- A bump in pay. California’s new law mandates that large fast-food chain restaurants (those with 60 or more locations nationwide) must raise their minimum wage for workers in the state from $15 per hour to $20 per hour.
- Creation of an oversight body. The law also created a Fast Food Council, which will have the authority to adjust, on an annual basis from 2025 to 2029, the hourly minimum wage for certain fast-food restaurant employees.
- Talent pool increase. A positive result for the California fast-food restaurant industry could be an influx of potential workers attracted to the higher minimum wage.
A new California law is bringing change to fast-food restaurant chains. Assembly Bill 1228, which went into effect April 1, raised the minimum wage for certain fast-food workers statewide from $15 per hour to $20 per hour. Specifically, the change applies to California-based workers at fast-food companies that have at least 60 locations nationwide. Affected employees will now have the highest guaranteed base wage in the American restaurant industry.
The law carries exemptions for some connected bakeries and smaller stores located within larger retail/grocery outlets, airports and similar locations. The pay hike came after a deal struck in 2023 by labor leaders, including the large Service Employees International Union (SEIU), and fast-food companies.
California Gov. Gavin Newsom has touted the benefits of the legislation. In September, he disputed the idea that fast-food jobs are only meant as entry-level jobs for teenagers.
“That’s a romanticized version of a world that doesn’t exist,” he said at the time. “We have the opportunity to reward that contribution, reward that sacrifice and stabilize an industry.”
Side Dishes to the Wage News
Apart from the raise to $20 an hour, the new law also creates a Fast Food Council, which will be housed within the state’s Department of Industrial Relations. The council’s nine members will be appointed by the governor and legislative representatives and have authority to adjust, on an annual basis from 2025 to 2029, the hourly minimum wage for affected fast-food restaurant employees.
Additionally, the council may recommend other workplace regulations to the state labor agency. Such regulations may address working conditions related to health and safety, security, the right to take time off for protected purposes, and protections from harassment or discrimination.
“The council’s authority will not include the power to promulgate regulations regarding paid sick leave, vacation or predictable scheduling,” said Charles Thompson, a shareholder at the Ogletree Deakins law firm.
He also noted that the new law repeals the FAST Recovery Act and withdraws an industry-sponsored voter referendum scheduled for November 2024.
The FAST Act, had it remained effective, would have increased the minimum wage to $22 per hour, with annual increases occurring. The law would also have granted the Fast Food Council more expansive powers to regulate working conditions within the sector.
The Law, from a Wider Lens
Affected restaurants under the new law should consider ramifications beyond the minimum wage, said Michael Citron, principal, compensation and rewards consultant at Mercer. He pointed to pay compression, which occurs when the expected pay differences shrink between employees based on factors such as role, experience or performance.
Learn: Base Pay Administration and Pay for Performance
“In today’s era of increased pay transparency, especially in California where employers must disclose individual pay ranges upon request, pay compression can result in dissatisfied and disengaged employees,” he said.
Citron added some restaurants may still be unsure if they are required to comply. However, he said, regardless of their legal obligation, it is advisable for them to consider increasing their minimum wages to remain competitive in the same labor market as those targeted by the law.
“Not doing so may result in losing employees to nearby restaurants that offer higher wages,” he explained, adding that while the exact economic impact is currently unknown, the new minimum wage rate will likely raise labor costs for fast-food restaurants, assuming they currently pay less than $20 an hour.
“This could potentially lead to higher prices as businesses try to offset the increased labor costs,” Citron said. “Additionally, cost-cutting measures such as staffing or employee hours reductions may be implemented.”
Citron also noted that increased wages may bring brighter economic opportunities for fast-food workers. Moreover, the labor market for employees in the restaurant industry may expand, as more individuals could be attracted by the higher minimum wage.
“From an employer perspective, this could potentially alleviate some of the hiring difficulties experienced in recent years,” he said.
More Changes to Come?
Will this trend potentially continue in other, similar industries? Ogletree Deakins’ Thompson thinks so.
“It is more likely to happen within industries in which unions are strong or want to increase their influence,” he said. “We’ve now seen this happen in the California healthcare system and fast-food industry, and employers have no reason to expect that this strategy will stop now.”
According to Citron, for employers to effectively attract, retain and motivate employees, many organizations should evaluate their holistic total rewards strategies, which include compensation but also benefits, career development, flexibility, well-being and more.
“This latest development can help them position their rewards offerings in a way that meets their talent needs,” he said.
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