The In’s N Out’s of California’s New Statewide Minimum Wage Increase for Fast Food Workers

What Employers Should Know About AB 1228

On September 28, 2023, Governor Newsom signed into law AB 1228, the Fast Food Restaurant Industry legislation, which increases the minimum wage for “fast food restaurant employees.” In addition, the legislation establishes a Fast Food Council within the Department of Industrial Relations to develop standards, rules, and regulations for the fast food industry.

Which Employees Benefit from the Minimum Wage Increase?

Starting April 1, 2024, all “fast food restaurant employees” covered by the new law must be paid at least $20.00 per hour. To be considered a “fast food restaurant,” the restaurant must meet all of the below criteria:

1.     The restaurant must be a “limited-service restaurant” in California. A limited-service restaurant is one that offers limited or no table service, where the customers order food or beverage items and pay for those items before the items are consumed.

2.     The restaurant is part of a restaurant chain of at least 60 establishments nationwide. An establishment is a single restaurant location offering food or beverages to customers. However, business locations performing only administrative, warehouse, or food preparation work are not considered to be “establishments” within the meaning of AB 1228.

3.     The restaurant is primarily engaged in selling food and beverages for immediate consumption. Food sold to be baked, cooked, or heated at home is not for immediate consumption.

Additionally, a restaurant may be covered by AB 1228 if it is primarily engaged in, meaning more than 50% of its gross income comes from, selling food or beverage items that are for immediate consumption.

This increase in the minimum wage will also affect exempt employees, who must receive a salary of at least two times the state minimum wage for someone working 40 hours a week and meet other specific requirements. Starting on April 1, 2024, exempt employees at fast food restaurants must earn a salary of at least $83,200.

Covered employers, including franchise owners, must also post the supplement to the minimum wage order, which is available here.

What Fast Food Restaurants are Exempted from AB 1228?

Even if a restaurant establishment meets the definition of a “fast food restaurant,” it may still be exempt from AB 1228. Restaurants operating a bakery that “produces” and sells “bread” as a stand-alone menu item as of September 15, 2023 and continue to do so, are exempt from the new law. These restaurants need not be primarily engaged in the sale of bread as a stand-alone item to fall under the exemption.

Restaurants within a “grocery establishment” are also exempt from the new law. To fall under the exemption, a food restaurant establishment must be (1) located in a retail store that falls under the definition of a “grocery establishment;” and (2) the grocery establishment employer must employ the individuals working in the restaurant.

What Role Would the Fast Food Council Play?

The Fast Food Council will be empowered to develop new minimum employment standards specific to the fast food industry. These standards could include future minimum wage increases, as well as working hours and working conditions to “ensure and maintain the health, safety, and welfare of, and to supply the necessary cost of proper living to fast food restaurant workers.”

The hourly minimum wage established by the Council can increase every year by 3.5% or the increase in the consumer price index, whichever is smaller. The Council can even establish a single statewide minimum wage for fast food restaurant employees or vary the minimum wage by region of the State.

Conclusion

Taking into consideration the significant changes in California state law, employers may consider taking steps to ensure compliance, particularly if they offer other food and beverage that are not for immediate consumption. Employers might also consider whether they qualify for one of the exemptions provided by AB 1228.