Fill me in: On September 5, California’s Fast Food Accountability and Standards Recovery Act (FAST Recovery Act or AB 257), an extreme proposal to micro-manage the fast-food restaurant industry, was signed into law as we reported previously.
Why does this matter?
This law, which will take effect on January 1, 2023, establishes a 10-person council with the aim of implementing broad, sweeping regulatory practices including establishing wage rates, setting working hours, and issuing other regulatory practices and rules for operating.
The 10-member council will consist of members appointed by the Governor, the Speaker of the Assembly, and the Senate Rules Committee. The council will be required to dictate various terms of employment for all fast-food restaurants whose brands have more than 100 locations nationwide. As The Wall Street Journal recently reported, the council “could increase wages for California’s estimated half-million fast food workers to as much as $22 an hour starting next year.”
How does this affect small businesses in the state?
There are nearly 15,000 franchisees in California, employing nearly 750,000 people, according to Forbes, and “over two-thirds of California fast food restaurants own only one store and operate like mom-and-pop shops.” Most concerning is the council’s ability – and expectation – to increase the minimum wage for all franchise owners as they struggle to fill jobs, manage supply chain disruptions, and face record inflation costs.
How could this affect women and minority small business owners in particular?
Historically, underrepresented groups in business ownership, particularly women, minorities, and immigrants, are drawn to the franchise industry for its reliability and lower barriers to entry. For example, “In comparison to their 20% ownership of California’s non-franchise businesses, minorities comprise 30% of franchise owners of California,” according to Forbes. If the costs of operating increase, women and people of color could be priced out of the franchise market.
The bottom line:
California’s AB 257 could radically change the way the franchise industry operates in the state and could ultimately price small business owners out of the market. While the goal of the council is a noble one, to protect workers, these drastic and broad changes will likely force many franchise owners to close, resulting in more workers out of a job rather than receiving pay increases.