California’s controversial $20 minimum wage for quick-service restaurant workers employed by companies with 60 or more locations is set to finally go into effect on Mon. April 1, after undergoing multiple revisions and pushback from the restaurant industry. Last fall, Gavin Newsom introduced and passed AB 1228, a modified compromise version of the original FAST Act, which increases the minimum wage for fast-food workers from $16 to $20, instead of the originally proposed $22 an hour.
Most recently, the legislation was clarified via assembly bill 610, which carved out some exemptions to the bill, including workers in nontraditional restaurant locations like airports, hotels, event centers, theme parks, and corporate campus cafeterias. Originally, this bill included a carve-out for restaurants that bake their own bread, like Panera, though after pushback, Gov. Newsom was pushed to clarify that Panera would be following the new minimum wage law requirements.
“California restaurants across the quick service sector are bracing for the fast-food wage hike and the tough scheduling, staffing, and pricing decisions they are forced to confront,” the California Restaurant Association said in a statement sent to NRN. “We are already seeing the cost pressures cascade throughout the restaurant industry and, indeed, beyond. Unfortunately, these challenges exasperate an already fragile small business operating environment, forcing entrepreneurs - of every stripe - to make decisions that stymie employment growth opportunities.”
Many California restaurant operators have been anticipating the cost pressures from the significant minimum wage increases and some have taken pre-emptive steps to mitigate rising labor costs. For example, in January, two California Pizza Hut franchisees laid off all delivery workers (1,200 employees in total) ahead of the legislation’s implementation, and will instead be relying on third-party delivery services.
“Pizza Hut was my career for nearly a decade and with little to no notice it was taken away,” said Michael Ojedo, a Pizza Hut delivery worker who was laid off, told The Wall Street Journal.
These layoffs were followed by a California Round Table Pizza franchisee, who similarly laid off 70 employees in April, as first reported by Business Insider. But for workers at restaurants that don’t plan to implement massive layoffs, the pay raises can make a huge difference:
“The $20 an hour raise that we won means I can better provide for myself and my family instead of worrying about tough choices between paying rent and putting food on the table,” Alberto Carte, a Jack in the Box worker in Los Angeles, told Nation’s Restaurant News. “Today marks a major step forward, but $20 an hour is just the beginning. Through the statewide Fast-Food Council and our California Fast Food Workers Union, we will continue to fight for transformational changes -- including fair pay, fair hours and safe workplaces -- for every fast-food cook and cashier in California.”
In order to prepare for the minimum wage changes, restaurant owners are juggling some combination of multiple solutions, including raising menu prices, freezing hiring, shortening operational hours, and implementing AI solutions. Chipotle, for example, increased prices by 3% in October and is seriously considering more pricing changes in response to AB 1228, likely in the mid-high-single-digit range, company CFO Jack Hartung said in a recent earnings call. During its Q3 earnings call, Yum Brands said of its California-based Habit Burger Grill, that the company is anticipating a $10 million operating loss impact from AB 1228.
Although menu prices will continue to inflate, restaurant operators will soon reach a saturation point where customers are not willing to continue to put up with increased prices for restaurant food, at which point other solutions may be necessary.
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