State Law Goes Into Effect Raising Fast Food Workers’ Minimum Wage to $20 Per Hour

A new law boosting the minimum wage for fast food workers went into effect on Monday, guaranteeing employees $20 an hour.

But as employees celebrated, some large chains were already considering hiking prices on their menus to cover the costs.

The law, Assembly Bill 1228, boosts fast food workers’ earnings from the state’s minimum wage of $16 per hour to $20 per hour. Additionally, the law also establishes a Fast Food Council, representing a path forward to resolve “employer-community concerns while preserving fast food workers by securing a seat at the table to raise standards,” according to the office of Assemblyman Chris Holden, D-Pasadena, who introduced the bill.

Supporters said the law is essential to provide workers with a livable wage, but restaurant industry officials warned that it could lead to increased prices for consumers, or an increase in the use of technology that could impact jobs.

Last week, City officials released a statement outlining how the AB1228 will impact local restaurants.

According to that statement, the law applies to “limited-service restaurant” that offers limited or no table service, where the customer’s order food or beverage items and pay for those items before the items are consumed. The restaurant must also be part of a restaurant chain of at least 60 establishments nationwide and be primarily engaged in selling food and beverages for immediate consumption.

California’s fast food restaurant employee’s minimum wage supersedes Pasadena’s local minimum wage. The local minimum wage is currently at $16.93 and will rise to $17.50 on July 1.

Industry representatives, including the California Restaurant Association, had indicated that the wage increase would be burdensome to some owners, noting that many fast-food outlets are operated by small business owners under franchise agreements with restaurant chains.

During an earnings call in February, Chipotle’s chief financial and administrative officer, Jack Hartung, had said the company would need to impose a “mid-single-digit price increase” in California to cover the wage increase. Chipotle has yet to make an official announcement on new prices and other fast food companies such as McDonald’s, Jack in the Box, and Starbucks have also said they are considering increasing their menu items or changes in their operations.

At some Southland Starbucks locations, prices of select individual drinks went up Monday morning, some by as much as 50 cents.

The Los Angeles Times reported Monday that McDonald’s was “exploring several ways to counterbalance the increase in labor costs and yet to decide how much it will raise the price of the menu items at its corporate-owned stores.”

The company provides “informed pricing recommendations” as its franchise locations, but final pricing is at the discretion of franchisees.

Jack in the Box CEO Darin Harris said the company would depend on upward price adjustments, expecting menu prices to increase from 6% to 8%, Nasdaq reported in early March.

Starbucks officials told The Times that the company “elected to increase wages for all employees regardless of their level of experiences.”

Two Pizza Hut operators had previously announced plans to lay off more than 1,200 delivery drivers in Los Angeles, Orange, and Riverside Counties to prepare for the minimum wage boost. Pizza Hut franchises planned to pivot toward third-party apps like DoorDash, GrubHub, and UberEats for pizza and food delivery.

Yum! Brands previously stated “its franchisees independently own and operate their restaurants in accordance with local market dynamics and comply with all federal, state, and local regulations while continuing to provide quality service and food to our customers via carry out and delivery.”

Michael Reich, a professor of economics at the University of California, Berkeley, and the chair of the Center on Wage and Employment Dynamics, pushed back against the narrative that fast food companies need to increase prices to cover wage increases.

He described the fast food industry as “very healthy and growing fast.” Reich said “sales have gone up and of course profits have gone up as well,” but wages have lagged compared to the wages for the top 20% of the workforce. Reich also warned that when discussing minimum wage increases and price hikes, the two are correlated, but not necessarily a causation.

For example, he noted, according to McDonald’s reports for its Fourth Quarter and full year results in 2023, the company’s gross profit was more than $14 billion, a 10.26% increase from 2022. Global comparable sales have grown 9% in 2023, and over 30% since 2019, as well, he said.

“Our global comparable sales growth of 9% for the year is a testament to the tremendous dedication of the entire McDonald’s system,” McDonald’s President and CEO Chris Kempczinski said in a statement issued in February. “Strong execution of our Accelerating the Arches strategy has driven over 30% comparable sales growth since 2019 as our talented crew members, and the industry’s best franchisees and suppliers have demonstrated proven agility with a relentless focus on the customer. By evolving the way we work across the system, we remain confident in the resilience of our business amid macro challenges that will persist in 2024.”

Chipotle’s Fourth Quarter and full year results in 2023 also showed growth, as total revenue increased by 14.3% to $9.9 billion from 2022. The company also opened a total of 271 new restaurants, according to a company statement.

Last year “was an outstanding year where we delivered strong transaction growth driven by throughput and menu innovation, opened a record number of new restaurants, surpassed $3 million in AUVs (average-unit volume or how much chains are earning per store measured on a mature base) and formed our first international partnership,” Brian Niccol, chairman and CEO of Chipotle, said in a statement issued February.

The council will consist of nine voting members, consisting of representatives of the fast food industry, franchisees, employees, advocates, one unaffiliated member of the public and two non-voting members, who will provide direction and coordinate with state powers to ensure the health, safety, and employment of fast food workers.

Responsibilities of the council will also include the development of fast food worker standards, covering wages, working conditions, and training.

AB 1228 will impact more than 550,000 fast food workers and about 30,000 restaurants in the state, officials said.