IFA Statement on Signature of Agreement to Protect California Restaurants

WASHINGTON, DC – The International Franchise Association (IFA) today released the following statement on California Gov. Gavin Newsom signing AB 1228 into law, after it was passed by the State Legislature on Sept. 14. The legislative agreement will protect California restaurants from the harms of AB 257 (the FAST Act), joint liability on quick-service restaurants imposed by the original version of AB 1228, and regulatory overreach by the Industrial Welfare Commission.

“Signature of AB 1228 preserves the franchise business model in the state and solidifies the best possible outcome for workers, local restaurant owners, and brands,” said IFA President and CEO Matt Haller. “Commonsense has prevailed, as franchising is responsible for creating opportunities for hundreds of thousands of people to become small business owners, and this agreement eliminates the existential threats our members faced.”

A side-by-side comparison of the impacts on quick-service restaurants before and after the agreement is available here.

This agreement eliminates key threats to local restaurant owners by:

• Eliminating AB 257, which would have created an unelected Fast Food Council with lawmaking authority over the standards governing California’s quick-service restaurant industry, including but not limited to wages, working conditions, scheduling, training and safety. The impacts of AB 257’s Fast Food Council would have increased operating costs at impacted restaurants by an estimated 20% or forced restaurant owners to close their doors for good. This authority will be eliminated and not replaced.
• Eliminating the joint-employer provision of AB 1228 which would have imposed joint employment on franchised quick-service restaurants and fundamentally dismantled the franchise model in California – forcing more corporate control over local restaurants, eliminating future business ownership opportunities through franchising, and significantly increasing costs and litigation at local restaurants.
• Preventing the reconstitution of the Industrial Welfare Commission, which would have given a separate unelected board unilateral authority to regulate wages, hours and working conditions for certain industries, including the quick-service industry. This authority will be eliminated and not replaced.
• Avoiding a costly 2024 ballot measure fight that would have cost hundreds of millions of dollars.

Franchisees weighed in on the agreement.

“This agreement is the best alternative for franchisees,” said Alex Johnson, a local franchised restaurant owner from Milpitas. “It protects the franchise model and our restaurants while giving workers meaningful wage increases to workers on a predictable timeline. It eliminates threats and regulatory burdens that would have hampered our ability to run our restaurants as independent small business owners.”

“This agreement protects our rights as small business owners and eliminates the unchecked councils that would have had sweeping powers to impose burdensome and costly regulations making it exceedingly difficult – if not impossible – to keep our doors open,” said Michaela Mendelsohn, a local franchised restaurant owner from Agoura Hills. “The sudden minimum wage increase to $20 an hour will add to the cost of operating a restaurant at a time when margins are already stressed, though this agreement puts a stop to the repeated attacks on local restaurant owners like me.

“This agreement preserves the independence of franchisees and eliminates significantly higher costs and regulatory challenges for local franchise owners in California,” said Jerry Akers, a multi-unit, multi-brand franchisee and Chair of IFA’s Franchisee Forum. “As the leader of IFA’s Franchisee Forum, the interests of franchisees were well-represented in the final agreement. As franchisees, we must continue to step up our advocacy to ensure the Governor and legislature address burdens to growing businesses in California by reforming PAGA when the legislature returns.”

IFA has been at the forefront of the fight against AB 257, spearheading the Save Local Restaurants coalition following its passage to take the measure to voters through a referendum on the 2024 ballot. The bill would have created an unelected wage and labor council with lawmaking authority for California’s quick-service restaurant industry, raising prices by an estimated 20% at impacted restaurants and forcing restaurant owners to close their doors.

Following qualification for the referendum, lawmakers introduced AB 1228 in the 2023 legislative session, which in its original form would have imposed joint employment on franchised quick-service restaurants, a provision originally amended out of AB 257 because of its extreme nature. This bill would fundamentally upend the franchise model in the state, force corporate control over local restaurants, take away business ownership opportunities, and significantly increase costs and litigation.

IFA also spoke out against efforts in June to revive the California Industrial Welfare Commission through the budget process, as another attempt to undermine California voters by giving a separate unelected board broad authority to set wages and working conditions for certain industries.

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