Sanna Shere’s father, a Pakistani immigrant, spent everything he had to buy his first Burger King. New regulations threaten everything he’s built.
For Sanna Shere’s father, buying and running his first Southern California Burger King more than 30 years ago was his entryway to the American Dream.
The fast-food restaurant the Pakistani immigrant purchased was rundown and struggling. Shere said her dad, Kaiser Shere, invested every penny he had into the restaurant. “It was really low volume, low performing. People thought he was crazy,” she said of her father.
But his hard work paid off. The restaurant became one of the region’s highest-volume Burger Kings, Sanna Shere said. A few years later, her dad bought a second location. Then he added a few more. When Shere moved back from New York a decade ago, she helped her dad and her brother grow the business to include 21 Burger Kings with close to 500 employees.
“We really treat our employees like family,” she said. “We know them. We care about them.”
Shere said she wasn’t initially excited about a career in fast food; it’s a stressful and competitive business that survives on making pennies per transaction. But she saw an opportunity to make her mark, and to help her family’s business grow.
That ability to grow has been stymied in recent years by increasingly stringent state regulations, and an increasing minimum wage that has sent the business’s labor costs soaring. Now, the future of the Sheres’ business is in jeopardy because of a new state law — the so-called Fast Food Accountability and Standards Recovery Act, or FAST Act — that threatens to fast-track even more burdensome regulations and an large mandatory wage increase on the industry, and to upend franchise business models across the Golden State and possibly beyond. The measure, the latest in a long string of far-left policies implemented in the state, will make it harder for entrepreneurial Californians to buy and grow their own fast-food businesses. But its impacts will likely be felt in industries that have no connection to fast food.
Assembly Bill 257, narrowly approved by the California legislature on August 29, and signed by Governor Gavin Newsom on Labor Day, allows for the creation of a new, ten-member, unelected Fast Food Council specifically to micromanage the state’s fast-food industry. The council would have broad powers to impose new rules and regulations on thousands of fast-food and counter-service restaurants, including the ability to raise the minimum wage at most of California’s fast-food restaurants next year from $15 to $22 an hour — a nearly 50 percent jump, with cost-of-living adjustments each year after that.
Shere said that drastic jump would cripple her family’s business, and could force them to close half of their restaurants if it isn’t blocked in the coming weeks by a referendum effort. “I’m going through our portfolio and saying, ‘Okay, which ones can we afford to keep?’” she said.
Proponents, including the Service Employees International Union of California and the bill’s sponsor, Assemblyman Chris Holden — a Democrat and former owner of a Subway franchise — have tried to spin the law as a needed measure to prevent wage theft and sexual harassment prevalent in fast-food restaurants, and to combat a general lack of compliance with existing regulations. Newsom said it would be a boon to fast-food workers. “California is committed to ensuring that the men and women who have helped build our world-class economy are able to share in the state’s prosperity,” he said after signing the bill last month.
But business groups in California and nationally say there’s no evidence that the problems the law is allegedly designed to cure are worse in the fast-food industry than in other industries. A recent analysis by the Washington D.C.-based Employment Policies Institute found “no credible data” to suggest California’s fast-food industry was in need of special regulatory oversight.
Rather, opponents say, the effort is a dangerous powerplay by the SEIU and other Big Labor leaders who have struggled for years to organize California’s fast-food industry. The unions, which would almost surely have significant influence on the council, could use that influence as a bargaining lever to get their way, and to twist the arms of businesses statewide.
“Really, there was no demonstrable evidence ever put forward that this bill was needed, that there was a problem to be solved,” said Jeff Hanscom, vice president of state and local government relations with the International Franchise Association. “It’s really just an effort at further trying to organize, unionize the quick-service and counter-service restaurant space.”
Opponents of the measure argue that the law will hurt small businesses, leading fast-food restaurants to reduce hours, raise prices, cut jobs, and turn increasingly to technological replacements. Businesses in other industries will have to raise their own wages — and likely raise their prices as well — to compete for workers, worsening already high inflation.
Business leaders also see the law as a union-backed ploy to plant a seed of a form of what is known as sectoral bargaining in the U.S.
Sectoral bargaining — which is technically prohibited by U.S. labor law, but is common in Europe — allows workers to negotiate compensation and working conditions across an industry, not workplace by workplace. While the FAST Act doesn’t permit sectoral bargaining per se, it comes close, allowing the council — with the SEIU’s help — to dictate standards.
“You’re talking about a ten-member unelected, basically unaccountable council that has the power to basically do whatever they want in terms of regulating a sector of the restaurant community,” Hanscom said.
If they are successful in California, the idea could spread to other states. Mary Kay Henry, president of the SEIU, has made it clear she sees the law as a model for the nation.
“This landmark bill will be the most important piece of labor law to pass in decades,” she announced after the California Senate passed the bill in August.
An Unelected and Unaccountable Council
According to the law, to establish the Fast Food Council, at least 10,000 fast-food employees have to sign a petition supporting its creation. That’s a low bar in a state with more than 15,000 potentially impacted fast-food restaurants and more than a half million fast-food employees.
“Let’s be honest, they wouldn’t have put that number in the statute if they thought it was going to be hard to get,” said Glenn Spencer, senior vice president of the U.S. Chamber of Commerce’s Employment Policy Division.
The council would include two representatives of franchisors, two representatives of franchisees, two representatives of fast-food employees, two representatives of employee advocates, and one representative each from the state Department of Industrial Relations and the Governor’s Office of Business and Economic Development. The members would be appointed by the governor or by legislative leaders — all Democrats in California. The four business representatives on the council would likely be outvoted on many issues.
Once created, the council would have broad power to mandate new regulations on any branded fast-food restaurant that is part of a chain with 100 or more locations. That could include things like new mandates over training, security, and vacation time; limits on automation and touchpad ordering kiosks; and lowering the threshold for overtime. “You can kind of look at it from the inverse, what can’t they do?” Hanscom said.
One thing the council is specifically allowed to do is raise the minimum wage in most California fast-food restaurants to $22 an hour next year. That’s on the heels of a 2016 law that increased the state’s minimum wage from $10 to $15 per hour over six years.
“We adjusted to that. It wasn’t easy. And it already has a CPI to keep people on target with price increases,” said Michaela Mendelsohn, who owns six El Pollo Loco franchises in Southern California, and has been working in the restaurant business for over 40 years. “To raise it another 50 percent now is going to dramatically affect our margins, which are already smaller than they’ve ever been in my experience because of inflation and wage increases.”
While the law may seem to target giant, worldwide brands — franchisors such as McDonald’s, Subway, and Burger King — by far the biggest impact would be on the franchisees such as Mendelsohn and the Sheres, who are predominantly small business owners. Mendelsohn said the average franchisee in California owns just two or three restaurants.
Mendelsohn said that to survive a minimum wage jump to $22 an hour — which would also require raising the wages for employees already making well over the minimum — there are two options. One is to raise prices by 20 percent. But prices are already up drastically because of past wage increases and 40-year-high inflation, and Mendelsohn has already seen transactions drop steadily as a result. “People can only afford to pay so much,” Mendelsohn said.
The other option is to decrease labor costs by 20 percent. That would likely include limiting menu options and using technology to make kitchens more efficient and to eliminate cashier jobs. Mendelson said many restaurant owners have been reluctant to transition into touchpad ordering because they see value in customer contact — a greeting from an employee who may even know the customer’s name. Mendelsohn said that if the minimum wage jumps to $22 an hour next year, “you’ll never get said ‘Hello’ to by a cashier again.”
Shere said the minimum-wage hike targeted only at the fast-food industry would likely require her to both raise prices and reduce staffing — whittling away at the business’s two competitive advantages, inexpensive food that is delivered fast. “Once we lose that, we really have no edge to gain that customer,” she said.
Shere said she’ll likely cut back on breakfast and dinner hours, when they don’t have enough customers to justify five or six employees at $22 an hour, and add kiosks to replace cashiers.
A recent University of California Riverside School of Business report found that a fast-food worker compensation increase of 20 percent to 60 percent would increase prices for consumers between 7 percent and 22 percent, and also cause the industry to shrink. The report concluded that “families will end up paying for these higher labor costs out of limited budgets.”
“The obvious downside is there will be fewer job opportunities,” said Spencer, with the Chamber of Commerce. “Hopefully we don’t see restaurants closing, but that’s certainly a possibility as it becomes difficult to absorb the additional costs.”
Closing some restaurants isn’t out of the picture for Mendelsohn, who has put the kibosh on expansion plans in the state, and would only look at expanding outside of California now. Mendelsohn suspects that if the minimum wage for fast-food does jump to $22 an hour next year, it would put intense pressure on other industries to follow suit.
“Everyone will eventually, and in very short order, need to increase to this minimum wage. Can you imagine people at McDonald’s being the prestigious ones that say, ‘I’ve got a job at McDonald’s,’” Mendelsohn said. “That can’t last. The inflation that is going to be caused by everyone having to go to this will be dramatic.”
Getting on the 2024 Ballot
A campaign is now underway to collect the signatures of about 623,000 registered California voters to put the measure on the 2024 general election ballot. A group called Save Local Restaurants — spearheaded by the U.S. Chamber of Commerce, the National Restaurant Association, the International Franchise Association, and various franchise owners and brands – has until December 5, to collect the signatures. If they are successful at getting the measure on the ballot, it would block the implementation of the law until voters weigh in.
“We’re going to do everything we can to ensure the California electorate, California constituents have a say in whether or not they want to foot the bill for a fourth arm of government with basically unfettered authority in this restaurant space,” Hanscom said
An August survey showed that less than a third of California voters approved of the law. Business leaders and franchisees who spoke to National Review said they are confident they’ll be successful gathering the required signatures. They’re aiming to collect about a million.
“I think it’s almost a sure thing that it will get on the ballot,” Mendelsohn said. “We’re not having a hard time getting the signatures.”
The bill has been controversial, even among California Democrats. It was passed out of the California Assembly in January with 41 votes, the minimum necessary, and was narrowly approved by the state Senate in August. The state’s Department of Finance opposed it.
Deciding to fight the law has been particularly difficult for Mendelsohn, a transgender-rights activist with a history of backing workers in employment disputes. “I don’t take it lightly to come out against this bill,” Mendelsohn said. “I don’t think it’s the right thing for the California economy, and I don’t think it’s the right thing to help the employees of that economy.”
Shere called the measure “just really unfair,” because it’s targeted only at fast-food restaurants, not other sectors of California’s restaurant industry or the business community generally. One of her biggest concerns is that the council could implement new regulations at any time. “That’s what’s really frightening about it: We can’t direct it, and we can’t prepare for it,” she said.
She said the model that her father used to start building his business more than three decades ago is increasingly unfeasible as the state keeps implementing new mandates and regulations. The FAST Act would make fast-food a more difficult and less profitable industry to invest in.
“It’s depressing, honestly,” Shere said. “Days are harder to get up. You kind of feel like, why am I doing this. It’s always like we are the bad guys, the fast-food owners, we’re the bad people.”