California’s Minimum Wage Hike Leads to Massive Layoffs at Fast-Food Chain

California is on the verge of a major change in its fast-food industry, as a new law will raise the minimum wage for fast-food workers to $20 per hour, starting from April 1, 2024. This is the highest minimum wage for fast-food employees in the country, and it is expected to have significant impacts on both workers and businesses.

While the law aims to improve the financial well-being and working conditions of workers, it also poses challenges for fast-food operators, who are facing rising labor costs and operational changes. Some of the major players, such as Pizza Hut, have already announced massive layoffs and shifts to third-party delivery services, while others are preparing to increase menu prices to cope with the wage hike.

Background

The law, known as AB 1228 or the Fast Food Franchisor Responsibility Act, was signed by Governor Gavin Newsom in September 2023, after a decade of activism by fast-food workers and labor unions. The law authorizes the Fast Food Council, a body composed of workers, employers, and public representatives, to set fast-food restaurant standards for minimum wage, working conditions, health and safety, and training.

The law also repeals and replaces the provisions of a previous statute that created the Fast Food Council, which was challenged by a referendum backed by the fast-food industry. The law applies to fast-food restaurants that are part of a chain with at least 30 locations in the state, and covers about 500,000 fast-food workers in California.

Effects

The law will have far-reaching effects on the fast-food industry and the economy of California. According to the California Budget and Policy Center, the average hourly wage of fast-food workers in the state was $16.21 in December 2022, which means that the wage hike will represent a nearly 30% increase.

This will boost the income and purchasing power of fast-food workers, who are often struggling to make ends meet in a state with a high cost of living. The law will also improve the working conditions and training opportunities for fast-food workers, who will have a stronger voice and representation through the Fast Food Council.

However, the law will also pose challenges and costs for fast-food operators, who will have to adjust their business models and strategies to cope with the wage hike. Some of the major Pizza Hut franchisees in California, such as Southern California Pizza Co. and PacPizza, have already announced plans to lay off more than 2,000 delivery drivers by the end of February 2024, and to switch to third-party delivery services, such as DoorDash.

This will result in job losses and reduced benefits for the affected workers, as well as lower quality and reliability of service for the customers. Other fast-food chains, such as Jack in the Box and BJ’s Restaurants, have indicated that they will raise their menu prices by 6% to 8% across California, to offset the increased labor costs. This will affect the affordability and demand for fast-food products, especially among low-income consumers.

Conclusion

California’s minimum wage hike for fast-food workers is a groundbreaking and controversial legislation, that will have significant impacts on the fast-food industry and the economy of the state. The law aims to improve the financial well-being and working conditions of fast-food workers, who are among the lowest-paid and most vulnerable workers in the state. However, the law also poses challenges and costs for fast-food operators, who are facing rising labor costs and operational changes.

Some of the major players, such as Pizza Hut, have already announced massive layoffs and shifts to third-party delivery services, while others are preparing to increase menu prices to cope with the wage hike. The law will have both positive and negative effects on the fast-food industry and the economy of California, and its outcomes will depend on how well the Fast Food Council balances the interests and needs of workers, employers, and consumers.

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