We are a little over two weeks into the implementation of AB 1228, otherwise known as the California Fast Act, which went into effect on April 1^st. There has been no shortage of handwringing over who the act will affect and what it will do since it was introduced two years ago. The bill went through several revisions before it was signed into law by Governor Gavin Newsome late last September. In short, the law forces all fast-food restaurants with over 60 locations to increase their employee minimum wage to $20 an hour, effective April 1^st, 2024. Of course, there is more to the law than initially meets the eye and restaurants in California have already made drastic moves to comply and subvert its impact.

The original Fast Act was signed into law back in 2022, yet it was subject to a voter referendum that would have taken place last year. AB 1228 has essentially taken the place of that original law and rendered the referendum moot. What classifies as a fast-food restaurant can be tricky to nail down and the law attempts to outline what it actually means. The law defines fast-food as a limited-service restaurant that provides food and beverage for immediate consumption, where customers pay before consuming and have limited or no table service. Additional qualifications include having over 60 locations that share a common brand and have standardized products and services. This definition is particularly broad and encompasses many restaurants that are not fast-food, like fast casual locations, ice cream shops, and convenience stores.

AB 1228 also implements a Fast-Food council that will feature 9 members with representatives from the restaurant industry, franchisees, employees, and employee advocates. The council will be responsible for adjusting the minimum wage at fast-food restaurants every year and will determine health and safety standards for their employees. The increase in minimum wage for hourly employees has garnered the most headlines and the law also adjusts other minimum wages within the industry. Salaried exempt employees have had their salaries increased to a minimum of $83,200. Penalties for not adhering to these new mandates went into effect on April 1^st, meaning that restaurants that failed to make immediate changes or falsely believe they do not qualify could find themselves in financial trouble.

Restaurants have had a little over six months to implement changes, yet some did not raise wages until the April 1^st deadline. In one of the most drastic pre-deadline moves, two Pizza Hut franchisees laid off all of their delivery drivers, 1,200 employees, and instead will use third-party delivery services. Less drastic was Mod Pizza’s decision to close five locations in the state due to the law. Other chains have resorted to raising menu prices to offset the additional minimum wage costs. Starbucks and Chipotle have raised their prices by around 7% in the state and Wendy’s raised prices by 8%. California staple In-N-Out Burger raised their prices by a comparatively lower average of 50 cents. Interestingly, Chipotle and Starbucks do not fit the traditional definition of a fast-food restaurant, yet both meet the requirements under the broad definition of the new law. While this law is targeting companies with over 60 locations, it will also affect those smaller mom-and-pop shops as well. The restaurant labor market is tight and smaller locations will have to raise their wages in order to remain competitive and attract employees. Larger corporations like McDonald’s and Chipotle will be able to offset these wages, yet smaller companies will have to make adjustments elsewhere. These new price increases are reflective of the minimum wage that went into place this April and we can expect those prices to increase again soon as the minimum wage will go up again next year.

AB 1228 is currently limited to the state of California, yet other states are watching. With California paving the way for this minimum wage increase, it is only a matter of time before other states draft their own bills. Restaurant prices have been continuously on the rise since 2020 and consumers are already pushing back and pulling back from visiting their favorite eateries. If restaurants use future minimum wage bills as justification for even higher menu prices, then the restaurant industry will reach a tipping point where their perceived value is not shared by consumers.