California Bill Would Add More Liability to Fast-Food Franchisors

Franchisors and franchisees would share labor violations in the state.

June 06, 2023

ALEXANDRIA, Va.—The California State Assembly has approved legislation that now passes all civil liability violations on to fast-food franchisors as well as franchisees, reports The Business Journal.

Assembly Bill 1228 argues that the fast-food industry has been known to violate labor laws such as wage theft, sexual harassment, discrimination and other monetary and physical workplace violations. By requiring franchisors and franchisees to share in the liability, franchisors could take more responsibility to achieve compliance with employer laws.

The bill would impact franchisors with a minimum of 100 units nationwide, and they would be the main party responsible for addressing any labor violations in California. The franchisor would have 30 days, or 60 days with an extension, to resolve the issue, or they would be subject to legal action and sanctions.

In a statement, Assemblymember Chris Holden said the bill will make it easier for franchisees to pay, support and protect their employees.

"I believe many franchisees want to do right by the people that work for them but may not see it as possible under their franchisor's terms and conditions,” he said. “This can help to provide some relief while protecting employees and businesses.” 

Supports of the legislation believe that the current franchise model allows bigger corporations to engage in more wage theft, sexual harassment and discrimination and workplace injuries and violence. Opponents of the bill say that it could shut down restaurants, incentivize potentially frivolous lawsuits and lead to higher food costs to the consumer.

“AB 1228 has the potential to destroy tens of thousands of local franchised restaurants by taking away their independence in favor of corporate control and more government intervention,” said Jeff Hanscom, International Franchise Association vice president of state and local government relations, in a statement. “This will eliminate the equity local restaurant owners have built over decades and take away any future opportunities for franchise business ownership, especially people of color, women, immigrants and other underrepresented communities. The California Senate should reject this misguided bill before it will force restaurant closures, crush jobs and raise prices on hard-working Californians.”

AB 1228 has passed the assembly and now heads to the California Senate. The legislation comes on the heels of AB257, or the FAST Recovery Act, which creates a government panel that would set hourly wages for fast-food workers of up to $22 beginning next year and establish workplace standards. The wages can increase annually by the same as the consumer-price index, up to a maximum of 3.5%.

The FAST Recovery Act was temporarily halted from becoming law by Sacramento County Superior Court Judge Shelleyanne W.L. Chang, and it now qualifies for a measure on the November 2024 ballot after a group of franchisee and restaurant business associations, called Save Local Restaurants, filed a petition in late December.

In Virginia, a similar bill has been introduced that would create a council that would regulate fast-food worker wages and working conditions for any restaurant with more than 100 locations across the United States. The council would also be required to hold public hearings and certify organizations to hold biannual workers’ rights trainings.

Restaurant Dive notes that with Virginia’s House of Delegates and governor’s office now held by Republicans, such sweeping labor laws are unlikely to pass in the state in the near future.