California Scheming: Fast Food Folly Unfrocked

California, which already ranks dead last in Chief Executive’s “Best and Worst States for Business,” just took another giant leap backward. On Labor Day, September 9, 2022, California Governor Gavin Newsom signed into law, a new,deceptively named “Fast Food Recovery Act.” This legislation has nothing to do with fast-food recovery. Instead, once again, the government of California has abandoned its faith in “We the People” and decided that “We the Government know best.” 

Last January, California Assemblymember Lorena Gonzalez, a Democrat from San Diego and an American union leader, introduced AB 257 on behalf of the Service Employees International Union (SEIU), mandating that any fast food chain in California that has at least 100 stores nationwide, must adhere to minimum wage and work standards set by the 10-person, state-appointed California Council of pinheads.

The 10-member council, appointed by the Governor and state legislative leaders, will include union representatives, social workers, fast food employees, and state officials who will decide when and by how much compulsory minimum wages for fast food workers should be raised. Fast food store owners can be forced to pay as much as $22 an hour for new workers starting next year, a 47% increase, increasing each year in sync with the Consumer Price Index (CPI). This year the CPI as of September 1 is running at 8.5% per annum.

In addition to granting authority to fix fast food wages, the state council can dictate benefit programs, working conditions, vacation and leave policies, overtime rules, and store hours, stripping individual franchisee store owners or company-owned stores from making these previously free market decisions. 

What Is the Minimum Wage Today in California?

The federal minimum wage is $7.25 per hour. In California, effective January 1, 2022, it rose to $15 an hour for employers with 26 or more employees; $14 per hour for employers with 25 or fewer employees. However, local laws and mandates have pushed the minimum wages in California to the highest in the nation: $16.30 per hour in Sunnyvale; $16.20 in San Jose; and $16.07 in San Francisco and Berkeley. 

In Los Angeles, the Hotel Employees and Restaurant Employees Union (Local United 11) colluded with deep blue City Councils in West Hollywood, Long Beach, Santa Monica, and Glendale to mandate an increase in the hotel industry minimum wage to $17.64 per hour for lodging establishments with more than 50 employees. The rationale is so-called “equity and fairness.”

I get it that a $7.25 per hour minimum wage, or even a mandated $22 minimum wage, cannot support a family of four in California. I get it that fast food owners and workers struggle with today’s inflation, just like the rest of us. But what I don’t get is a state solution where California has become the first state in the nation to mandate compulsory government control over not just one company or private business, but control over an entire segment of private industry. 

Reactions to the Passage 

California Governor Gavin Newsom said he was proud to sign a measure that “empowers our workers.” He meant he is proud to help the Service Employees International Union (SEIU), the country’s second-largest union, which represents some 1.9 million government employees, health care workers, and janitors, hotel housekeeping, and a few food service workers. In 2020, the SEIU announced it would spend $150 million on the election of Democratic candidates who favored a $15 per hour minimum wage.

SEIU’s ability to unionize fast food workers has failed because the normal union message that greedy corporate owners like McDonald’s are stealing profits from exploited workers by setting wages and prices, does not apply in the fast food industry. Individual franchise agreements allow each franchisee, not the corporate franchisor, to set their own wage and prices based on local market conditions. The regulatory powers granted to the new government council eliminates this individual owner defense by mandating a government one-size-fits-all for fast food wages in all of California. 

Public Indifference 

Most in California have no idea of what the Fast Food Recovery Act is all about. The industry has every right to ask why fast food restaurants, which employ 13 million workers nationwide, were picked out for punitive state controls that apply to a single industry segment, but not all restaurants. Unless your family owns a fast food franchise or two, you could care less about this latest example of “California Scheming.”

As the great sage Forrest Gump wisely noted, “Stupid is as Stupid Does,” meaning there are no stupid people, only stupid behaviors. Forrest’s wisdom capsulizes the public indifference to what has been foisted on all of us by the Governor and his cronies in the labor unions as good for the fast food industry and its low-paid workers.

Is it “Government-Sponsored Socialism”?

Castro’s Cuba and Chavez’s disastrous socialist takeover of control of private businesses in Venezuela in the name of “social equity,” have shown the world that government mandates and compulsory controls over private business decisions don’t work. Private enterprise has consistently proven to be more responsive to its customers, more resilient and better able to react more quickly than government-controlled industries.

Media Compliance in the Union Message

It is shameful that Teen Vogue magazine can get away with commenting that private sector capitalism is “an inhuman, anti-democratic, unsustainable, deeply exploitive system that must be dismantled,” a position echoed by democratic socialist Alexandria Ocasio-Cortez (D-NY) and junior Senator and socialist Bernie Sanders from Vermont. 

When politicians in power like Lorena Gonzalez, who has probably never owned a private business or worked in one, start making the most fundamental business decisions for owners, mandating policies business owners oppose, businesses either die or leave the state. In January 2022, Gonzalez resigned from the California State Assembly to assume a more lucrative leadership role in the California Labor Federation, AFL-CIO.

Is it Inflationary?

Of course! The Fast Food Recovery Act will have the exact opposite effect of its intended purpose. Expect widespread price increases in California’s fast food industry. An estimated one-third of Americans consume fast food every day in the U.S., making it an appealing dining option at every income level from the homeless to the residents of Montecito mega-mansions.

Fast food restaurant owners have already endured massive entry-level wage increases, with the minimum moving from $7.50 to $15 per hour. When minimum wages spiral up, experienced employees also demand increased wages and benefits at every level. At the same time, food costs for meat, eggs, and other ingredients are up by double digits over last year. Shipping and delivery rates are rising. Fast food has no other option but to inflate menu prices.

The McDonald’s Impact 

A reputed one in eight Americans has worked at McDonald’s, mostly as teenagers. Fast food industry success comes from serving high-quality food, sold at affordable prices, with speedy service in clean stores at convenient locations. A reputed 70 million customers per day find comfort food in McDonald’s 22,500 stores, 13,194 of which are in the U.S. Nearly 10% of McDonald’s U.S. restaurants are located in California. 

McDonald’s alone is the 4th largest employer of labor in the world. The company has more than 2.5 million employees worldwide. McDonald’s hires more than one million employees yearly in the United States. Over 93% of McDonald’s restaurants are franchised as independently owned small business owners, with a high percentage of family ownership.

Ranked by number of U.S locations, McDonald’s only comes in third in the fast food industry. Subway is the leader with 24,798 stores; Starbucks is second at 14,825. McDonald’s is 3rd at 13,914 stores, followed by Dunkin’ at 9,419; Pizza Hut at 7,456; Burger King at 7,327; KFC at 6,805; Wendy’s at 6,711; Taco Bell at 6,588; Domino’s at 5,876; and Dairy Queen at 4,406. Others include Arby’s (3,406 stores), Baskin-Robbins (2,500 stores), Chick-fil-A (2,837 stores), Jack in the Box (2,195 stores), I-Hop (1,667 stores), Carl’s Jr. (1,063 stores), The Habit (328 stores) and In-N-Out Burger (380 stores). 

Opposition to the Act

The International Franchising Association, the National Restaurant Association, the U.S. Chamber of Commerce, fast food franchisors, and a majority of fast food workers recognize that the California partnership of government and union members represents a Newsom payoff to labor unions to encourage record union contributions to the November 2022 election for Democratic candidates. 

Once the fast food industry loses control of its labor costs and menu pricing in California, Democrat lawmakers reason that other blue states will follow California’s example, filling Democrat party re-election coffers and diverting voter attention away from unpleasant California realities such as the highest gasoline prices in the continental U.S.; rampant homelessness; increasing crime rates; and sky-high home prices and rentals. 

Next to feel the compulsory hand of California’s government wage and work rules mandates will be the 90,562 hotels and motels in the United States, employing 1.6 million workers. “California Scheming” should send chills to both thoughtful liberals and conservatives alike. The question is: do voters care enough to do something about it?  

Bob Hazard is a guest columnist of this paper and a former president and CEO of two of the five largest hotel franchise chains in the world