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Opinion California makes a ham-handed attempt to regulate the fast-food industry

Fast-food workers and their supporters, calling on passage of a bill to provide increased power to fast-food workers, march past the state Capitol in Sacramento on Aug. 16. (Rich Pedroncelli/AP)
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California has a habit of pursuing well-meaning policy goals in ham-handed ways. Unfortunately, its new law to regulate the fast-food industry appears to fit the trend.

On Labor Day, Gov. Gavin Newsom (D) signed a bill expanding protections for fast-food workers. The Fast Food Accountability and Standards Recovery Act responds to a real issue: California’s fast-food workers have long reported experiencing retaliation, wage theft and other unacceptable working conditions. A research brief released last month from the University of California at San Francisco and Harvard’s Shift Project found that these employees earn $3 per hour less on average than workers in other parts of the service sector. This margin adds up to more than $6,000 a year, a significant shortfall in a very expensive state.

In a nod to European-style sector-wide collective bargaining, the new law creates a 10-member “Fast Food Council” of employees, franchisees, advocates and government representatives. The council will have the authority to set standards on working hours, conditions — and minimum wages. California’s current minimum wage is $15 per hour for businesses with more than 25 employees, but the council can increase it to as much as $22 in 2023. The law also authorizes counties, or cities with populations of more than 200,000, to create “Local Fast Food Councils,” and it establishes a cause of action for workers facing retaliation or discrimination by an employer.

Industry groups argue the law will raise costs for franchise operators, which will then be passed on to consumers. An analysis from the University of California at Riverside, commissioned by the International Franchise Association, suggests that a 50 percent increase in worker compensation could result in a 17 percent increase in prices. The U.S. Chamber of Commerce, for its part, claims the law would “micro-manage the fast-food industry with unelected bureaucrats.”

California’s own Department of Finance opposed an earlier draft of the bill, cautioning that it could “lead to a fragmented regulatory and legal environment for employers and raise long-term costs across industries.” That bill assessment also pointed out that it could be counterproductive, because imposing stricter standards on some sectors could exacerbate delays in enforcement.

The version of the bill that was signed into law is, at least, better than the original. After some pushback, California’s Senate limited its scope to chains with more than 100 franchises nationally, up from 30, and deleted a clause that would have held companies jointly liable for labor violations at franchises.

These are modest improvements, but the law could still impose significant costs on Californians. A smarter approach would be to increase funding for agencies to enforce the state’s already strong labor laws. This could improve oversight and bolster workers’ rights without inflicting financial and regulatory burdens on small businesses. California could also boost its earned-income tax credit, which, like the federal equivalent, offers wage supplements to low-income households without discouraging hiring.

As the council forms and begins to weigh new standards, we hope it will pursue a thoughtful, evidence-based approach that does not add to sky-high inflation or harm job growth. Meanwhile, other states considering adopting California’s model should listen to concerns from business owners and anxious employees, and find better ways to support vulnerable workers.

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