A McDonald’s fast food restaurant is seen in Belmont, United States on April 03, 2023.
Tayfun Coskun | Anadolu Agency | Getty Images
After California lawmakers passed a landmark fast-food bill, an independent advocacy group of McDonald’s owners is pushing back against what it says will likely be a “devastating financial blow” to its franchisees within the state, in line with a memo to its membership viewed by CNBC.
The bill, AB 1228, was passed by the state Senate late Thursday and heads to Gov. Gavin Newsom’s desk for signature. He has already pledged to sign the bill into law. It features a wage floor of $20 for California staff at fast-food chains with not less than 60 locations nationwide, starting April 1.
Labor groups pushed for even higher wages in previous laws, however the resulting $20 an hour floor prevailed. Even in a state where the minimum wage is $15.50 and the pay floor is even higher in some municipalities, the deal will bring a major raise for a lot of staff. But despite support from franchisee and restaurant advocacy groups, some owners are concerned about what the bill means for operations in a difficult labor market and through a period of high inflation.
The National Owners Association, an independent advocacy group of greater than 1,000 McDonald’s owners, projects within the memo the bill will cost each restaurant within the state $250,000 annually. The group said the prices “simply can’t be absorbed by the business model.” It also warned similar laws will follow in other states.
Further, the organization claimed within the letter that “a small coalition of franchisors, including McDonald’s, the National Restaurant Association (NRA) and the International Franchise Association (IFA) independently w/o franchisee involvement, negotiated a take care of the [Service Employees International Union]; causing the legislative final result to now turn out to be certain.”
McDonald’s sent its own letter to its restaurant system on Monday, which was viewed by CNBC. Responding to the bill, the corporate said it and other franchisee groups “worked tirelessly over the past 12 months to fight these policies and protect Owner/Operators’ ability to make decisions for his or her businesses locally and protect their restaurants and their crew.”
“This included forming a coalition of brands to refer [an earlier version of the bill] to California voters in November 2024 — while expensive and unexpected we felt we had no other alternative. We also significantly increased our political engagement within the state. This included a newly established North America Impact Team to work horizontally, new lobbyists and campaign consultants, and a dramatic step-change in our political activity,” it wrote.
The corporate declined to comment further on the NOA’s letter or position.
Roger Delph, a McDonald’s franchisee from California who served on the state’s owner/operator task force, said in an announcement to CNBC that he worked with McDonald’s, other franchisees and separate firms to “protect” the business model from what he called “an all-out attack.”
“That involved countless conversations and meetings, and a discussion with the Governor’s office directly,” he said. “Anyone who’s suggesting this was not a collaborative and successful effort to guard the franchised business model in California, or that franchisee involvement was absent, was either not involved or is contorting the facts.”
In its systemwide letter, the fast-food giant also outlined changes made to the ultimate version of the bill which can be considered higher for owners than the initial proposed laws. The new laws eliminated the specter of joint franchisor-franchisee liability, which McDonald’s said would “destroy the franchise model in California and strip 1000’s of restaurant owners of the fitting to run their business.”
As well as, it said the bill unwinds the reconstitution of the Industrial Welfare Commission, which might have “sweeping powers” over decisions on wages and workplace requirements for restaurants. The letter said the commission would have been capable of make immediate and unchecked decisions on wages and dealing conditions within the state.
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Other franchise and restaurant groups had a more positive outlook on the compromise.
The International Franchise Association CEO Matt Haller said in an announcement that the bill “creates the perfect possible final result for staff, local restaurant owners and types, while protecting the franchise business model in California.” He added in an interview with CNBC, that “franchise brands that were involved within the negotiations had their franchisees at the start in front of minds as they were considering deal terms.”
The National Restaurant Association’s EVP of Public Affairs, Sean Kennedy, added in an announcement, “This agreement provides a predictable future for California restaurant operators and includes an incredible investment within the [quick-service restaurant] workforce, while eliminating regulatory and legislative threats endangering their businesses. We recognize the work from all sides that went into getting this laws written and appreciate the legislature’s support to get it passed.”
Each Kennedy and Haller are co-chairs of the Save Local Restaurants coalition that worked on the negotiations.
Some critics of the deal have said costs will fall solely on small business owners within the state. In its letter, the NOA outlined ways for members, suppliers and McDonald’s corporate office to support owners within the state of California. It said anticipated menu prices hikes will create a “significant revenue windfall” for the corporate, and said the projected $80 million rent and repair fees collected from those sales directly tied to cost hikes needs to be reinvested in California restaurants. It asked that any and all requests for financial support made by owners within the state be considered.
“Everyone has a stake on this and no person can afford to face on the sidelines,” the NOA letter said.
Meanwhile, employee advocates — who won wage hikes but not increases as large as they first sought — said their work is just getting began.
“Fast-food staff’ fight in California is not near over — it has only just begun as they prepare to take their seat on the table and help transform their industry for the higher,” Service Employees International Union President Mary Kay Henry said in an announcement to CNBC.
She added, “California’s Fast Food Council brings together every stakeholder on this industry, including franchisees. At this table, staff and franchisees alike will likely be heard by global franchisors and can have a direct role in shaping improved standards within the industry. This groundbreaking, sector-wide approach is the trail to creating fast-food jobs safer and the industry more sustainable for everybody.”
— CNBC’s Amelia Lucas contributed to this report.
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