On September 28, 2023, California Governor Gavin Newsom signed an amended version of AB 1228 into law, eliminating some of the worst aspects of the Fast Food Franchisor Responsibility Act from the final law, and avoiding the need for a risky ballot referendum on the Fast Food Accountability and Standards Recovery Act (the “FAST Act”) in November 2024. While the final law’s pared down provisions still establish a $20 minimum wage and unelected “Fast Food Counsel” that may recommend onerous workplace standards, its rulemaking powers are now more limited, and franchisors can once again breathe a sigh of relief having dodged yet another a joint-liability threat to franchising in California.
Following passage of the FAST Act last year, strong opposition qualified it for a referendum, suspending its effect and putting it on the ballot for California voters in November 2024. An earlier version of the FAST Act had imposed joint liability on franchisors for violations of California’s stringent workplace laws, and while the FAST Act was on hold, its proponents renewed their efforts by introducing yet another bill, the Fast Food Franchisor Responsibility Act, to impose joint liability on franchisors.
Late last month, however, Governor Newsom brokered a deal with industry groups that included, most importantly among other compromises, stripping joint-liability provisions from the final law, repealing the FAST Act, and replacing it with revised regulations. Unlike the FAST Act, the Fast Food Council will no longer have independent authority to promulgate new workplace standards except minimum wages. While the Fast Food Council may still develop new workplace standards, they must first undergo a more traditional state agency review and rulemaking process. The new law will also forgo revival of the Industrial Welfare Commission, which would have posed a regulatory threat notwithstanding a ballot defeat of the FAST Act.
Franchise systems will still be punished by California’s novel decision to impose a special $20 minimum wage on fast food restaurants, and for franchisors making financial performance representations, they will need to consider how additional labor costs may impact their disclosures. Given the Fast Food Council’s statutorily prescribed composition, franchisors can expect it to pursue hot button issues, although checks on its authority will provide opportunities for input through a more normalized process. For now, AB 1228 avoids a worst-case scenario where the FAST Act survived referendum and allowed the Fast Food Council to independently pursue a joint liability agenda to upend franchising in California.