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Californians About to Be Served Restaurant Closures With a Side of Higher Prices

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California's proposed FAST Act could cause some franchise restaurants to abandon the state, says Kerry Jackson. (Shutterstock)
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A bill that would forever change the restaurant industry is being sharpened in anticipation of a vote in Sacramento. Should it become law, it would likely increase food prices through a de facto tax on meals. In an era of steep inflation, low- and middle-income families might find themselves a little hungrier than they are today.

Assembly Bill 257, the Fast Food Accountability and Standards Recovery Act, or FAST Act, would launch a “Fast Food Council” that would operate inside the Department of Industrial Relations. A Senate floor analysis says it would “(establish) sector-wide minimum standards on wages, working hours, and other working conditions related to the health, safety, and welfare of, and supplying the necessary cost of proper living to, fast food restaurant workers.”

Its 13 members would be appointed by the governor and Senate and Assembly leaders. Five would be representatives of the state – including the secretary of Labor and Workforce Development – while the rest of the membership would represent fast food restaurant employees, “advocates for fast food restaurant employees,” ​​fast-food restaurant franchisors, and fast-food restaurant franchisees.

Portrait of Kerry Jackson, a fellow with the Center for California Reform at the Pacific Research Institute

Kerry Jackson

Opinion

Absent an existing collective bargaining agreement, the council would act as a labor union for employees, the difference being when a union negotiates with management, there are usually concessions by both parties. In this case, the state could dictate the terms of employment to private companies as it holds an unchallengeable power base on the council. The votes of only six council members would be required to issue a rule.

AB257 would also forever change the franchise model, whose roots trace back nearly 300 years, in California. Franchisors would be liable for alleged violations committed by their franchisees. It would also invalidate franchise agreements that waive liability.

There are nearly 35,000 franchises (small businesses) in California. Critics believe the FAST Act would discourage franchisors from increasing their presence in the state. Rather than getting more involved in running franchises to avoid liability, some franchisors might even choose to shut down their California operations. Franchisees could also relocate to more business-friendly states, contributing to the exodus of businesses from California.

A consumer-based fear of AB257 is its potential to boost inflation. Prices at limited-service restaurants – essentially fast-food establishments – “would increase between 20% and 22%,” says the University of California Riverside, School of Business Center for Economic Forecasting and Development, if “worker compensation increases by 60%.” That could happen if minimum wages were set at the lower end of the so-called ‘living wage,’ now calculated at $22 to $43 based on the number of dependents.

Even if fast food prices rose only 7%, the low end of the UC study’s estimates, they would exacerbate the effects of a steep inflation rate that is already causing some Americans to go hungry, and has added “tremendous stress on low-income households,” says Christopher Thornberg, ​​the study’s author.

“We can expect a very sharp increase in food costs from the affected restaurants, and that could push these families to the breaking point,” he says, “given the financial pressures working families already feel from rising rents, gas and other necessities.”

FAST Act advocates might argue that higher food prices are an acceptable tradeoff for improving fast-food employees’ working conditions and wages. There are no guarantees, however, that AB257 would benefit workers as its sponsors claim.

Should the state become workers’ representative through the council, it would “override fast-food workers’ freedom of association even more than labor unions,” says Gary M. Galles, a Pepperdine University economics professor.

The FAST Act could also mean declining fast-food industry employment. While employees who keep their jobs will be better off, higher employer labor costs will “cause the industry to shrink, with fewer establishments and jobs,” according to Thornberg.

Wishing for higher pay and perfect working environments for fast-food employees is understandable. One supporter says that “with AB 257, we would have a more dignified job.” Not a thing wrong with that.

But as bill opponents have pointed out, there are consequences to forcing the outcomes advocates are looking for. Many of them look quite grim.

About the Author

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.