California’s new law that creates a separate minimum wage applicable only to fast food restaurant employees took effect on April 1, 2024. Under Labor Code Section 1475 (LC 1475), this minimum wage is $20 per hour. It represents a significant increase from the current statewide minimum wage of $16 that went into effect at the beginning of the year. Many local jurisdictions within the state already have a minimum wage above $16 per hour, but none as high as $20 per hour. 

Legislative background

The history behind the fast food minimum wage involves a clash between labor unions and the California restaurant industry that began with the enactment of AB 257, a union-backed bill signed into law by Governor Newsom in 2022. That legislation, dubbed “the FAST Act” for “Fast Food Accountability and Standards Recovery Act,” included pro-employee provisions, most notably among them the creation of an unelected “Fast Food Council” within the Department of Industrial Relations. The Council, comprised entirely of governor-appointed members, would have had binding authority to set minimum standards regarding wages, working hours, and other health and safety conditions for fast food restaurants that are part of a national chain of at least 100 establishments.

Two days after AB 257 was signed into law, restaurant industry opponents filed for a voter referendum to challenge the bill before its January 1, 2023 effective date. That was followed by successful litigation on behalf of the industry to suspend AB 257 pending the referendum process. You can read our article on this subject here. Subsequently, with the voter referendum looming, the unions and restaurant industry representatives compromised with a deal on September 11, 2023, which we previously wrote about here. The deal, reflected in AB 1228 and now LC 1475, includes the present $20 per hour minimum wage.

Application of the new minimum wage

Covered employees include those who work at restaurants that are part of a “national fast food chain,” defined as a set of over 60 limited-service restaurants nationwide that “share a common brand, or that are characterized by standardized options for décor, marketing, packaging, products, and services, and which are primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service.” (LC 1474(a).) Bakeries and restaurants located within grocery stores are exempt, and the governor just signed legislation into law on March 26, 2024 specifying eight additional exemptions for restaurants located in airports, hotels, large event centers, theme parks, museums, gambling establishments, corporate campuses, and certain public lands. (See AB 610.)

The Fast Food Council

LC 1475 maintains the creation of an unelected “Fast Food Council,” but as a less robust version with limited authority. The council’s purpose is still to establish minimum standards on wages, working hours, and working conditions to ensure “the health, safety, and welfare of, and to supply the necessary cost of proper living to” fast food restaurant employees. (LC 1474(b).) Moreover, the council can increase the fast food worker minimum wage on an annual basis through 2029 as long as the increase is within specified limits (no more than the lesser of 3.5 percent or the annual increase in the Consumer Price Index). Otherwise, the council generally does not have the authority to create new standards on its own.  Rather, it will propose new standards that will be subject to a review process by the Labor Commissioner and state rulemaking procedures. The council’s first meeting will take place by March 15, 2024. 

Takeaways

As a practical matter, fast food employers with California locations must prepare for compliance with the new minimum wage law. The Labor Commissioner’s Office has published FAQs here. The increased cost in labor will no doubt pose a challenge for the profitability of restaurants, especially those located in smaller metropolitan areas that are not subject to local minimum wage ordinances higher than the state’s $16 per hour. Employers should also become familiar with the Fast Food Council and its effect on regulating their industry, including the potential for regular hikes in minimum wage.

From a broader employment law perspective, we will stay tuned to see if California’s newly charted path with respect to the fast food industry will take hold in other states and other employment sectors.