AB 1228 Summary: California Fast Food Law on Wages, Council Authority, and Business Impact

California’s AB 1228 law sets a $20 hourly wage for fast food workers and forms a state-level Fast Food Council. It changes employment rules, impacts exempt pay requirements, and raises business cost issues for restaurants and their customers.

By Douglas Wade, Attorney

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Table of Contents

1. Introduction

2. Who is protected?

3. The Fast Food Council: What is it?

4. The New Industry Minimum Wage: What is it?

5. What’s new?

6. What are the next moves for fast food employers?

Introduction

California’s contentious A.B. 1228 law, which entered into effect on 28th Sep 2023, accomplishes two major goals. The minimum wage for workers of a “National Fast Food Chain” was raised first. Second, a Fast Food Council was created, with the authority to impose further minimum employment rules for fast food establishments and to raise the minimum pay in the future.

Who is protected?

A “National Fast Food Chain” is a group of limited-service eateries with over 60 locations around the country that are all under the same brand. This includes eateries that specialize in serving food and drinks for immediate consumption both inside and outside of the premises, where customers typically order or choose items and pay prior to consuming, with little to no table service, and that are distinguished by standardized options for décor, packaging, marketing, packaging, and services.

In the state, a “fast food restaurant” is defined as a limited-service establishment that is a member of a fast food chain (national), with the exceptions listed below. In this part, “limited-service restaurant” refers to establishments that have the North American Industry Classification Standard Code 722513, among others.

Bakeries, supermarkets, and eateries inside or connected to an airport, hotel, theme park, museum, gambling establishment, or event center larger than 20,000 square feet or with over 1,000 seats (e.g., a racetrack, concert hall, or sports stadium), as well as eateries covered by the terms of a concession or food service contract that satisfies specific requirements, are not covered by this law.

The Fast Food Council: What is it?

Employers, workers, and advocates are all represented on this Council, which was established within the realm of the Department of Industrial Relations. Fast food workers, franchisees or owners of restaurants, representatives from other sectors of the fast food business, campaigners for fast food restaurant staff members, and an impartial chairperson comprise its nine voting representatives.

The duties of the Council are substantial. They have the authority to propose any new industry-specific standards, like a minimum wage in fast food restaurants, hourly work, and training and condition requirements. Only proposals must be provided that are reasonably necessary or appropriate to protect the welfare of fast food workers, including their physical security and health.

Working conditions include but are not limited to remuneration, circumstances of the kind affecting the safety and health of the employees in fast food restaurants, security in the workplace, the ability to get leaves in consideration of constitutional reasons, and the absence of harassment and discrimination in the workplace. However, not all potential employment-related subjects are covered by “working conditions.” The Council was not allowed to produce rules establishing fresh paid time off perks, like paid vacation or paid sick leave, or to provide rules pertaining to predictable scheduling.

The APA (Administrative Procedure Act) rule-making process would apply to all standards issued by the Council. The Labor Commissioner will be in charge of releasing, revising, or removing norms that the Council created. The Council might ask that the Labor Commissioner draft a notice of suggested rule-making action pertaining to the suggested regulatory text and forward the proposed written requirements to the Commissioner.

If the Commissioner found that the suggested guidelines were either inconsistent with the APA or the Council’s authority, the Commissioner would have to give the Council an explanation in writing of the rationale for the decision within 60 days so that the Council could change the proposed standards.

The New Industry Minimum Wage: What is it?

It is somewhat uncommon to impose a minimum wage that applies to a specific group of workers. There are very few other U.S. jurisdictions that have set minimum wages for a specific labor sector. For instance, home care providers in Nevada are subject to a minimum salary rate. Direct care employees in long-term care facilities and other seasonal employers are subject to various minimum pay rates in New Jersey.

California established a minimum wage of $20 an hour for fast food workers on 1^st Apr 2024, as we previously discussed. The Fast Food Council may consider increasing the minimum wage of workers (in fast food restaurants) by a certain amount each year, and this would commence on 1st January 2025. The annual increase in the minimum hourly wage would be confined to the smaller number between the Consumer Price Index and 3.5 percent and would be rounded up to the nearest ten cents.

The Council might establish a statewide increase or consider regional variations when determining minimum wage hikes. More protective municipal standards may still be implemented by local governments. They were unable to pass a law that only applied to workers at fast food restaurants, though. They could therefore set a minimum salary that is broadly applicable across all industries without being hindered by this regulation.

What’s new?

Over 1,000 regional restaurant owners urged the Fast Food Council to oppose any further wage hikes for fast food employees in a letter addressed to Gov. Newsom on 29^th Jan 2025. The proprietors bemoaned that a further wage increase would “cripple thousands of smaller business owners such as us who are currently fighting to sustain the $20 an hour minimum wage, our customers, and our staff” in their letter to Gov. Newsom & the Fast Food Council.

The letter also points to the spike from the previous year as the cause of “hundreds of fast food job cuts, hundreds of establishments shutting down, and food costs at local eateries increasing by 13% altogether.”

In fact, since A.B. 1228 took effect in September of 2023, the cost of food at California limited-service eateries has skyrocketed by 13.1%, according to new data published by Datassential. 34.6% of the menu choices at restaurants with limited service in California experienced price hikes in April 2024, when the minimum hourly rate increased by 25% (from sixteen dollars to twenty dollars per hour). This is over five times the percentage of price increases in other jurisdictions.

What are the next moves for fast food employers?

Fast food companies ought to think about how raising the minimum wage may affect the minimum pay for their exempt workers. The reason for this is that exempt employees’ pay must rise in tandem with the minimum wage for covered employers in order to satisfy the exempt employee requirements. At least double the state’s minimum wage for full-time work must be paid to employees who are exempt under the professional, administrative, or executive exemptions under current law.

According to the Industrial Welfare Commission’s pay regulations and the Labor Code, “the hourly wage rate set by A.B. 1228 must represent the statutory minimum pay for fast food workers in restaurants for all purposes.” For fast food restaurant workers covered by A.B. 1228, the minimum compensation required to be eligible for the California professional, administrative, or executive exemptions is likely $83,200 annually.

The DIR’s (Department of Industrial Relations) agency, known as the California Labor Commissioner’s Office, has issued FAQs (frequently asked questions) that provide clarification on various aspects of A.B. 1228, including the $83,200 minimum wage requirement for exempted fast food employees (in reply to FAQ No. Fifteen).

The Labor Commissioner’s answer to FAQ No. Six states that A.B. 1228 “applies only to workers in fast food establishments,” as previously stated. This may imply that workers carrying out personnel and administrative tasks in the company’s corporate office or offices most likely do not have to abide by A.B. 1228, albeit this is not conclusive.

Although the proposal lacks legal authority, businesses may decide to take the Labor Commissioner’s opinion into consideration because the Commissioner is in charge of carrying out California’s labor laws. National fast food corporations’ employers in California should also review their wage and hour practices to make sure they adhere to the requirements of A.B. 1228.

Premiums for meals and rest periods, reporting time pay, split work premiums, and waiting time penalties all increase with an increased minimum wage. For advice on these downstream implications of A.B. 1228, employers should carefully examine their policies and procedures with legal counsel.

Since every company would be under more pressure to pay and retain employees, A.B. 1228 will surely influence labor markets in a variety of industries. Due to the higher cost of operating in California, covered firms should consider and prepare for how this law may affect personnel, budgeting, and consumer prices.

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AB 1228 Summary: California Fast Food Law on Wages, Council Authority, and Business Impact

Introduction

Who is protected?

The Fast Food Council: What is it?

The New Industry Minimum Wage: What is it?

What’s new?

What are the next moves for fast food employers?

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