California's Fast Act to Raise Restaurant Costs

Thank you for having us. Mike. Thanks, Mike, great to be here. Sure, I think so. For those of you that aren't familiar, I have to very highly respected West Coasts lawyers to help kind of flesh these topics out. Uh. So we're gonna start with the Fast Act. So, from what I understand, the fast Fast Act scaled back. So can you give us a quick rundown about the version that was passed in California on August twenty nine, And you know what what should concern quick, sir? Of its

restaurants owners and franchise wars most Yeah, great, great question, Mike. Yes, some significance. Significant amendments were made to the Act that came down last week. I think, taking a step back, it's important to look at this from a broad perspective that the Fast Act, as well as the unionization efforts that were currently seeing around the company are a part of a longstanding, well funded, and well coordinated strategy led by the unions to change the landscape of labor in America.

And so when we look to the history of this uh starting with the Fight for fifteen movement that began around two thousand and twelve and two thousand thirteen, we can see the origins of that with the fast food walkouts in New York and other cities, which very quickly led to significant minimum wage increases and acted in a number of cities around the country, including almost immediately Los Angeles, San Francisco, Portland, Seattle, New York, and others. Others have followen.

So this is part of a strategy. It should come as no surprise to those that have been following the industry that these efforts with both the Fast Act and unionization are related and well coordinate and part of an overall strategy, like I said, for groups to change the face of labor in America, starting with restaurants and looking obviously at other industries. So you know, it's it's important

to have that big picture. So not just viewing this in isolation and not just thinking that this applies only to fast food restaurants, because it does not. Um the Fast Act itself. Fast food, you know, has been an easy target, as unions found with a Fight for fifteen because people generally have a perception about quote unquote fast

food and their labor practices. And when they're able to bring out employees and tell stories about how they can't uh you know, make enough you know to know living age and so forth, and very emotional and in uh

in the public connects with that understandably. And so the story has been uh hated through the Fast Act that the workers in California who work in the quote unquote fast food industry need enhanced protection, and that's what this Act is professing to provide, you know, by the creation of a council uh that will oversee uh, you know, labor practices you know, in the state of California, an unelected body that will that will do so comprised in folks that as a part of an amendment to the

Fast Act, are going to be appointed by the governor. I think it's also important to note that in the last couple of years, especially since the pandemic, wages and benefits and restaurants in fast food around the country have probably never been hired for employees, given UH the lack of people returning to the workforce and competitive nature. But nevertheless, you know, this is the premise upon which the Act been created and promoted and passed by the legislature UH

this week. So the most significant amendment that was made to the fast Act was the removal a joint employer liability and and so there were there were two big issues, and there's the establsion of the Council which remains, but joint employer liability was the one that was the most significant concerned especially to the franchise restaurant and industry, because essentially what those provisions said that was that the franchise award would be responsible for labor code violations committed by

their franchise eads, amongst other things, which essentially turned the whole notion and rule of the separation of liability between franchises and franchises for employment related matters absolutely upside down. And so from a franchise or perspective, UH, it would be very difficult to want to continue doing business in California under that construct, given the risk of being liable for labor code violations by franchise e for things that

the franchise arguably has no control over. Now, under the law, if a franchise or exercises a certain amount of control over the labor practices of a franchise e and actually stepped into the role of being a joint employer, that could be labinility. And that's that's long standing law. But typically the franchise laws UH require the franchise us to be responsible for uh, you know, complying with local law and in finding their own council to comply with with

local laws. And so in order to you know, established this joint liability, the drafters of the frand Act Fast Act made that out of a day a hard coded room and so that was eliminated from this Act. Not to say it can't come back, because the council has the ability that's been established to promulgate new rules. And this joint employer liability issue has been uh a hot

topic for almost a decade. So you know, we're not going to see that go away anytime soon, but at least for the time being, it was taken out the Fast Act. They also made some other adjustments to the Act, including changing the original or the previous draft at thirteen council members. Uh, you know, this one has ten. There's some changes you know to you know, who is on on the council. There's there's two representatives from uh fast

food quota. Because I say fast food, it's fast food u uh, not to digress, but fast food is any establishment you know, uh, you know that sells food for immediate consumption. Two consumers who order or select items and pay before eating, with items prepared in advance, including items that may be prepared in bulk, they kept hot, or with items prepared or heated quickly, or with limited or no table service. So those are the criteria for fast food. And so a lot of people assume that this applied

to the just the big chain restaurants, you know. And in the language, the new Act changes the number of locations earlier draft of thirty nationally, now it's a hundred nashally, So a lot of folks assume that it just applied to traditional large fast food restaurants, but it also covers a whole bunch of other types of restaurants that are not necessarily associated traditional fast food, so especially any any

counter service restaurant UH in the state of California. So a lot of fast casual restaurants are going to be covered by this UH coffee UH concepts, um, even the fat restaurants, and so it hast a much brighter net. And it's not just franchise this which is the other important station UH, this is effects company owned restaurants that

meet criteria. Yet there's no representation on the council for for people from those companies as of yet, which is which is quite interesting and also concerning at the same time. In addition, one of the other key changes that was put in was the Council has the ability to raise the minimum wage in California to up to twenty two dollars in our next year and afterwards three and a half percent increases each year thereafter for a certain number

of years. So that's something that was put in there that when you think about it, if the council does problemly gate bad and now restaurants that meet this quote unquote fast food and criteria are required to pay that That is going to affect essentially every other restaurant in the state of California because very few are paying a minimum wage of two an hour, so from a competitive landscape, if that happens, they're going to be required to rethink

their compensation practices. So for that and a number of other reasons. Uh, this act affects all restaurants in California and every but you should have their eyes on this because it's not going away and it's not just staying California. Yeah, it's uh, it's really interesting. Um, there's so many, you know, things we could talk about in uh in that response. Um number one, you know, it's interesting that they're going

after their fast food because it's probably the easiest to automate. Right. Um, but you know, let's kind of I guess moved to that that last point you made about the potential in our minimum wage and and like you say, all restaurants are going to be impacted. And it's not just gonna be the hourly workers, right, Like a general manager is going to require you know, it's going to want to

continue to be paid better than the hourly employees. So you're gonna have to raise the um salaries for your assistant GM and your gms and and everyone down the line. You know, people that have been with you for years. They isn't fair for them if if their experience and very good at what their what they do, and somebody had just walks in all the streets making twenty two dollars. But you know, by our calculation at twenty two bucks, California restaurants are going to have to raise prices to

maintain profitability, assuming traffic remains flat. And that's not even including commodity inflation, which we know is running extremely hot, as hot as I've ever seen it. Right, So we think traffic gets hard, hits hit hard, requiring price increases of over for change that can do it just so they can remain profitable, profitable. So how concerned or politicians about the inflationary impact of the bill? Right, because it's usually low and middle income consumers that are shopping at

and purchasing food at these types of establishments. Um to the politicians understand that that the wage could render many restaurants in California unprofitable. Well, uh, politicians in California do not seem to really care, because if they did they

would not have passed this act. These issues have been well covered and debated throughout the legislative process, and so the current state of politics in California is such that uh, anything that is essentially uh, you know, labor driven uh is going to stand a much better chance of getting past like this then UH, legislation that is grounded in

business judgment and economics and facts and reality and so um. Naturally, nobody wants, you know, from a consumer standpoint, you know, from a business standpoint to see you know, mass pricing increases, especially in the state of where we are with significant inflation and economic uncertainty. UM. But that's where we are, and that's the situation that the passage of this act presents, and so uh it's going to be really interesting just to see how this unfolds um over time, the ramification

of this. It's it's really hard to wrap your head around how many issues this is going to create, because there are so many uncertainties left uh, you know, wide open that are only going to be uh known through the implementation of this. And I think, um your point about the substantial price increases and so forth, that's all what we've been hearing as well twenty percent or or

or more, but it's it's really hard to tell. And also behind the backdrop of this, California also has probably the most complex and expensive and litigious, uh you know, labor scheme in terms of class action lawsuits and other things. That has been a problem for operating in California for many years with wage and our claims, POGA claims and others.

So you drop this into the suit and you have a situation that is very complex and very concerning and uh incredibly expensive, which um, the consumer is going to ultimately have to pay for the cost of this that the employees are as well, because it's going to cost jobs. Uh, it's going to cost businesses not to hire to replace labor with technology to do the things they've been doing

over the years, but just on a much more expedited scale. Yeah, for sure, a lot of these technologies are going to start to have an our r o I at twenty two hours an hour. And you know, some of the chans we cover, like Tripotle a is um has robots that are making tortilla chips and uh, you know Jack in the Box is working with automation uh in the

kitchens as well. These are two companies that that are hebably um, that are based out of California and have a large percentage of the restaurants in the States, so that I guess they've seen this uh coming down the pike. But um, you know, I guess getting back a little bit to the joint employer provision. You know, why do you think that was pulled? I mean, obviously it would have been a significant blow to the franchise industry and turned decades of contract law on its head. I mean,

was this the cooler heads prevail? Does this make it easier to pass? Was this something that the Governor's office kind of required? Correct? From what I understand, the amendments are almost all of them that came through came directly from the Governor's office, and that was if this is going to be passed, that provision needs to be removed. And that was, in my personal opinion, absolutely the right right thing to do, as flow as the opinion of others.

Imposing that type of liability on franchise oors would um create a situation in California where existing and new franchise oars would not do business there and the franchise restaurant business in California is such a significant part of the California economy, providing a very substantial number of jobs. And you know, we had clients reaching out, as as many others have over the course of many months, urging the removal of this provision. So it's it's good to see

that it was removed at least for now. Um. But as said at the outside of the conversation, this is an issue that's been going around for a very long time outside of the fast Act, and so you know, it's just kind of a wait and see, you know, how much, uh or if ever this will return. And I know that was a case was brought before the n l RB, McDonald's case right during the abomb administration. So so I guess is that something you expect the

n l RB to tackle on a national level. It sounds like that's that's probably a better way, uh for them to approach it versus you know, harming a state. Um. Yeah, I think we may see that being revisited. And I don't know if John has anything more current on that, but it's it's something you know that's been out there

for a while. Yeah, it is a it is a mechanism that the n LRB likes to likes to challenge UM at the behest at the behest of the people who file the untre labor practice charges and the election petitions, mainly unions UM, in that it it can make it easier for the UM for the unions too, uh to organize with relatively less effort. Thanks. And uh so it sounds like the Governor's office has had had a hand

in these amendments. So so what are the odds I guess where you placing the odds right now that Governor knews some signs of bill into law. From what we are hearing, the odds are are very high that uh government signs it into law. And uh and you know, I don't know if I'm off base asking this question, but uh, you know, well, us I guess is why I have you on here. Well, the fast Stact hold up against legal challenges, I mean, do you see any

potential legal challenges uh to this bill? Yeah, there are potential legal challenges the bill. Uh, you know, both the establishment the Council and UM the joint and player liability. The last several weeks that's been a hot topic. What if this passes, will there be a legal challenge. So there are potential legal challenges to the bill, and UH, I'm not sure if they will be made, but my assumption is that there will be uh some some legal challenges.

And also there's some other potential options UH in California that I'm not as well versed in personally as some of our government affairs and policy team members are on the ground of Sacramento, but includes voter referendum and these types of items that you know are a little more difficult than time consuming and expensive to make happen, but there there are potential options to challenge this. So UM, I think for the time being where a wait and

see mode one. First see if the governor does sign it, which we assume he will, and UH then see what unfolds O good stuff. And UH do you expect of the states to follow suit should the bill get passed? And if so, which which one should we keep an eye on. We do expect to see similar efforts in other states, and this is similar to the fight for

fifteen as I mentioned in beginning to call. Once California does something, UM, it sets the pace for some other states in cities, and so we would expect uh, Oregon uh. City of Portland, UH, Seattle, State of Washington, UH, New York, possibly other states that have been early adopters of UH through the Fight for fifteen efforts that have been more progressive in these areas, we would expect them to be

likely candidates for this type of legislation UH uh. And we would expect that to be coordinated through those that are behind the Fast Act. Who this is. We said, this is part of a concerted effort to change the face of labor nationally. So those are the easier UH targets geographically, and so we would expect those to be focused on first, but there are likely other places where

they have been very active. You know, we're seeing unionization efforts in general touch on a few moments and in places where we thought they wouldn't occur in Texas, uh. You know, and and so we're living in a very different world than we were a few years ago in terms of how you know, these things can move, you know, and you know how quickly they can grant gain the ground UH swell of support in these local communities. Great, and we're gonna wrap up our discussion about the Fast

Act UH here. UM, you know, thank you both. So much for your time before we go. What's the best way for our listeners to contact you? Oh, uh can email me. My information is online, as is uh John's. I'm Riley Logison, you know at Greenberg Trog. So Riley dot loguson at Greenberg Troig and uh John, Yes, Jonathan Sack also from Greenberg Trig and my information is online and my email is Sack J. S A C k J at g T law dot com. Thanks for your time, guys, Yeah, thanks Bike