The National Owners Association (NOA), representing over 1,000 McDonald's franchise owners, has strongly criticized California's groundbreaking fast-food bill, labeling its rules as “draconian.”
On Thursday, September 14, the California Senate approved AB 1228, the Fast Food Franchisor Responsibility Act.
This legislation intends to establish new standards for wages, working hours, and various conditions pertaining to fast-food workers' health, safety, and welfare. However, the NOA contends that these regulations would introduce costs that the current business model cannot sustain.
They argue that 95% of California's 1,300 McDonald's restaurants are locally owned and operated by small business owners who may need help to comply with the new requirements. According to NOA, the newly enacted AB 1228 legislation is poised to deliver a severe financial blow to California's McDonald's franchisees, with an estimated annual cost of $250,000 per McDonald's restaurant, as stated in a memo obtained by FOX Business.
It's up to Newsom
California Governor Gavin Newsom has until October 14 to decide whether to sign or veto the bill, and his previous statements indicate a potential inclination toward supporting it.
When he signed the precursor to this bill, AB 257, known as the Fast Recovery Act, into law, Newsom emphasized California's commitment to ensuring that the workforce contributing to the state's world-class economy shares in its prosperity. He stated that the legislation empowers hardworking fast-food employees, granting them a stronger voice in determining equitable wages and essential health and safety standards throughout the industry.
Regardless of Newsom's decision, the National Owners Association (NOA) has expressed apprehensions that the bill's passage through the Senate could serve as a precedent, inspiring similar legislative efforts nationwide. Such endeavors could endanger the autonomy of franchisees in making local business decisions.
In response to the bill, California McDonald's franchisee Roger Delph expressed disappointment and emphasized that this legislative process was a collaborative and successful effort to safeguard the franchised business model in California. He stressed the need for unity to prevent the bill from gaining traction in other regions.
AB 1228 is a sweeping legislative measure that applies to fast-food chains with a national presence of at least 60 locations, with a notable exception for those establishments crafting and selling their own bread. Its most significant amendment is implementing a substantial minimum wage increase, set at $20, scheduled to take effect on April 1, 2024. This figure is nearly $5 above California's minimum wage of $15.50.
Furthermore, the bill proposes the establishment of a 10-member council tasked with overseeing fast-food chains and formulating directives concerning wages and working conditions. According to an internal message reportedly circulated within McDonald's, this council has “significant limitations.”
AB 1228 introduces a substantial shift in legal responsibility for McDonald's restaurant owners, who would now be held legally accountable for local employment decisions. Critics fear this may trigger “frivolous lawsuits against franchisees,” potentially compelling corporate headquarters to exert greater control over local operations.
In response to the bill's proposal in July, the NOA expressed concern that these lawsuits could escalate food prices for consumers and unsustainable operating costs, potentially resulting in the closure of locally owned restaurants and the loss of local jobs. They assert that AB 1228 could effectively relegate franchisees to middle managers, working for the corporation rather than maintaining their status as independent business owners, with the looming possibility of license non-renewal in the long term.
This article was produced and syndicated by Wealth of Geeks.