You’ve heard the buzz, especially if you’re in California. Fast food workers have received a hike to their minimum wage. Let’s review the new law is and how it’s affecting restaurants.AB1228, a new law that went into effect earlier this month,raised the minimum wage for fast-food workers in California to $20 per hour, to enhance worker protections. It defines fast-food establishments as chain restaurants with at least 60 nationwide locations, mainly selling ready-to-eat food and beverages. This law replaced AB257, which passed in 2022, with similar goals. While workers generally welcomed the wage increase, franchise owners voiced concerns about increased operational costs and potential menu price hikes. Some businesses reportedly laid off employees in anticipation of the wage hike. The Service Employees International Union supported the increase, emphasizing fair wages without job cuts. Controversy arose when reports alleged Panera was exempt due to its bakery classification, possibly influenced by Gov. Newsom's ties to a Panera owner. However, Newsom's representative denied the exemption, and the owner pledged wage increases. California clarified exemptions in FAQs, including standalone bakeries and restaurants in certain locations. The state is home to over 500,000 fast-food workers, with an average hourly wage of $16.21 in 2022.

April Fools?

The newly enacted $20 minimum wage in California has had repercussions for small businesses like Fosters Freeze in Lemoore. Monica Navarro, the former assistant general manager, expressed shock restaurant’s sudden closure, with workers learning upon arrival for their shift. Owner Loren Wright cited the inability to absorb the wage hike as the reason for closing, despite exemptions for certain businesses. Navarro recounted how employees discovered about the closure just before starting their shifts, initially mistaking it for an April Fool's joke. Despite potential exemptions, Wright attributed the closure to the minimum wage increase.

Price Increases and Beyond

Reports indicate that prices are rising at some chains. The New York Post noted increased menu prices at Burger King and In-N-Out Burger, with items like meals and sodas seeing price hikes. Other major chains like Wendy’s, Chick-fil-A, and McDonald’s reportedly haven't changed their menus yet. Major chains like Starbucks, Jack in the Box, Shake Shack, and Chipotle also plan to pass on increased labor costs to customers.Franchisees are scrambling to offset the impact on their profits. While supporters argue it benefits workers, franchise owners fear financial strain. Many, like Michaela Mendelsohn of El Pollo Loco, are already losing money and considering changes. Some, such as McDonald's and Chipotle, plan price hikes, but franchisees fear customer backlash. To absorb costs, some are considering strategies that include:Layoffs: Some franchisees, like Pizza Hut and Round Table Pizza, are laying off workers, leading to job losses.Reduced Hours and Hiring: Others opt to cut employee hours and halt hiring to save costs, which impacts workers like Marcus Walberg and Brian Hom.Cutting Staff Benefits: Franchisees like Walberg eliminate benefits like paid time off due to cost constraints.Order Kiosks: Automation like order kiosks and AI-operated drive-thrus are being introduced by franchisees like Mendelsohn to reduce labor expenses.

Operational Cuts: Measures such as reducing energy consumption and postponing investments, as mentioned by Kris Stuebner and Scott Rodrick, are being considered.Overall, the new wage has franchisees reevaluating their businesses, with some even contemplating selling or closing due to dwindling profit margins, as noted by Alex Johnson.Sources:Foxbusiness.compatch.comLa.eater.comBusinessinsider.comopenai.com