How California’s New “FAST Act” Could Change the Future of Restaurants

After California’s aggressive Fast-Food Accountability and Standards Recovery Act (FAST Act) passed in 2022, then repealed days later, the restaurant industry has been watching the state nervously. In the wake of a threatened referendum, negotiations, and rewrites, an amended version of AB 1228 was finally signed into law. How does this law directly affect California QSR chains, and what ripples will it send through the rest of the country’s restaurant industry?

What AB1228 Does (and Doesn’t) Do

This law officially raises the minimum wage at large chain QSR concepts for all team members to $20 an hour starting in April of 2024. It also creates a Fast-Food Wage Council tasked with establishing annual industry wage increases and advising on minimum fast-food restaurant standards.

This differs from the original law passed last year, which attempted to set the minimum wage to $22 an hour and give the Fast-Food Council authority to establish set minimum restaurant standards. The new law also notably removed the joint accountability of franchisors, which originally aimed to hold franchisors liable for any employment violations by franchisees.

FAST Act May Strain Smaller Operations

While this law only applies to California locations of limited-service QSR chains with sixty or more units nationwide (like Starbucks, Chipotle, and McDonald’s), its effects will be more far-reaching. Smaller chains and independent restaurants will still need to pay competitively to stay staffed. Since profit margins are already incredibly thin for these concepts, they must creatively find ways to attract talent or come up with payroll solutions to compete with the larger chains’ minimum wages of $20 per hour.

Technology Adoption Will Speed up

Restaurant owners will be looking for strategies to reduce their reliance on hourly staff, even if they are not immediately affected by the law. Line-prep robots, once seen as futuristic gimmicks, may be seriously considered by more operators looking to cut payroll costs. Automation and AI will continue to evolve so that fewer customer-service roles are needed, and is showing up already in many fast-food concepts.

Pay Increases May Trickle Up

When the entry-level pay for a fast-food worker rises to $20 an hour, front-line management will shortly follow suit in asking for comparable pay adjustments. This means that payroll will eventually shift upward at all levels of management. While this may be tough for owners to stomach initially, the industry may eventually benefit from a slow-down in turnover, reducing recruiting costs in the long run.

Solidified Franchise Structure

One of the most notable compromises of the new FAST Act was keeping the existing relationship intact between franchisees and franchisors. Fast food franchisors will not be held accountable for employment violations by franchisees. This means that the existing relationship between Franchisors and franchisees remains intact.

Other States May Follow

While the Starbucks union pushes in recent years seemed like isolated events, we have seen that collective bargaining may soon be commonplace in the restaurant industry. The labor groups that negotiated this deal have hinted that they aim to continue. This means that restaurant operators in all states will need to consider strategies ahead of any similar legislation adopted by their states.

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