California Bill Would Make Fast-Food Franchisors Liable for Franchisees' Violation of Wage Law

A.B. 1228

A.B. 1228 would mandate that the complaints alleging wage law violation by a fast-food restaurant franchisee provide a written notice to the franchisor of their plan to file a wage lawsuit. The franchisor would be given 30 days (60 days if the franchisor makes a written request for additional time) to cure the alleged violation by making all complainants whole and ensuring that its fast-food restaurant franchisees comply with the underlying laws specified in the notice. Otherwise, complaints may include the franchisor as a co-defendant in a civil action.

A.B. 1228 would also provide the fast-food restaurant franchisee the right to sue its franchisor for monetary damages and injunctive relief if their franchise agreement creates a substantial barrier to the franchisee’s compliance with the wage laws.

A.B. 1228 also points out that the civil liability laid out in this bill is nonwaivable, nor can a fast-food restaurant franchisee indemnify its franchisor for such liability in its agreement.

A.B. 1228 currently applies to a fast-food restaurant that is a part of a set of restaurants consisting of 100 or more establishments nationally that share a common brand or are characterized by standardized options for decor, marketing, packaging, products, and services.

Background

The introduction of this bill is likely a response to recent events surrounding the implementation of legislation aimed at bolstering protections for fast-food workers. Specifically, the passage of A.B. 257 (Fast Food Accountability and Standards Recovery Act) in September 2022 may have highlighted areas where further measures were needed to address gaps in worker protections, such as joint employer liability. A.B. 257 brought forth significant changes in the fast-food industry by allowing the establishment of a “Fast Food Council” composed of employees, advocates, franchisors, franchisees, and government officials. The Council could establish industry-wide standards for wages, working hours, and working conditions related to the health and safety of fast-food workers. However, a coalition of California small business owners, restaurateurs, franchisees, and related entities filed a lawsuit by the end of 2022 to block enforcement of the law, pending a referendum scheduled for November 2024 to repeal it. The coalition was successful in obtaining a preliminary injunction on December 30, 2022, in Sacramento Superior Court, against enforcement until the referendum’s outcome is determined.

Implications

A.B. 1228 states its goal that “franchisors must take greater responsibility for achieving compliance with employer laws throughout their franchise networks,” and this bill would “incentivize franchisors to ensure their part to ensure and enable compliance with employment laws.” Meanwhile, in a statement, Assemblymember Holden said that he introduced A.B. 1228 to “protect workers and support local businesses” because he knew “how much pressure maintaining a safe and healthy working environment puts on local owner-operators, especially when global corporations refuse to contribute their share.”

Takeaways

A.B. 1228, if passed into law, could become the precursor to further legislations in California moving beyond the fast-food industry to other industries like hospitality. In addition, as is too often the case, what happens in California could stimulate similar legislation in other jurisdictions, particularly New York which has already initiated Fast Food employment rules.

A.B. 1228 by seeking the involvement of the franchisor into the wage and hour activity of the franchisee would also create exposure under the National Labor Relations Act and potentially other labor/employment laws for the franchisor to be deemed a joint employer of the franchisee.