California’s Fast Food $20 Minimum Wage Starts on Monday: How Bad Will It Hurt Businesses?

By Moon Harper

Apr 01, 2024 01:09 AM EDT

A new law in California will ensure that most fast food workers receive a minimum wage of $20 per hour starting Monday to provide more excellent financial stability to a traditionally low-paying profession while threatening to raise higher prices in a state already burdened with a high cost of living.

Minimum Wage Law Passed Last Year

Democrats in the state Legislature passed the law last year, recognizing that most fast food workers are not only teenagers earning pocket money but adults sustaining their families.

This encompasses immigrants like Ingrid Vilorio, who began her job at McDonald's upon arriving in the U.S. in 2019. Fast food constituted her full-time employment until she transitioned to approximately eight hours per week at Jack in the Box while juggling other occupations last year. Vilorio welcomed the $20 pay raise but wished it had been implemented earlier so she would not have needed to seek multiple jobs elsewhere.

Despite initial support from the trade association representing fast food franchise owners, many have voiced concerns about the law's repercussions since its passage, particularly amid California's slowing economy.

Controversies Over Minimum Wage Increase

Alex Johnson, the owner of 10 Auntie Anne's Pretzels and Cinnabon restaurants in the San Francisco Bay Area, reported a 2024 sales slowdown that caused him to lay off his office staff and turn to his parents for payroll and human resources assistance.

Johnson anticipates increasing his employees' wages will incur an approximate $470,000 additional cost annually. To offset this expense, he plans to implement price hikes ranging from 5% to 15% at his stores and has decided to halt hiring and expansion efforts in California. Johnson expressed his commitment to treating his employees fairly and offering them the highest wages possible. However, "this law is hitting our operations hard," Johnson lamented.

Johnson voiced his distress, revealing that he is contemplating selling or shutting down his business. The shrinking profit margins, worsened by increasing expenses across all fronts, have made the situation unsustainable. California has doubled its minimum wage for most workers in the past decade to $16 per hour. One major concern throughout this period was the potential job losses from increased employer expenses.

Contrary to concerns, Michael Reich, a labor economics professor at the University of California-Berkeley, stated that the data indicates wages increased without a corresponding decrease in employment.

Reich expressed surprise at the minimal or challenging nature of finding disemployment effects. If anything, he noted, there were positive effects on employment. Reich pointed out that while the statewide minimum wage is $16 per hour, numerous larger cities within the state have their minimum wage laws, setting higher rates. Consequently, the transition to $20 per hour will be smaller for many fast-food restaurants.

Scope of The Wage Increase

The law represents a meticulously negotiated compromise between the fast food industry and labor unions, culminating nearly two years of contentious debates over wages, benefits, and legal responsibilities. Originating from private negotiations between unions and industry representatives, including the unconventional measure of signing confidentiality agreements.

The law applies to restaurants that provide limited or no table service and are affiliated with a national chain comprising a minimum of 60 establishments nationwide, except for restaurants operating within grocery establishments and those solely focused on producing and selling bread as a standalone menu item.

Initially, there was confusion regarding whether the bread exemption would apply to Panera Bread restaurants. Bloomberg News reported that this change would benefit Greg Flynn, a prominent campaign donor to Governor Newsom. However, the Newsom administration clarified that the wage increase law does indeed apply to Panera Bread because the restaurant does not produce dough on-site. Flynn also ensured that his workers would receive at least a minimum wage of $20 per hour.