McDonald's is among a number major fast food corporations which would be affected by California Assembly Bill 1228.
(Kevin Painchaud / Lookout Santa Cruz)
Civic Life

Santa Cruz County finds itself on front lines of statewide battle over fast food franchisor liability bill

No on AB 1228, a coalition opposing a California bill that would make fast food franchisors liable for labor violations at their franchise locations, is running a heavy campaign in Santa Cruz. But proponents of the Fast Food Franchisor Responsibility Act say the bill would benefit franchise owners and workers.

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A statewide campaign targeting Santa Cruz County residents and lawmakers with flyers and television ads is warning that proposed legislation requiring major fast food restaurant chains to share liability for workplace violations with their franchisees risks harming local restaurant owners.

The Fast Food Franchisor Responsibility Act, also known as Assembly Bill 1228, is currently making its way through California’s legislature. AB 1228 passed the California Assembly at the end of May and is now before the state Senate.

If it becomes law, the bill would make corporate fast food franchisors jointly liable for labor-rights violations at their franchise locations. This means that if an employee sues their employer — the owner of the franchise location — for a labor violation, the franchisee would not be held solely responsible.

Instead, the franchisee (for example, your local McDonald’s) and its corporate franchisor (McDonald’s corporate headquarters) would become joint employers and would share responsibility for abiding by state labor laws, including wage requirements, limits on work hours, workplace safety, and employment discrimination. The law would apply only to franchises with 100 or more locations.

Fast food corporations like McDonald’s and Chick-fil-A are among the groups opposing AB 1228, as are restaurant lobby groups like the International Franchise Association and National Restaurant Association. The bill is supported by the Service Employees International Union (SEIU) California and “Fight for $15 and a Union,” an organization advocating for a $15 dollar minimum wage and the unionization of underpaid workers; a coalition of labor organizations and workers’ rights groups is also on board.

As the bill has made its way through the legislature, a campaign known as “No on AB 1228 — Stop the Attack on Local Restaurants” has started running television ads in Santa Cruz County and sending flyers to local residents prominently featuring the name of District 30 Assemblymember Dawn Addis, whose district includes a portion of Santa Cruz County.

“Assemblymember Dawn Addis: Please Protect Our Local Restaurants” reads a flier featuring a Watsonville-area McDonald’s franchise owner, Tila Banuelos. (Banuelos did not respond to Lookout’s attempts to reach her.)

Addis told Lookout she voted to support AB 1228 because she feels it would create a better situation for workers. “I felt like supporting 1228 would be a voice of support for workers who are clearly saying that they need more protections,” Addis said.

Her chief of staff, Jim Evans, said he wasn’t sure who was behind the ads featuring Addis but assumed it was the same entities listed as opponents of the bill in an analysis conducted by the Assembly’s judiciary committee. Those opponents include major fast food chains, business advocacy groups and chambers of commerce, many of whom are listed as members of the No on AB 1228 campaign’s coalition.

AB 1228 has raised concerns and questions among some local franchise owners. However, the bill’s supporters argue the No on AB 1228 campaign is being pushed by large fast food corporations looking to quash legislation that will not benefit them, but will help franchisees and workers.

The Togo's location on Ocean Street in Santa Cruz
The Togo’s location on Ocean Street in Santa Cruz (this location is not owned by Togo’s franchise owner Greg Wimp).

Kathy Fairbanks, a public affairs strategist speaking on behalf of the No on AB 1228 campaign, said that if the bill becomes law, some franchisors might feel the need to take control over things they generally do not currently have control over, like hiring and overseeing employees, providing benefits and scheduling.

“From a corporate perspective, there won’t be any incentive on the corporate end to offer more franchisees opportunities,” Fairbanks said. “Because if they’re going to be held liable for all the implemented decisions, they might as well just run the stores themselves.”

She said if the bill is about holding franchises who are mistreating their workers to account, a more appropriate solution would be giving more funding to state agencies involved in regulating these rogue franchisees.

“If this is about weeding out bad actors, then we should give the state agencies, the labor commissioner’s office, more funding for enforcement so they can get rid of the bad actors,” Fairbanks said. “That would be a more appropriate solve than 1228, which is just about suing corporations”

Greg Wimp, who owns four Togo’s locations in Santa Cruz County, said he is worried about how AB 1228 might affect his ability to run his business. He says that while Togo’s corporate has control over things like marketing, providing IT support, developing new menu items and contracting with all vendors, he has control over the majority of his business decisions. He is able to set pricing on menus and store hours and oversees everything related to employees, like payroll, benefits and hiring and firing.

“Currently a franchisor is very separate from my business,” Wimp said. “They aren’t regulating other parts of the operation like hiring employees and benefits. If they’d have to get into that part of the business, that’s taking away more of what it means to be a business owner, rather than just an employee.”

Robert Zarco, a lawyer who represents hundreds of franchisees in 44 states across the country including California, argues that AB 1228 will actually benefit franchisees by forcing franchisors to relinquish more control and free up their franchisees to make appropriate business decisions that are compliant with labor laws.

While the amount of control a franchisor imposes over its franchisees varies, Zarco said that in many cases, corporate franchisors mandate how many hours employees need to work daily and whether employees can take breaks at busy service times. Some require franchisees to stay open 24 hours, even in situations where it’s unsafe to do so, Zarco said.

According to Zarco, these imposed controls typically benefit the franchisor, but not the franchise owner. He says this is the case when fast food chains mandate franchise locations stay open 24 hours, for example. For many franchisees this is a money-losing proposition — the franchise owner might spend hundreds to stay open during a dead night shift when they might only sell a couple burgers. It’s not worth it for the franchisee, Zarco says, who has spent a lot to turn a small profit, but it is for the franchisor, who gets a cut of that profit.

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Such controls can ultimately result in a local franchise owner being noncompliant with labor laws and have already contributed to a growing trend of franchise owners opting to sell or close their businesses, he said.

Zarco argues that AB 1228 will benefit franchisees because it puts liability on the franchisors who are often, he says, the ones imposing controls that create conditions which necessitate labor lawsuits.

The bill will allow workers not only to sue their direct employer, the franchisee, but the corporate headquarters as well. That, in turn, will also benefit the franchisee, Zarco argues, by lightening the full weight of liability currently placed on them.

”The franchisor has greater deep pockets and will be able to answer to a substantial liability of the franchisee that the franchisee cannot respond to,” Zarco said.

Brian Callaci, an economist at Washington-based anti-monopoly think tank Open Markets whose research has focused on franchising, agrees that joint liability would incentivize corporate franchisors to give franchisees more control.

“It’s a way to actually get the franchisors to back off a little bit. If they want to have these businesses where they don’t want to be recognized as the employer, they’re going to have to give the franchisees more discretion over things like picking a different supplier or their opening hours,” Callaci said.

Additionally, Callaci says AB 1228 will be good for workers, many of whom have unsuccessfully been trying to sue their franchisors.

“To date, franchisee workers have been losing their cases trying to hold the franchisors accountable and this will change that,” he said.

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Joe Thompson, a UC Santa Cruz student and former Starbucks employee who led the first successful unionization effort of a Starbucks in California in Santa Cruz, agrees that joint liability will be good for workers. “It’s putting more responsibility on the corporations to pay their workers and that’ll make it so more people can actually afford to work at some of these places,” said Thompson. (Starbucks would not be affected by this bill as all locations are corporate-owned, not franchised.)

AB 1228 emerged from a battle over AB 257, the Fast Food Accountability and Standards (FAST) Recovery Act, a 2022 bill that would have established a state council to set minimum working standards for fast food employees in California, including hourly wages as high as $22 an hour.

Gov. Gavin Newsom signed the bill into law, but it was later blocked by the courts. The bill will now go to voters after a coalition of restaurant and business groups known as Save Local Restaurants — largely funded by fast food corporations — gathered enough signatures to put a referendum on the November 2024 ballot.

Joint liability was originally part of the FAST Recovery Act, but was taken out as a compromise with corporations, according to Assmeblymember Chris Holden. Holden introduced joint liability as its own bill, AB 1228, in February of this year.

Holden, a former Subway franchise owner, told Lookout he introduced the bill because he felt workers needed greater opportunities for recourse when facing unsafe or unfair working conditions.

“I introduced the bill because I believe that there still exists a need for fast food restaurant workers to be given some avenue of protection where they have an opportunity to file a workplace complaint and be able to have that complaint taken seriously and to be able to hold not only the franchisee but the franchisor liable for any workplace complaint,” Holden said.

If AB 1228 passes the Senate and is signed into law by the governor, Holden said it’s possible the law could encounter the same opposition from fast food corporations the FAST Recovery Act received.

Callaci doesn’t believe this bill should raise alarm bells for anyone.

“Underpaying workers and violating labor laws is not something that any business should be engaged in, right?” he said. “So as long as everyone’s following the law, this bill doesn’t threaten anybody.”