IFA Sounds the Alarm on California Wage Hike

As California's new $20 minimum wage mandate for QSR restaurants took effect Monday (April 1), the IFA was featured in national media reminding the public of the policy's discrimination against franchised fast-food restaurants and consequences in the form of increased operating costs, higher prices, and job cuts.

What they are saying. IFA CEO Matt Haller told CNBC, "These are small businesses and they're facing now mandated higher costs. Those costs are going to get passed on to the customer and will likely result in fewer jobs." IFA's Vice President for State and Local Government Relations Jeff Hanscom told the CBS Evening News, "Real-world impacts are already being seen across the business model in California. Businesses are potentially looking at reducing hours, laying off employees."

What's next. IFA is standing up for franchising in the pro-union supermajority state of California by closely monitoring the activities of the California Fast Food Council and actively fighting similar local restaurant wage bills in San Jose and Los Angeles.

Minimum-wage mandate causes maximum damage

In an April 3 op-ed in Fox Business titled "California minimum-wage mandate causes maximum damage," Haller detailed the consequences and why lawmakers on the federal level should think twice before following California's lead.

It's a tale as old as time yet too often ignored by politicians: elected officials pass sweeping new policies and small businesses and consumers pay the price. Consider the new law in California mandating a $20-hourly minimum wage at quick-service restaurants across the state.

In the days leading up to the April 1 implementation date, the headlines were predictably awash with grim economic news. "Minimum wage increase in California could lead to layoffs" blared out KNTV in San Francisco.

As business owners and their trade groups warned when the Fast Food Accountability and Standards Recovery (FAST) Act was first proposed in 2022, the chickens are finally coming home to roost in the form of higher prices, job cuts, and shuttered businesses. But California politicians, who are beholden to the Service Employees International Union's (SEIU) demands for fear of political retribution, chose not to listen.

The original version of the FAST Act would have been even more damaging. Negotiations yielded a compromise lowering the minimum wage from $22 to $20 and extended the timeline of its implementation from January 1, 2023 to April 1, 2024. It also neutered the powers of a "Fast Food Council" to advisory status, rather than creating a new rulemaking body.

Most importantly, the California compromise eliminated joint employer liability, which would have destroyed the franchise model by tying brands and their franchise owners together as one entity – long a prize for unions in their ongoing boondoggle to attempt to organize employees at franchised locations as one entity. Joint employer status erodes independence and autonomy from individual franchise owners, consolidating power with big business and big labor unions.

By their nature, compromises are never perfect, but in a state where one party controls all the levers of power, it was progress nonetheless.

That's the good news. On the other side of the coin, the Biden Administration's National Labor Relations Board (NLRB) is pursuing a similar joint employer policy at the national level. Thankfully, the House of Representatives passed a repeal, and now the Senate must get the ball over the finish line. In the upper chamber, the effort enjoys bipartisan support, including from West Virginia Democrat Senator Joe Manchin and several other moderate Democrats.

Exporting policies too extreme for the Golden State is not a wise course of action for the rest of the country.

Small-business owners in California face one of the country's most business-unfriendly climates. The state has the highest unemployment rate in the U.S., and its job growth is dead last. Businesses are fleeing in droves at the nation's fastest rate. Before the FAST Act took effect, restaurant jobs in the state were down. More entrepreneurs are opting to relocate elsewhere rather than comply with an endless torrent of mandates or being forced to close their doors. Meanwhile, some California politicians are even calling for a $50 minimum wage.

Even in California, voters are starting to fight back. Assemblyman Chris Holden – author of the FAST Act who hailed its passage as the "most progressive fast food wage law in the country" during a bill signing alongside Governor Gavin Newsom – is getting trounced in his bid for a seat of the Los Angeles Board of Supervisors. He has even distanced himself from the final bill – a bold claim that lays bare who is really calling the shots in California – the labor unions.

The lessons of California are worth keeping in mind as the SEIU claims it wants to take these failed policies to other liberal locations.

Politicians are fond of railing against "big corporations," but it's the small-business owners and consumers who end up paying the bill for a $24 burger.

Matt Haller is president and CEO of the International Franchise Association.