California’s “FAST Recovery Act”: the expected impact on the restaurant industry, the franchise industry, jobs and food prices

This GT Alert covers the following:

  • Who is impacted by the Fast Food Accountability and Standards Recovery Act: much more than its title suggests
  • Establishment and authority of a “Fast Food Industry Council”
  • The FFS Council Purpose and Scope of Authority
  • Local fast food industry tips
  • Implications for franchisors, franchisees, non-franchised restaurants and others

Overview

On January 31, 2022, the California State Assembly passed BA 257, the Fast Food Accountability and Standards Recovery Act, also known as the “FAST Recovery Act”. The bill recently passed the state assembly and is awaiting referral by a state senate committee. If passed by the Legislature and signed by California Governor Gavin Newsom, the FAST Recovery Act would dramatically change the way the majority of California restaurants are regulated in several critical ways. The Fast Recovery Act would also fundamentally change the relationship between many restaurant franchisors and franchisees, and make franchisors jointly and severally liable for any employment-related violations committed by their franchisees.

Who is impacted by the FAST Recovery Act: much more than its title suggests

While “Fast Food” is in the name of the bill, the legislation is much broader than its title suggests. It covers any restaurant concept with “30 or more establishments nationwide that share a common brand” if it has the following four characteristics: 1) in the normal course of business, it provides food or beverages in disposable containers; 2) the food is served for immediate consumption on the spot or to take away; 3) operates with limited or no table service; and 4) customers pay before eating. For the purposes of this GT Alert, concepts that meet the above criteria are collectively referred to as “Covered Restaurants”.

Covered restaurants include chains commonly associated with “fast food”, but may also include fast casual brands and other brands that are not necessarily perceived as “fast food” given the broad definition of the “fast food chain” in the bill. In addition, covered restaurants include both company-owned and franchise restaurant concepts, not just franchise brands.

Brands owned and operated solely or primarily by the company are also covered restaurants. Additionally, covered restaurants include a growing number of casual dining brands that use counter service or digital ordering (without a waiter at the table). The applicability of the FAST Recovery Act to non-franchised restaurants has received little attention from lawmakers and those who cover the legislation.

The FAST Recovery Act applies to concepts of 30 or more locations nationwide. For example, a restaurant group that has 30 locations in the United States and a single location in California would be subject to the Fast Recovery Act in connection with the operation of its California-based restaurant(s).

Although the FAST Recovery Act is grounded in addressing historical and current labor issues involving employees of large franchised fast food restaurants, the law goes well beyond that stated goal, affecting a myriad of other businesses, including many are known for their progressive, employee-friendly policies. The FAST Recovery Act also fails to recognize that California restaurant employee compensation and benefits are at record highs, as COVID-19-related labor shortages have resulted in a significant increase in compensation across the board. state restaurants.

The creation of a “Council of the fast food sector”

The FAST Recovery Act establishes a Fast Food Industry Council (FFS Council), which has broad authority to regulate employment standards for covered restaurants. The purpose of the FFS Council is to set minimum standards on wages, maximum working hours and other working conditions for covered restaurant workers. The Commissioner of Labor and the Division for the Application of Labor Standards will be responsible for the application of these standards. The FFS Council is composed of 11 members as follows:

  • two covered restaurant workers (one appointed by the Senate Rules Committee, one appointed by the Speaker of the Assembly)
  • two representatives of a union or other workers’ rights group (one appointed by the Senate Rules Committee, one appointed by the Speaker of the Assembly)
  • five representatives from various state regulatory agencies (appointed by the governor)
  • one person representing the Restauration Couverte franchisors (appointed by the Chairman of the Meeting)
  • one person representing indoor restaurant franchisees (appointed by the Senate Rules Committee)

Notably, the text of the FAST Recovery Act only includes representation of franchisor and franchisee covered restaurants and no representation of non-franchised restaurants. As such, company-owned and operated, non-franchised restaurants, which represent a significant number of restaurants in California, will have no representation on the FFS.

The FFS Council Purpose and Scope of Authority

The FAST Recovery Act gives the FFS Council broad authority to set standards governing employment in covered restaurants. The FFS Board is required to promulgate minimum standards for employment in fast food restaurants, including standards on wages, working conditions and training, and to issue, amend and repeal “all other rules and regulations necessary for the exercise of its functions”.

The FFS Council is also required to carry out a “comprehensive review” of the adequacy of the minimum health, safety and employment standards of covered restaurants at least once every three years.

Only six FFS Council members need to vote affirmatively to enact a standard, rule or regulation, meaning no approval from a covered restaurant representative is required for passage.

Proposed standards, rules or regulations are set out in a report prepared by the FFS-Council which the FFS Council sends to specific legislative committees for consideration. A rule or regulation proposed by the FFS Board “will not take effect until at least 60 days in which the legislature is in session have elapsed” since the legislature received the report. The Legislature can ask questions, hold hearings, or perhaps even introduce legislation to rescind or change a particular standard during this 60-day period. In particular, if the legislature does not act within those 60 days (likely scenario), the proposed standard, rule or regulation automatically takes effect.

If the FFS Council recommends a standard, rule or regulation that falls within the jurisdiction of the Division of Occupational Safety and Health Board (OSHA), then the FFS Council is required to recommend it to the Standards Board of OSHA (the Board ). The Board is required to consider the proposal within three months and adopt it unless it finds that the proposal does not fall within the statutory authority of the Board or is otherwise illegal. This gives the Council little room to refuse any standards, rules or regulations recommended by the FFS Council.

From a practical point of view, it is difficult to understand how the rules promulgated by the FFS Council would apply, in practice, only to covered restaurants. It is expected that any standards, rules or regulations related to FAST-Recovery-Act will be applied to other businesses generally in California.

Local fast food industry tips

The FAST Recovery Act also allows counties and cities with populations over 200,000 to establish a local fast food industry council. These local councils would be empowered to provide recommendations to the FFS Council as long as they are more favorable to employees than current national or local employment conditions.

Implications for franchisors, franchisees, non-franchised restaurants and others

The FAST Recovery Act creates additional bureaucracy that can have a significant impact on the California restaurant industry, franchise industry, other industries, and workers. As currently drafted, the bill, in effect, transfers legislative power to an unelected committee composed primarily of pro-union representatives and government regulators, with little commercial representation from the franchisee community and no representation non-franchised businesses.

The FAST Recovery Act may change the relationship between franchisors and franchisees. The bill requires franchisors to ensure that their franchisees comply with labor and public health laws, including those promulgated by the FFS Council. If a franchisor prevents a franchisee from complying, the franchisee may take action against the franchisor for monetary relief and/or an injunction to ensure compliance. In addition, franchisors will be jointly and severally liable for breaches of the Labor Code committed by their franchisees. In addition, the commitment of a franchisee to indemnify a franchisor for its liability will be considered contrary to public order, and therefore null and void.Z

The FAST Recovery Act also gives a cause of action to any covered restaurant worker who is terminated, discriminated against or retaliated against for exercising their rights and creates a rebuttable presumption of discrimination and unlawful retaliation for any adverse action taken against the worker in the 90 days following the franchisor or franchisee knowing that the worker exercises his rights.

California is already considered, by many, an expensive and difficult state in which to operate a restaurant. Labor costs are among the highest in the country, food costs are rising, and occupancy costs are higher than in most markets. The restaurant industry is subject to oversight by multiple regulatory bodies, which increases the cost and complexity of development and operation. In addition, California law subjects restaurateurs to often costly litigation, most of which is uninsured (for example, wage and hour class action lawsuits and PAGA claims).

The FAST Recovery Act creates new litigation grounds for causes of action that may not be insured and adds to California’s already challenging environment. If the FAST Recovery Act is passed, restaurant owners could scale back new restaurant development in California and also look for ways to ease their burdens, such as replacing workers with technology.

Restaurant franchisors may consider and even rethink doing business in California.

Passage of the FAST Recovery Act may also impact food prices as operators adjust to increased costs and potential risks created by the legislation, in addition to already rising inflation. . Restaurant food prices can also become difficult for many customers.


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Cecil N. Messick