Background

In September 2022, the California State Legislature passed A.B. 257, the Fast Food Accountability and Standards Recovery Act (“FAST Act”). The FAST Act provides for the creation of the country’s first state-run “Fast Food Council” staffed by a mixture of government employees, workers, union representatives, and employers that would establish industry standards for wages, hours, and working conditions. The initial draft of the FAST Act also created joint liability for fast food franchisors for the actions of their franchisees, but that provision was excluded in the final bill passed by the Senate. Prior to the FAST Act taking effect, vocal opponents of the law filed a petition for a referendum to be placed on the general election ballot in 2024, which has resulted in enforcement of the FAST Act being delayed until the referendum is decided. Regardless of whether the FAST Act becomes enforceable, however, the Bill would revive its excluded joint employer liability provisions.

In depth

On February 16, Chris Holden—the California Assembly member representing Pasadena—introduced the Bill, which would add a new section to the California Labor Code. The stated aim of the Bill is to force franchisors to “take greater responsibility for achieving compliance with employer laws throughout their franchise networks” by “appropriately allocat[ing] the costs and risks of liability for employment violations”, “incentiviz[ing] franchisors to do their part to ensure and enable compliance with employment laws, and ensur[ing] that harmed individuals can receive a full recovery".

The Bill provides for shared civil liability for fast food franchisors with more than one hundred locations when a franchisee violates any of the following: the Fair Housing and Employment Act, California’s Unfair Competition Law (UCL), wage and hour provisions of the California Labor Code, California Labor Code provisions relating to immigration status, California Labor Code provisions relating to contracts against public policy, CalOSHA regulations, the Private Attorneys General Act (PAGA), and other state, county, or municipal orders regarding employment standards, worker health and safety, and public health and safety.

Before imposing joint liability, the Bill gives franchisors a 30-day (or 60-day, if requested to complete an investigation) window to “cure” alleged violations of the covered laws. To “cure,” the franchisor must abate the alleged violations, ensure that its franchisee is in compliance with the relevant laws, and “ma[k]e whole” “any fast food restaurant workers against whom a violation was committed”. The Bill does not define how a worker would be determined to be made “whole”.

Additionally, the Bill provides safeguards to avoid circumvention. Specifically, the Bill prohibits agreements which seek to waive the joint liability it creates, as well as agreements to indemnify franchisors and franchise agreements which “create a substantial barrier” to franchisees complying with the employment law provisions listed above. The Bill lists as a potential “substantial barrier” franchise agreements that provide insufficient funds for a franchisee to comply with these laws. The Bill does not provide guidance as to what “insufficient funds” might mean in this context, but provides for a rebuttable presumption that any changes to franchise agreements which increase the costs of the franchise would create a substantial barrier to compliance. Franchisees can sue franchisors for monetary or injunctive relief necessary to remove such barriers and ensure that the franchisee can comply with the law.

Key takeaways

• The Bill creates joint employer civil liability for certain fast food restaurant franchisors for employment-related violations of law by franchisees.
• Franchisors have an opportunity to avoid joint liability by curing the violation within 30 days (or 60 days, if an investigation is warranted).
• Franchisors must rebut a presumption that any increase in costs to franchisees is an attempt to impose “substantial barriers” to compliance with employment laws by franchisees.
• Franchisees who allege that a “substantial barrier” to compliance with the prescribed laws has been imposed by a franchisor may bring suit against the franchisor for monetary and/or injunctive relief to ensure compliance.