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What California’s New Franchise Bill Means for You

The passage of AB 1228 in California has been closely watched and heavily discussed among franchises in the state and across the country. Now passed by the California legislature, and has been signed into law by Governor Gavin Newsom, the bill implements new requirements for wages, as well as an advisory council to propose other labor rules.

 

Let’s take a closer look at the provisions of this bill and what they mean for franchises.

 

Increase in Minimum Wage Requirement

The most clear-cut and headline-grabbing element of AB 1228 is its minimum wage provision. According to the final text, franchises covered by the bill must set their minimum wage floor at $20 per hour. This is higher than the statewide overall minimum wage of $15.50 per hour, but lower than the wage floor that labor groups had previously pushed for.

 

The minimum wage does not apply to all franchises in the state. At the moment, the law is specifically directed at fast-food chains with 60 or more locations nationwide. It also excludes companies that bake their own bread. The new wage requirements will go into effect starting April 1, 2024. Following that, the newly-created council can set the baseline wage level each year, within a fairly narrow band: as long as the increase is below 3.5% or the rate of general inflation, whichever is lower.

 

Repeal of AB 257 and Formation of Advisory Council

The “advisory council” is another major component of the bill. In repealing AB 257 (aka the “FAST” Act), it establishes a weaker, advisory council rather than one with more stringent authority. The council, comprised of representatives of industry and labor, will have the power to advise, make recommendations, and send proposed rules to the state labor commissioner, where the proposals may be amended, repealed, altered, or put through a rulemaking process.

 

The council will not, however, have broad power to make and enforce rules and regulations. It will function more in an advisory capacity. This leaves franchises with more latitude than the initial proposal would have provided, allowing franchises to better determine courses of action that work best for their niches and their businesses.

 

Advocacy from Franchise Professionals

AB 1228 has gone through several iterations over the last year, and, naturally, has drawn the attention and advocacy of major corporations like McDonald’s and industry organizations like the International Franchise Association. In particular, these franchise advocates have worked to push back against provisions in earlier editions of the bill that could have had a significant impact on the franchise community.

 

For instance, an earlier version of the bill would have established joint liability between California QSR franchise brands with 100 or more locations nationwide and their independent franchisees. The IFA spoke out against this and similar legislation, stating, “Joint liability would erode the heart of the franchise model and threaten the livelihoods and independence of tens of thousands of restaurants in the state.”

 

Now, with the new version of the bill, the IFA has a more positive outlook for franchises.

 

“[The bill] creates the best possible outcome for workers, local restaurant owners and brands, while protecting the franchise business model in California… Franchise brands that were involved in the negotiations had their franchisees first and foremost in front of minds as they were considering deal terms,” IFA CEO Matt Haller told CNBC.

 

As laws and regulations continue to be proposed and debated in legislatures across the country, the IFA has one simple message:

 

“As we know, franchising creates opportunities for growth unlike any other way of doing business, and the single most important infrastructure for protecting your business is advocacy. Elected officials do not understand your business the way you do, and your voice makes the difference.”

 

Blue Rock Search is here to help your organization navigate these and other changes in the franchise world. If you’re looking for exceptional talent for key leadership roles or are in search of a strategic partner, please don’t hesitate to contact us.

 

About the Author

Nancy Estep-Critchett is a founding Partner of Blue Rock Search, with oversight of the Franchise Practice. She has 30 years of successful working experience as a business advisor and executive recruiter in the franchising space. Nancy has built solid relationships which have spanned decades with industry professionals and internationally recognized brands.

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