Layoffs Precede California’s New Minimum Wage Law

Fast Food Restaurant
Fast Food Restaurant | Image by Witthaya Prasongsin/Getty Images

California’s $20-per-hour minimum wage law for fast-food workers went into effect on April 1, but it had already prompted some franchises around the state to lay off workers.

The law applies to any franchise operation with more than 60 employees nationwide but exempts certain types of restaurants, specifically those that bake bread in-house as a standalone menu item. However, several pizza franchises started laying off delivery drivers ahead of the law’s implementation, Fox Business reported.

“The franchisee is transferring their delivery services to third-party. While it is unfortunate, we look at this as a transfer of jobs,” a statement from Round Table Pizza’s parent company, FAT Brands, asserted. “As you know, many California restaurant operators are following the same approach due to rising operating costs. We anticipate third-party delivery providers in turn will see a boost in their businesses, which will require additional staff on their end.”

California has made legislative efforts to reclassify third-party drivers as employees, who would then be eligible for state minimum wage and benefits. Still, the efforts have yet to result in actual change. President Joe Biden’s administration instituted a rule earlier this year that would have reclassified drivers as employees. That rule is currently on hold due to a legal challenge, according to Maynard Nexsen PC, a nationwide law firm.

The state already has the third-highest minimum wage in the nation at $16 per hour. California Gov. Gavin Newsom signed laws last year to increase the minimum wage for fast-food workers and certain healthcare workers above the state minimum, which purportedly prompted the recent layoffs.

Some lawmakers derided the controversial minimum wage bill.

“Restaurants are struggling to stay above water, and Democrats just threw them an anvil,” California Assembly Republican leader James Gallagher said, per Fox Business. “We warned Democrats this new mandate would cost jobs. They ignored us, and here we are with the highest unemployment rate in the country, poised to get even worse.”

McDonald’s CEO Chris Kempczinski told Fox Business that franchisees don’t know the impact of the wage law.

“Certainly, there’s going to be some element of that that does need to be worked through with higher pricing,” he said. “There’s also going to be things that I know the franchisees and our teams there are going to be looking at around productivity. How all of that plays out, there will certainly be a hit in the short term to franchisee cash flow in California; tough to know exactly what that hit will be because of some of the mitigation efforts.”

According to MIT’s Living Wage calculator, a single adult in California must earn $27.32 an hour to earn a living wage. Two adults working with two children need a wage of $33.26 each for a living wage.

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