California Bill could make fast-food chains liable for labor law violations

Rally AB 257
Fast food workers gather in front of the State Capitol in Sacramento, urging lawmakers to pass AB 257. Photo by Rahul Lal for CalMatters

California lawmakers are considering a fast-food law this month that would significantly transform the relationship between restaurant workers and the business chains whose products they sell.

If Assembly Bill 257 passes, California would be the first state to assign labor liability to fast-food corporations, rather than just their individual franchise owners.

The bill’s provisions would allow workers and the state to name fast-food chains as the responsible party if workers allege violations of the minimum wage or unpaid overtime at a franchised location.

The language of the bill would also allow a franchisee to sue a restaurant chain if their franchise contracts contain strict terms that leave them no choice but to violate labor laws.

It is part of a larger bill being pushed by unions Tighten regulation of fast-food companies. AB 257 also includes a measure to create a state-led council for the fast food sector to set wage and labor standards across the industry.

Last week, the bill survived the “suspense file” process, where controversial bills are often settled in silence. After approval by the Senate Appropriations Committee, the bill awaits a plenary vote.

Gov. Gavin Newsom has not commented on the bill, but his Treasury Department opposes it, saying it would create “ongoing costs” and get worse Delays in the state’s labor enforcement system.

If it becomes law, proponents said, it could prevent wage theft and other abuses in the low-wage industry.

“How you blame the companies at the top of the food chain that really set the working conditions for the lower levels — California was way ahead of that,” said Janice Fine, professor of human engineering and employment relations at Rutgers University. “What happened in California is a real attempt to figure out the torn economy.”

A controversial move

The fast-food bill is one of the most controversial measures the Legislature is considering during its final weeks in session.

The California Chamber of Commerce and the State Association of Restaurants have lobbied strongly against it, arguing that the bill would upend the franchise business model and ultimately increase costs for franchise owners and consumers. On Wednesday, a group of franchisees flooded the Capitol to oppose the bill.

The Service Employees International Union and its Fight for $15 campaign led to a series of strikes this summer to lobby for passage of the bill, including a nightly rally at the Capitol this week.

Currently, most workers who claim wage theft at, say, McDonald’s, Burger King, or a Jack in the Box can only name the owner of their specific franchise location as responsible for the payback — even if they work under the multi-billion-dollar banner. fast food company.

In other industries, California has already done some of what AB 257 proposes for fast food. In some cases, governments have extended responsibility for employment conditions beyond the subcontractor or supplier level to the larger companies with which they do business, even though they do not employ workers directly.

For example, in 2014 lawmakers made companies that employ contract workers liable for wage theft committed by those employment agencies. Lawmakers later did the same for contractors in the janitorial, gardening, construction, and nursing home industries.

Last year, lawmakers passed a measure that put major fashion brands at risk over wage theft by apparel manufacturers in their supply chains.

Wage theft in fast food

Fast food is the latest industry to attract this type of regulation, and it’s one of the largest and most visible.

According to federal data from June, restaurants such as fast food joints, take-away shops and coffee shops across the state employed more than 700,000 workers. Proponents of the bill estimate that 80% of workers are Black, Latino or Asian, and two-thirds are women.

SEIU and Fight for $15 say the industry is riddled with labor rights violations. The union published a survey of 400 workers earlier this year, in which 85% said they had been victims of wage theft.

Business groups said the bill unnecessarily targets fast food. The Employment Policies Institute, a national think tank with ties to restaurants, released a report this month showing that the percentage of wage claims filed against this segment of the business is lower than its percentage of the California workforce.

If passed, the proposed law could mark a turning point in US labor law.

Typically, in the franchise model, fast food companies enter into agreements with franchisees that dictate a variety of standards Sell ​​groceries under their brand – but leave wages, hours and working conditions up to the franchisee.

Supporters stress that the model has given many minority entrepreneurs access to company property.

But critics say companies like McDonald’s and Domino’s were allowed to benefit while distancing themselves from any responsibility for the treatment of restaurant employees.

Common employers?

The question of the relationship between franchisors and employees remains unresolved at the federal level. In three presidential administrations, the National Labor Relations Board has debated whether franchisors and franchisees should automatically be considered “joint employers.” The courts, including the California Supreme Court, have generally rejected this idea under current law.

“These franchise models were a way and a way for companies to shirk their responsibilities as employers,” said Emily Andrews, director of education, labor and workers’ justice at the Center for Law and Social Policy, a national, left-leaning anti-poverty organization organization.

Studies have found that franchisors can exert significant pressure and control over franchised business owners.

In a paper published last year, law professors from the University of Miami and Cornell University examined 44 franchise agreements dating back to 2016 and found that more than three-quarters gave the chain exclusive power to terminate contracts, putting a franchisee “in a position of economic dependency.”

“Franchisees may respond to intense franchisor surveillance and tight margins by unlawfully chiseling wages as the only cost variable that the franchisor does not directly monitor,” the law professors write.

The International Franchise Association disagrees, arguing that the business model is defined by the franchisee’s independence in making work decisions. The fast-food bill, they said, would reduce those owners to middle managers, and larger companies would withdraw opportunities in California if they had to monitor compliance with labor laws.

“They would hold a company responsible or liable for things over which they have no control,” said Jeff Hanscom, spokesman for the Washington, DC-based association, which includes franchisors and franchisees. “They take a franchise and turn it into a corporate entity.”

Cheesecake Factory Case

This argument has some influence with lawmakers in the state Senate.

During a June hearing on the fast-food law before the Senate Judiciary Committee, some Democratic lawmakers questioned the need for an automatic extension of liability. Senator Bob Wieckowski, a Fremont Democrat, pointed out that under current law, a judge can hold a franchisor liable for a labor violation once it is proven on a case-by-case basis.

Representatives from some franchisors, including McDonald’s, Jack in the Box and Burger King, did not respond to requests for comment on California’s fast-food law.

For workers’ representatives, extending liability is key to enforcing wage and labor laws.

Yardenna Aaron is chief executive of the Maintenance Cooperation Trust Fund, a janitorial center that advocated for shared liability in the industry in 2015.

Before the passage of this law, Aaron said, contractors would often close their businesses or file for bankruptcy when faced with allegations of wage theft, only to later reopen under a different name or business entity.

The new law allows the State Labor Commissioner to subpoena larger and more prominent companies for alleged wage theft.

In a high-profile case from 2018, the California Labor Commissioner blamed the Cheesecake Factory jointly with a janitorial company and said it owed nearly $4 million to 559 janitors who cleaned eight of the chain’s Southern California restaurants. It was one of the largest cases of wage theft in the state.

The state has filed similar lawsuits against electric-car maker Tesla over its contractors allegedly underpaying janitors at its San Jose factories, and against e-commerce giant Amazon over a contractor allegedly paying its delivery drivers overtime.

power of the purse

Labor experts said it was too early to say whether joint liability made it easier for the state to reclaim unpaid wages. State investigations into wage theft take months. And when the state calls employers to claim unpaid wages and penalties, employers typically appeal, setting in motion an administrative hearing process that can take years.

Four years later, the Cheesecake Factory case is still awaiting a hearing. Proponents expect a resolution later this year, Aaron said. The Maintenance Cooperation Trust Fund represented the workers interviewed in this case; its then director, Lilia Garcia-Brower, is now the California State Labor Commissioner.

Labor Commissioner officials in 2020 cited the growing complexity of laws as liability for the long delays in processing the tens of thousands of individual wage claims filed by workers each year.

Still, lawmakers predicted that joint liability would “almost certainly” improve compliance with labor regulations Fast food by forcing larger companies to monitor the behavior of franchisees.

Aaron said this has been evident in the janitorial industry since the 2015 law change. The Worker Center meets with client companies that hire janitors to educate them about labor laws.

“We find that customers generally want to avoid the liability that contractors would file in relation to cases of wage theft,” Aaron said. “The power of the wallet is real.”

CalMatters is a nonprofit journalism company that explains how the California State Capitol works and why it matters.

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