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Navigating California’s New Fast Food Minimum Wage Law: Does it Apply to Your Restaurant?

by Taylor Burras, Labor & Employment Partner and Devin Yaeger, Corporate Law Clerk

Starting April 1st , 2024, California’s new minimum wage for fast food restaurant workers takes effect throughout the state. Under AB 1228, the minimum wage for fast food workers will increase to $20 per hour. The new law also establishes a “Fast Food Council” to review the minimum wage on an annual basis, and increase it based on the consumer price index (i.e., the rate of inflation).

One of the most common questions regarding AB 1228 is whether this law applies to individual franchisees, who own only a handful of locations. Unfortunately for these owners, the answer is likely yes. As long as the criteria are met, any fast food restaurant is covered, regardless of ownership structure. The law does not distinguish between corporate (brand-level) owners, single location owners, or owners of numerous locations.

The new minimum wage applies to any fast food restaurant that is part of a chain with 60 or more “establishments” nation-wide, where establishment is defined as an actual restaurant location (warehouses, offices, and back-office locations are excluded from this count). Based on this criteria, other than small- and medium-sized chains, nearly all California-based locations of national chains (as well as their franchisees) will be required to pay the new $20 per hour minimum wage.

The law defines “fast food restaurant” quite broadly. The “fast” in fast food is defined as any establishment with limited or no table service, selling food (or beverages) for “immediate consumption.” It impacts any restaurant that sells food or beverages intended to be consumed right after purchase, whether in customers’ cars, as soon as they get home or to work, or on-site. For more detail, see here.

The law does not distinguish between sellers of food or beverages. If a restaurant or other purveyor of ready-to-eat (or drink) items does not have servers, or if it offers no in-restaurant dining at all, it is likely covered under this law if it is part of a national chain. Nearly all California locations of national chains of coffee shops, ice cream stores, and even boba tea shops will be covered under this new law, in addition to the expected hamburger, fried chicken, and sandwich chains.

AB 1228 offers limited exemptions for certain types of fast food businesses. The following restaurant types are exempt from the law, if specific criteria are met:

  • Establishments located within grocery stores, if the employer is the grocery store (for example, a national coffeeshop chain’s locations inside large grocery stores, many of which are licensed franchises, will be exempt if workers are employed by the grocery store instead of the coffeeshop chain).
  • Establishments that sell a majority (51 percent or more of their gross income) of food items that are not for immediate consumption, namely items that require later (at-home) baking, cooking or heating. For example, an otherwise-covered fast food establishment that primarily sells “take-and-bake” pizzas, or a national chain of retailers that sell ham requiring additional preparation and heating at home potentially qualify for this exemption.
  • One interesting exemption exists for establishments with a bakery that produces bread for sale on site as a stand-alone menu item, subject to detailed definitions and minimum “bread content” standards. This exemption only applies to the wages of workers at these locations that actually produce bread, which includes both making the dough and baking it on site. Potentially, there will be instances where certain locations of a national chain may be exempt (dough making and baking occurs at that site), while other locations are not (no baking occurs on site or only pre-made dough is baked), despite having the same customer-facing appearance.The on-site production and sale of bread as a stand-alone menu item must have been on going as of September 2023; a brand or specific location cannot gain an exemption by implementing new on-site bread production today in an attempt to legally obtain an exemption. Fast food restaurants that only sell bread baked on-site as part of other food items (e.g., on-site baked buns for hamburgers), are not exempt. Nor are establishments that sell small baked goods, such as muffins, croissants, or pretzels, as each bread item must weigh “more than ½ pound after cooling” to qualify.

This law also significantly impacts exempt fast food workers, such as salaried managers. This new minimum wage law effectively raises the minimum salary for exempt California fast food workers (at national chains with 60 or more establishments) to $83,200 per year. If a worker at such an establishment makes less, by default they are not an exempt employee and are subject to California’s rigid statutory wage and hour requirements (meal and rest breaks, overtime, etc.).

JMBM’s Labor & Employment Practice
JMBM’s Labor and Employment attorneys counsel businesses and management, including national restaurant brands and individual franchisee, on workplace issues, helping to establish policies that address problems and reduce job-related lawsuits. We act quickly to resolve claims and aggressively defend our clients in all federal and state courts, before the Department of Labor, the NLRB, and other federal, state and local agencies, as well as in private arbitration forums. We represent employers in collective bargaining negotiations and arbitration.

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Large publicly traded corporations, emerging entrepreneurial businesses and growing middle-market companies all rely on JMBM’s corporate lawyers to serve as business counselors assist with a full range of financing, transactional and operational issues. We often serve as outside general counsel for smaller and mid-size companies, providing guidance on all legal matters. We also work in close collaboration with the in-house legal departments of large organizations.

This update is provided to our clients, business associates and friends for informational purposes only. Legal advice should be based on your specific situation and provided by a qualified attorney.