A.B. 1228 is a controversial law in California that went into effect on September 28, 2023, which we initially covered here and here, and does two main things. First, it increased the minimum wage for employees of a “National Fast Food Chain.” Second, it established a Fast Food Council, which is empowered to make future increases to the minimum wage and to adopt other minimum employment standards for fast food restaurants.  

Who Is Covered?

“National Fast Food Chain” is defined as a set of limited-service restaurants consisting of more than 60 establishments nationally that share a common brand. This includes restaurants that are characterized by standardized options for decor, marketing, packaging, products, and services, and are primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service. Except for the exclusions below, “fast food restaurant” means a limited-service restaurant in the state that is part of a national fast food chain. For purposes of the definitions in this part, “limited-service restaurant” includes, but is not limited to, an establishment with the North American Industry Classification System Code 722513.

Not covered under this law are bakeries, grocery stores, restaurants connected to or operating within an airport, hotel, a theme park, a museum, a gambling establishment, or an event center that is over 20,000 square feet or has more than 1,000 seats (such as a sports stadium, concert hall or racetrack), and restaurants subject to a concession agreement or food service contract meeting certain conditions. 

What Is the Fast Food Council?

This Council, set up within the Department of Industrial Relations, has representatives for all interests – employers, employees, and advocates alike. It is made up of nine voting members, including representatives from various sectors of the fast food industry, fast food restaurant franchisees or restaurant owners, fast food restaurant employees, advocates for fast food restaurant employees, and a neutral chairperson.  The Council’s responsibilities are significant. They can make recommendations for new standards specific to the fast food industry – establishing fast food restaurant minimum standards on wages and developing fast food restaurant minimum standards for working hours, working conditions, and training, as are reasonably necessary or appropriate to protect and ensure the welfare, including the physical well-being and security, of fast food workers.

“Working conditions” include, but are not limited to, wages, conditions affecting fast food restaurant employees’ health and safety, security in the workplace, the right to take time off work for protected purposes, and the right to be free from discrimination and harassment in the workplace.  But “working conditions” do not include all possible employment-related topics.  The Council could not develop regulations creating new paid time off benefits, such as paid sick leave or paid vacation, nor could it promulgate regulations regarding predictable scheduling. 

All standards promulgated by the Council would be subject to the rulemaking process set forth in the Administrative Procedure Act (APA). The Labor Commissioner would be responsible for issuing, amending, or repealing standards developed by the Council. The Council would send proposed written standards to the Labor Commissioner and request that the Commissioner prepare a notice of proposed rulemaking action regarding the proposed regulatory text. If the Commissioner determined either that the proposed standards are not consistent with the Council’s authority, or not consistent with the APA, the Commissioner would need to provide the Council (within 60 days) a written explanation of the reasons for that determination so the Council could modify its proposed standards.  

What Is the New Sector Minimum Wage?

The imposition of a minimum wage applicable to a particular sector of employees is quite novel. Only a handful of other U.S. jurisdictions have adopted minimum wages applicable to a particular sector of workers.  For example, Nevada has a minimum wage rate applicable to home care workers.  New Jersey has different minimum wage rates for long-term care facility direct care staff, and certain seasonal employers.

As we earlier wrote about here, effective April 1, 2024, California implemented a minimum wage rate of $20 per hour for fast food employees. Beginning on January 1, 2025, the Fast Food Council could increase, on an annual basis, the minimum wage for fast food restaurant employees. The hourly minimum wage would increase on an annual basis by no more than the lesser of (rounded to the nearest ten cents) either 3.5 percent or the Consumer Price Index.  

In establishing minimum wage increases, the Council could take into account regional differences, or it could set a statewide increase. Local jurisdictions could still enact more protective local standards. However, they could not enact a law applicable solely to fast food employees. Thus, this law would not preclude them from establishing a minimum wage that is generally applicable to all industries.

What’s the Latest?

On January 29, 2025, more than 1,000 local restaurant owners wrote an open letter to Governor Newsom, urging the Fast Food Council to reject any additional wage increases for fast food workers. In the letter sent to Governor Newsom and the Fast Food Council, the owners lamented that an additional wage hike would “cripple thousands of small business owners like us who are already struggling to survive the $20/hour minimum wage, our customers and our employees.” The letter also cites last year’s increase as the reason behind “thousands of fast food layoffs, hundreds of restaurants shut down and food prices at local restaurants up by 13% overall.” 

In fact, recent data released by Datassential shows that food prices at California limited-service restaurants have dramatically risen by 13.1 percent since September 2023, when A.B. 1228 went into effect. In April 2024 when the minimum wage jumped 25% (from $16 to $20 per hour), 34.6% of menu items at limited-service restaurants in California saw price increases — about 5 times the rate of other states.

What Should Fast Food Employers Do Next?

Fast Food employers should consider the impact a higher minimum wage will have on the minimum salary for exempt employees within their organizations. This is because as the minimum wage increases for covered employers so do the salaries of exempt employees to meet the exempt employee criteria. Under existing law, employees exempt under the administrative, professional, or executive exemptions must be paid a salary of at least twice the state minimum wage for full-time employment.  A.B. 1228 provides that “the hourly minimum wage established [by A.B. 1228] shall constitute the state minimum wage for fast food restaurant employees for all purposes under [the Labor Code] and the wage orders of the Industrial Welfare Commission.” Therefore, it appears that the applicable minimum salary for fast food restaurant employees covered by A.B. 1228 to qualify for the California administrative, professional, or executive exemptions is probably $83,200 per year (i.e., 2 x $20/hour x 40 hours/week x 52 weeks).  

The California Labor Commissioner’s Office, an agency within the Department of Industrial Relations (DIR), has released guidance in the form of frequently asked questions (FAQs) clarifying aspects of A.B. 1228, including the minimum salary requirement of $83,200 for exempt fast food workers (in response to FAQ No. 15).  Based on the Labor Commissioner’s response to FAQ No. 6, A.B. 1228 “applies only to employees of fast food restaurants” as defined above.  While not definitive, this may suggest that employees performing administrative and personnel functions in the company’s corporate office(s) probably do not fall under this law.

Keep in mind that while the Labor Commissioner guidance does not have the force of law, employers may want to take the Commissioner’s interpretation into account because it is charged with enforcing California’s labor laws. National fast food employers with a presence in California will also want to review their wage and hour practices to make sure they are in compliance with A.B. 1228’s requirements. A higher minimum wage results in higher meal and rest period premiums, higher reporting time pay, higher split shift premiums, and higher waiting time penalties. Employers’ policies and practices should be carefully reviewed with legal counsel for guidance on these derivative impacts.

A.B. 1228 will undoubtedly shape labor markets across different sectors because all employers will face increased pressure in compensating and retaining workers. Covered employers should be mindful of and plan for the impact of this law on budgeting, staffing, and consumer prices caused by the higher expense of operating in California.

For more information and guidance on the requirements of A.B. 1228, please contact Michelle Harrington at MTHarrington@foxrothschild.com.