State's New Fast-Food Law Will Deliver a 'Devastating Financial Blow,' Group Warns
California legislators, with union bosses dutifully in tow, took aim at the state’s fast-food industry by passing a law that restaurateurs say will deal them a “devastating financial blow.”
The legislature has sent the highly contentious and controversial AB 1228 to the governor’s desk, but despite the months of wrangling, arguing and revising the bill received, fast-food franchise owners say it is still “draconian” and will be far too costly for marginal restaurant businesses.
After the California State Assembly passed the bill, the National Owners Association put out a public statement blasting the bill.
“The new ‘AB 1228’ legislation has been voted into law and will result in a devastating financial blow to California McDonald’s franchisees at a projected annual cost of $250,000 per McDonald’s restaurant,” the organization said, according to Fox Business Network.
“These costs simply cannot be absorbed by the current business model,” the group insisted.
With fast food already slipping out of the price range of many Americans, laws like this will make it even harder to keep them afloat.
If signed into law, AB 1228 would force the minimum wage for fast-food workers to start at $20 an hour.
Legislators claimed that the bill would only affect the “rich” fast-food places that have more than 60 locations nationwide. But in truth, the $20 minimum wage will quickly end up being an industry standard, even for small restaurants, because employees won’t even apply for jobs if they can get more at McDonald’s, Taco Bell or other national chains. Small restaurants will be forced to raise their wages, too, just to get workers.
Naturally, the bill also launches yet another wasteful government office, as the bill will create a 10-person council to govern fast-food chains in the state.
The latter point is also one that caused contention. The initial bill stated that the government could fine major corporations if franchise operators skirted or ignored the new law. That, the corporations said, violated the whole point of being a franchise. If the main corporation had to tell franchise owners what to do, they would end up being controlled by corporate masters, not running their own business as a franchisee should be allowed to do, industry website Restaurant Dive reported.
The bill also lays out a pay-raise scheme that will go into effect to raise wages past the $20 per hour mark from 2025 through 2029.
Restaurateurs, though, were not left out in the cold on the final bill.
The fight started when the legislature put through the FAST Act early this year, which was far worse for the restaurant industry. The bill was so egregious that the industry banded together and demanded changes as well as representation in the negotiations, instead of it being left to the rapacious unions and the left-wing legislature to craft the thing unbidden.
The FAST Act, signed into law in February, aimed to force an even higher minimum wage and was the impetus to get the industry involved in the process.
That law was so bad, McDonald’s U.S. President Joe Erlinger wrote a letter in August, calling the bill “lopsided” and “ill-considered,” and attacking California lawmakers for not treating all restaurants equally and instead targeting only national chains.
Ultimately, the restaurant industry launched a petition campaign that has succeeded in getting the new bill written and gaining the assurance that the FAST Act will be repealed and replaced.
Consequently, AB 1228 emerged, which gave some concessions to the restaurant industry.
The 10-member committee, for instance, will now feature four representatives of the industry as well as four union members, whereas no members of the industry were included initially, CNBC reported.
The resulting bill at least toned down some of the more radical and destructive aspects of the previous bill.
“I certainly wouldn’t say it’s catastrophic, and certainly not as bad as it could have played out over the next year or two,” Mark Kalinowski, CEO of Kalinowski Equity Research, told CNBC.
Still, even with their hand in the creation of AB 1228, the bill will cost each restaurant as much as $250,000 in increased costs every year, according to the National Owners Association, CNBC added.
The restaurant industry has never been a cash cow. In an age where major U.S. companies are going under, restaurants are in an even tougher spot because they work on tight margins. Changes in their costs quickly affect their ability to operate. Top-down rules from the government take away the freedom of business owners to operate their businesses, making it harder to respond to market forces and shredding their profitability.
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