California Fast Food Franchisors Targeted Again

California Assembly Bill 257, the Fast Food Accountability and Standards Recovery Act (the “FAST Act” enacted in 2022), was to become effective January 1, 2023.

The FAST Act established a 10-member Fast Food Sector Council to oversee and regulate many aspects of fast food employee working conditions, pay and benefits – as well as decisions regarding décor, marketing, packaging, etc. Given that the FAST Act affected chains with 100 or more locations across the nation, the target of the Act was clearly franchisors of fast food restaurants.

Efforts to overturn the FAST Act began immediately after its passage. In January 2023, a referendum on the FAST Act qualified for the California November 2024 ballot and suspended the implementation of the FAST Act until voters decide whether to ratify or repeal the law.

But supporters of the FAST Act were not willing to wait. On February 16, 2023 they introduced Assembly Bill 1228, the “Fast Food Franchisor Responsibility Act” (“FFRA”) to the California Assembly. This bill calls for fast food restaurant franchisors to share legal responsibility and liability for their franchisees’ violations of employment standards and worker health and safety laws to the same extent that those laws may be enforced against their transgressing franchisees.

Specifically, Section 2(e) of the FFRA states:

“. . .requiring fast food restaurant franchisors to share in the liability for employment violations at their franchised stores will appropriately allocate the costs and risks of liability for employment violations across the responsible parties, incentivize franchisors to do their part to ensure and enable compliance with employment laws in their franchised stores, and ensure that harmed individuals can receive a full recovery.”

In summary, the FFRA would:

• Allow a civil action against a franchisor for its franchisee’s violations of certain employment laws and regulations if the franchisor does not cure the violations within 30 day’s after prior written notice of the violation. “Cure“ would mean that the franchisor “abates each violation alleged and ensures that its fast food restaurant franchisee is in compliance with the underlying laws, orders, rules, or regulations specified in the notice, and that any fast food restaurant workers against whom a violation was committed are made whole.”
• Authorize a franchisee, if the terms of a fast food restaurant franchise agreement prevented or created a “substantial barrier to the franchisee’s compliance” with the specified laws and regulations, or any changes to them, to file an action against the franchisor for monetary or injunctive relief to ensure the franchisor’s compliance.
• Establish a rebuttable presumption that any changes in the terms of a franchise agreement that results in an “increase in the costs of the franchise to the franchisee” create a “substantial barrier to the franchisee’s compliance” with the prescribed laws and regulations, or any changes to them.
• Provide that a waiver of the bill’s provisions, or any agreement by a franchisee to indemnify its franchisor for liability under AB 1228, would be contrary to public policy, void and unenforceable.

Further, franchisors who currently and truthfully disclaim involvement of any sort in the hiring, firing, training, establishing remuneration, enforcement of compliance with wage and hour requirements, personnel policies, benefits, recordkeeping, and supervision and discipline of their franchisees’ employees, would have to defend themselves along with their wrongdoing franchisees, who are solely responsible for their unlawful behavior in these employment matters.

Barry Kurtz is a Certified Specialist in Franchise & Distribution Law, by the State Bar of California Board of Legal Specialization.