It’s Baaack, Only One Year Later: AB 257 Attacks Franchise Restaurant Model

On January 31, 2022, the California State Assembly passed AB 257, the Fast Food Accountability and Standards Recovery Act (FAST Recovery Act, or the “Act”) by a vote of 41-19. The bill was originally introduced in January 2021 by Assembly Member Lorena Gonzalez, but was fortunately defeated by the full Assembly in June 2021.

Unfortunately, the bill was reintroduced in January 2022 by Assemblyman Chris Holden, a former Subway franchisee, since Lorena Gonzalez is no longer an Assembly Member. The bill will now be considered by the California Senate in late March or early April. According to the Act:

“…for years, the fast food sector has been rife with abuse, low pay, few benefits, and minimal job security, with California workers subject to high rates of employment violations, including wage theft, sexual harassment and discrimination, as well as heightened health and safety risks.”

AB 257 supporters believe that the Act would remedy these alleged abuses with a myriad of invasive requirements that would damage the fast food restaurant franchise model, franchisors, franchisees and employment opportunities for thousands of fast food restaurant workers. For example, the Act would:

• Establish a Fast Food Sector Council (Council) of 11 unelected members appointed by the Governor, the Speaker of the Assembly and the Senate Rules Committee – to regulate the operation of fast food restaurants in California. Only four members need have fast food restaurant experience.

• Require the Council to standardize minimum wages, maximum hours and other working conditions for fast food restaurant workers at restaurant franchisees and franchisors with 30 or more restaurants in the U.S.

• Oblige fast food restaurant franchisors to oversee their franchisees’ compliance with certain employment and worker public health and safety laws.

• Impose joint and several liability on fast food restaurant franchisors for penalties or fines that result from their franchisees’ violations of employment and worker public health and safety laws.

• Permit fast food restaurant franchisees to file legal actions against their franchisors attacking certain provisions of their franchise agreements.

• Deem waiver and indemnification provisions in franchise agreements in favor of franchisors contrary to public policy, void and unenforceable.

If voted into law, AB 257 would be nothing short of a disaster for California fast food franchisors, franchisees and their employees. It is likely that following passage, fast food franchisors would cut back on their franchising activity in California, costing the state tax revenue and lost franchisee and employment opportunities. The bill could also hamper the California restaurant industry’s recovery from COVID-19.

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