Minimum wage hikes for fast food workers touted by California Gov. Gavin Newsom (D) and Democratic state lawmakers have caused many restaurants in the state have recently to raise prices, layoff employees, and in some cases, close their doors altogether.
In 2023, California lawmakers approved legislation that raised the minimum wage for fast food workers to $20 an hour.
The new price control for labor took effect on April 1.
The bill also established the Fast Food Council within the state’s Department of Industrial Relations (DIR) that is tasked with setting “an hourly minimum wage for fast food restaurant employees and develop[ing] standards, rules, and regulations for the fast food industry.”
“California is home to more than 500,000 fast-food workers who – for decades – have been fighting for higher wages and better working conditions,” California Governor Gavin Newsom (D) said at the time. “Today, we take one step closer to fairer wages, safer and healthier working conditions, and better training by giving hardworking fast-food workers a stronger voice and seat at the table.”
Shortly after the new minimum wage was set, both Chipotle and McDonalds announced that they would be raising prices in the state in order to accommodate the change.
Since then, a number of chains have engaged in substantial layoffs while others have chosen to shutter many of their locations in the state.
One such franchise — Rubio’s Coastal Grill — decided to close 48 California locations, representing more than a third of its stores nationwide, according to the LA Times.
“The closings were brought about by the rising cost of doing business in California,” the company said in a statement.
Following the state’s announcement of its new minimum wage standards for the industry, several pizza restaurants also began taking steps to scale back their California operations.
Multiple Pizza Hut locations in California filed notices last year that they would be discontinuing delivery service in the near future, leading to many drivers being cut from the payroll.
Major Pizza Hut franchisee Southern California Pizza Co. announced that it would be laying off nearly 850 delivery drivers across the state, impacting locations in Los Angeles, Orange, San Bernardino, Riverside, and Ventura counties.
Round Table Pizza has said that it plans to lay off dozens of delivery drivers in response to California’s “rising operating costs,” according to a statement provided to FOX Business by parent company FAT Brands.
Owner of two Vitality Bowls restaurants in San Jose, Brian Hom, has said that he has been running his stores with just two employees instead of the typical four in an effort to cut costs.
According to Hom, this has led to longer wait times for customers. He also told Reuters earlier this year that he has raised prices between five and ten percent in response to the minimum wage increase.
“Eventually, as time goes on, if the cost of wages and cost of labor is too high, if we’re not making a profit, we would have to close down,” Hom told the outlet.
According to a report by the Hoover Institute, fast food restaurants in California cut a total of 9,500 jobs between last fall and this January, representing a 1.3 percent change from September 2023.
Total private employment in the state dropped just .2 percent, however, during this same period, suggesting that the fast food industry’s recent layoffs may have come, in part, from a widespread anticipation of rising labor costs.
The Hoover Institute also reported that fast food prices have significantly increased in California since the new minimum wage went into effect on April 1.
“In less than one month, Wendy’s increased prices by 8 percent, Chipotle’s prices have increased by 7.5 percent, and Starbucks prices are up by 7 percent,” the Hoover Institute wrote. “McDonald’s has announced it will be raising prices, and many other fast-food franchises have announced hiring freezes.”
“We have looked at price, although I can’t charge $20 for a Happy Meal,” an owner of 18 California McDonald’s locations told CNN. “My customers’ appetite to absorb menu board prices is not unlimited.”
According to CNBC, this minimum wage increase will cost McDonald’s franchisees an estimated $250,000 annually.
California’s $20 minimum wage requirement is applicable to fast food chains operating more than 60 locations nationwide.
Exempt from the law, however, are restaurants that make and sell bread as a standalone menu item.
These carveouts have drawn criticism because it appeared to apply to Panera Bread, which has 24 California locations owned and operated by a wealthy donor to Gov. Newsom.
Bloomberg News reported earlier this year that Newsom had pushed for the bread carve-out to benefit this donor, Greg Flynn
Since then, however, Newsom has called these claims “absurd” and suggested that Panera Bread would likely not be exempt because the dough used to make the bread is mixed off site.
Flynn himself has also spoken out and said that all Panera Bread locations under his control will be paying employees pre-tip wages of “$20 per hour or higher.” He has not publicly said whether or not he agrees with the Newsom Administration’s interpretation of the law.
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Appreciate the details in this article which are missing from the coverage by other news sources! Thank you Maine Wire!
The recent changes in California’s minimum wage for fast food workers have sparked intense discussions about the balance between fair wages and business sustainability. While some businesses are grappling with layoffs and closures, others are finding creative ways to adapt to rising costs. This reminds me of how restaurants like Cracker Barrel carefully curate seasonal offerings. For instance, their Cracker Barrel Thanksgiving menu provides a comforting and affordable way to celebrate, showing how thoughtful planning can create a win-win for customers and businesses. Perhaps California’s fast food industry can find similar innovative approaches to navigate these challenges.