hot or prepared or heated quickly, and has limited or no table service.

Fast Food Sector Council Duties & Jurisdiction

In addition to the aforementioned standards, the Council may also issue, amend, or repeal any other rules and regulations necessary to carry out its duties or meet the purposes of the Act.

If there are conflicts between standards, rules, or regulations issued by the Council and the rules or regulations issued by another state agency, the conflicting rules or regulations of the other state agency will not apply to fast food restaurant workers, franchisees, or franchisors in California. Decisions by the Council on standards, rules, and regulations must receive affirmative votes from at least six Council members.

FAST Consequences for Franchisors

Observers predict that the Act could reduce the number of fast food franchisees and franchisee-owned fast food restaurants in California because of increasing labor and other related costs, thereby reducing the number of jobs available for restaurant workers.

Fast food franchisors may reduce the number of company-owned restaurants and/or efforts to open additional franchisee-owned fast food restaurants in the state. Franchisees may be forced to reduce their workforce or hours of operation because of rising labor and other costs.

Increased litigation between franchisors and franchisees over compliance with system standards may ensue. Other business sectors and the unions that support them may pressure the California legislature to consider and adopt similar councils for their businesses. Other states may adopt similar legislation that could limit franchisor and franchisee operations and expansion in their states. None or all of these predictions may become true.

Efforts to stop the implementation of the Act have already begun. Steps have been taken to block the FAST Recovery Act by a referendum anticipated to be put before California voters. Franchisors and special interest groups may file litigation to prevent implementation of the Act in whole, or in part, as well. Only time will tell.

Barry Kurtz is a Certified Specialist in Franchise & Distribution Law, by the State Bar of California Board of Legal Specialization.

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