The Impact of California’s Fast Food Accountability and Standards Recovery Act (AB 257)

On September 5, 2022, California Governor signed the Fast Food Accountability and Standards Recovery Act (FAST Recovery Act or AB 257), a piece of legislation that aims to regulate the fast-food restaurant industry. This new law took effect on January 1, 2023 and its main purpose is to establish a 10-person council to implement sweeping regulatory practices in the industry.

The council, which will be appointed by the Governor, the Speaker of the Assembly, and the Senate Rules Committee, is tasked with dictating various terms of employment for all fast-food restaurants whose brands have more than 100 locations nationwide. The council is expected to increase wages for California's fast-food workers, with estimates suggesting that they could reach as much as $22 an hour starting next year.

While the goal of the council is to protect workers, the new law could have significant consequences for small businesses in the state. California has nearly 15,000 franchisees employing nearly 750,000 people, with over two-thirds of the state's fast-food restaurants being owned by small businesses operating as mom-and-pop shops. The council's ability to increase the minimum wage for franchise owners could be challenging for small business owners who are already struggling to fill jobs, manage supply chain disruptions, and face record inflation costs.

The impact of AB 257 could be particularly significant for women and minority small business owners. These underrepresented groups are drawn to the franchise industry for its reliability and lower barriers to entry. If the costs of operating increase, they could be priced out of the franchise market, resulting in a decline in business ownership among these groups.

In conclusion, California's AB 257 has the potential to significantly alter the franchise industry in the state and could result in small business owners being priced out of the market. While the council's intentions are noble, the drastic and broad changes it will bring could force many franchise owners to close, resulting in more workers out of a job instead of receiving pay increases.