Though California’s new minimum wage for the fast-food industry puts more money into some workers’ pockets, it has ignited a firestorm of menu price hikes, mass layoffs, and reduced work hours across the state.
Long-term impacts from the wage hike remain to be seen, but immediate actions were taken by some establishments as they sought to keep their doors open.
The prospect of higher labor costs resulted in thousands of layoffs across the state, with Pizza Hut and others announcing late last year all delivery drivers in California would lose their jobs before the wage hike took effect.
Many franchise restaurants—some are family-owned small businesses operating as franchisees—are reducing hours for employees and raising prices for consumers.
“We raised prices, and we also have to lower our labor hours,” Vanessa Tinajero, manager at a Northern California Carl’s Jr. location, told The Epoch Times. “Now that we’re going to get less hours, it’s going to be more work for [employees] because we’re going to be shorthanded.”
While proponents of the new law argue its impacts are beneficial, she said the changes are affecting everyone, and not necessarily for the better—as stress is on the rise along with pay rates.
“It’s like good and bad,” Ms. Tinajero said. “I wasn’t too happy.”
Wendy’s responded to the new law with various methods to contain costs.
“The prices [have] already increased on the menu,” Kevin Cortez, general manager of a Wendy’s location, also in Northern California. “We’re also reducing hours and the amount of people working.”
Other restaurants in the region responded similarly.
“We reduced hours and raised prices,” Lupe Marcelo, a Northern California Del Taco manager, told The Epoch Times.
Del Taco’s prices are significantly higher in California—a combo meal with two tacos costs $14.79 in the Golden State, compared with $8.79 in Ohio, according to the company’s website.
Some businesses, like Taco Bell and El Pollo Loco, are responding by raising prices and installing ordering kiosks so workers can focus on preparing food instead of taking orders.
Other fast-food workers are reportedly frustrated that new hires are making as much per hour as long-term employees.
“Some of our workers are not happy because they’ve been here for a really long time, and new employees are coming in and earning the same thing as them,” said Mr. Cortez, the Wendy’s general manager.
Short-Term Impacts on Restaurants Vary
One chain said they have raised prices to accommodate higher labor costs, but they are also seeing sales increase.“Our productivity is definitely tightening, but we’ve also increased our sales, so we haven’t really suffered at all,” Katie Caguyong, a Chick-fil-A manager in the Bay Area, told The Epoch Times. “So it’s not really much of a big deal for us, yet.”
While some in the industry are only offering raises to meet state law, Chick-fil-A offered raises across the board, she said.
“We raised [entry-level] wages by a couple dollars,” Ms. Caguyong said. “But it was for everybody, as well.”
Another chain said many of their employees were already earning more than the new minimum wage, but now they need to be more cautious when hiring new people.
“It didn’t affect our store much because most of our employees are long-term and are making more than $20 per hour, plus health insurance and benefits,” Leticia, a Bay Area Jack-in-the-Box manager who only gave her first name, told The Epoch Times. “It will impact our [pace of] new hiring, as we were paying lower wages before and have to watch our costs.”
Meanwhile, one competitor is benefiting from the steep spike in prices taking place at some restaurants.
“Our business and sales are going up because we’re keeping prices the same while other restaurants nearby are increasing theirs,” Adajah Bratcher, manager at a Chipotle location in the East Bay, told The Epoch Times.
With “Now Hiring” signs strategically placed at the location, she said the company is looking to expand its workforce. After raising entry-level wages slightly to match the new law, she believes the number of applicants will increase.
“We’ve received more applications and are expecting even more once our new banner arrives,” Ms. Bratcher said.
Another has not raised prices, but workers said future increases could be on the table.
“When [owners] receive the first payroll, maybe then they will have to raise prices in the middle or end of the month once they feel the impact of the higher minimum wage,” Maria Campos, supervisor at a Wingstop in the Bay Area, told The Epoch Times. “But for now, it is still the same.”
The company is seeking to minimize labor costs by limiting hours for employees, she said.
“We did reduce hours and days,” Ms. Campos said.
While pay rates increased for some existing employees, she noted that dollars are not stretching as far as they used to.
“For some workers, it made a big impact on their paycheck,” Ms. Campos said. “But at the same time, when the minimum wage increases, everything gets more expensive.”
She said the price of groceries and other commodities have spiked significantly recently, which is worsening the state’s affordability crisis.
Managers Concerned
Managers in the industry are feeling the impact of the new law, with some worried about their future.One Burger King manager in California said that some management jobs could be impacted because of new regulations that employees not eligible for overtime must earn at least $83,200 per year—equal to twice the industry’s minimum wage on a 40-hour work week.
Many Burger King managers are working more than that, with an average pay of approximately $60,000 per year, the manager said.
“We routinely work nights, weekends, and holidays, and it is not unusual to put in 70 hours a week,” the manager, who asked to remain anonymous for fear of jeopardizing their career, told The Epoch Times. “With a need to keep labor costs low to stay profitable, there are only so many options restaurants will have to stay in business.”
Some managers are concerned that if sales don’t increase to cover the added costs, they could receive demotions or locations will have to close, which would result in a loss of jobs.
“It’s a scary time full of uncertainty,” the manager said. “We’re hoping for the best but are really watching to see how this whole situation plays out.”
Like many restaurants, Burger King raised prices to cover the added labor costs, with some items now priced up to $4 more at some locations, one of the largest spikes in the industry.
Consumers Paying the Price
Cost of living and inflation are top of mind for many consumers.“Prices like this are crazy,” Jose Ramirez, an Alameda-based construction worker and father of four, told The Epoch Times. “It’s cheaper to go to a restaurant where we can sit down and get better food.”
Higher prices are changing his family’s behavior, he said.
“Because of the high prices, we eat at home more and go to cafes and restaurants on special occasions, but no more fast food,” Mr. Ramirez said.
Some McDonald’s franchises are also hiking prices in the Golden State knowing such could affect traffic.
“As we look to 2024 with elevated ... prices and muted consumer confidence, we believe that consumers will continue to be more discriminating with their dollars,” Chris Kempczinski, president and CEO of McDonald’s, said in a February earnings call.
He said the company implemented mid-to-high single-digit price increases last year.
“It depends a little bit on where you were in the country,” he said.
The iconic Big Mac meal is now priced at $13.69 in California, nearly $5 more than in Texas, where the average price is $8.79, according to Grubhub.
Confusion Reigns in Determining Who’s Exempt
Meanwhile, many businesses and employees are still struggling to make sense of the new law and clarify who it covers—or leaves out.Exemptions written into the fast-food law have created further controversy and confusion, with many establishments unsure if they need to comply.
Faced with questions and inquiries from ice cream parlors and other food businesses, the state’s Department of Industrial Relations released in March a list of frequently asked questions.
The governor’s office acknowledged the confusion but said businesses are responsible for determining if the law applies to them, or not.
“There is no list of exempted businesses, but the FAQs provide guidance on how the Labor Commissioner will apply AB 1228,” a spokesperson for Mr. Newsom’s office told The Epoch Times. “Each employer should review the law to determine whether the law applies to its business.”
With interpretations evolving and unclear, state officials, lawsuits, and subsequent rulings will ultimately determine how the law is applied, according to the governor’s office.
“The Labor Commissioner will make enforcement decisions based on the facts presented in specific cases, and disputes may be resolved by the courts,” Mr. Newsom’s office said.
Controversy erupted after Bloomberg reported in February that billionaire Panera Bread franchisee Greg Flynn, a donor to Mr. Newsom’s campaigns, lobbied to secure an exemption to the law for establishments with bakeries. Subsequent interpretations from the governor’s legal team, however, say the outlet must abide by the law.
According to the labor commission’s attorney, to qualify for the bakery exemption, restaurants must “produce” bread by mixing dough and baking on site while offering loaves of bread as standalone items on the menu.
Adding to the confusion are businesses that offer fast-food in addition to retail items and other products not covered by the new law.
Calculations based on the percentage of work employees perform related to fast-food sales will determine whether they are exempt from the new wages, according to the state’s industrial relations department.
Critics, including Republican lawmakers, said the confusion will likely lead to a number of lawsuits.
“I think everybody’s still scratching their heads about this,” Assembly Minority Leader James Gallagher told The Epoch Times. “Unfortunately, I think a lot of this is going to come down to court cases because nobody has been able to give clear direction.”
Such could potentially be harmful to the state’s economy, he said.
“I don’t think there’s been a whole lot of clarity, and that’s a problem,” Mr. Gallagher said. “Those in the grey area are probably determining to go with the higher wage, which they may or may not be able to do sustainably.”
With some businesses reportedly looking toward automated processes to lower labor costs, the lawmaker said the result will be fewer jobs in the state.
“What people are missing is that bigger companies will automate, jobs will go away, and the smaller guys may or may not be able to make it,” Mr. Gallagher said, as they might not be able to afford higher wages or attract employees at a lower wage. “Either way, that means [fewer] jobs for the people that need them.”
Another critic said the way the law was crafted—reportedly behind closed doors—was problematic.
“This happened in secret, so I have no idea how it happened,” Assemblyman Joe Patterson told The Epoch Times. “It was in secret, away from the public, with [non-disclosure agreements], and the author said he wasn’t involved in it.”
Uncertainty was built into the law by the special interest groups behind it, he suggested, and the impact will be felt across industries.
“The reality is that it’s a minimum wage increase for everybody, because why are you going to go work retail for $16 an hour, when you could go work at McDonald’s for $20?” Mr. Patterson said. “I think the people in power ... including the governor, knew that, so that’s the metric now: that you go to these industries and convince them to raise their wages and that impacts everybody.”
But one special interest group behind the new law argued fast-food businesses can afford the new wages.
“The vast majority of fast-food locations in California operate under the most profitable brands in the world,” Joseph Bryant, executive vice president of the Service Employees International Union, said in a March statement released in response to criticisms. “Those corporations need to pay their fair share and provide their operators with the resources they need to pay their workers a living wage without cutting jobs or passing the cost to consumers.”
Mr. Holden, the bills’ author, did not respond to repeat requests for comment.
