The Unkindliest Cut of All – the FAST Act

And so we come to the ultimate affront to franchising. Responding to strong lobbying efforts by the Service Employees International Union (SIEU), the California legislature passed the Fast Food Accountability and Standards (FAST) Act late this summer. Governor Newsom signed it into law on September 5th. The SIEU’s transparently characterized the FAST Act as part of a multi-year effort to unionize the restaurant industry in California.

Some might take solace in the fact that Act applies only to the largest franchisors, but as reported in the Wall Street Journal, that includes “16,753 franchise locations . . . run by 5,820 franchisees – that is, small businesses.” The Act creates a Fast Food Sector Council (the Council) comprising two representatives of quick service restaurant (QSR) franchisors, two representatives of QSR franchisees, two representatives of QSR employees, one representative of the governor’s Office of Business and Economic Development, and one representative of the California Department of Industrial Relations. The Governor appoints all members of the Council, except for the employee advocates, who are appointed by the Speaker of the California State Assembly and the Senate Rules Committee.

Remarkably, the Council has the authority to promulgate wide-ranging regulations governing businesses subject to the FAST Act on its own, without legislative action, establishing fundamental work rules. These include, for instance, wages, hours, working conditions, training, health and safety. The Act specifically authorizes the Council to raise the minimum wage to $22 per hour in 2023, with annual adjustments thereafter based on cost of living. Limitations on Council regulatory authority are minimal – the Council cannot create new paid time off benefits. To rub salt in the open wound, the Act allows populous counties and cities to establish local councils with the authority to report conditions and make recommendations to the Council.

What could go wrong? Ten political appointees who can ignore brand standards, contractual agreements, market realities and anything else that might affect the small businesses operated by franchisees and set requirements based on ….. who knows?! The legislation doesn’t set parameters on the scope of the Council’s decision-making. The FAST Act effectively forces 5,820 franchisees and their franchisors into collective bargaining with the Council. And therein may lie the seeds of the FAST Act’s demise.

The FAST Act effectively establishes a comprehensive state-run collective bargaining mandate and enforcement regime that overlies the National Labor Relations Act and the Board established by the Act. A good case can be made that the FAST Act is preempted by the NLRA. See, for instance, Lodge 76, Int’l Assoc. of Machinists v. Wisconsin Employment Relations Comm’n, 427 U.S. 132 (1976) and San Diego Building Trades Council v. Garmon, 359 U.S. 236 (1959). Whether based on preemption or some other legal argument, it doesn’t stretch credulity to predict the filing of many lawsuits challenging the Act.

Taking the path blazed by rideshare services in reaction to AB-5, a petition drive to overturn the FAST Act has already launched. It will require the signature of 600,000 California citizens to place the issue on the ballot. But if rideshare services could do it, there’s hope the franchisors and franchisees can do likewise.

If the FAST Act takes effect, it may not be overly pessimistic to predict the departure of major franchisors from California. Oddly, the recent abandonment of Russia by some major franchises have provided an unhappy testing ground for such a departure.