McDonald’s franchise group criticizes California fast food law as ‘draconian’

The National Landlords Association called California’s recently passed AB 1228 law “draconian” and costly for franchisees in a memo distributed to its members.

“New legislation ‘AB 1228’ has been voted into law and will result in a devastating financial blow to… McDonald’s franchisees in California “At an expected annual cost of $250,000 per McDonald’s restaurant,” the advocacy group representing about 1,000 McDonald’s franchisees said in the memo obtained by FOX Business.

“These costs simply cannot be absorbed by the current business model.”

CNBC previously reported on the NOA memo.

Governor of California. Newsom signs landmark bill for fast food workers, despite concerns it will raise costs

Among the main elements of the bill are:

  1. It would raise the minimum wage for fast food workers to $20 per hour.
  2. This applies to restaurants with at least 60 locations nationwide, excluding restaurants that make and sell their own bread.
  3. A 10-person council will also be established to manage fast food chains and set guidelines for working conditions and wages.

When signing the original version of the legislation, California Governor Gavin Newsom said, “California is committed to ensuring that the men and women who have helped build our global economy are able to share in the state’s prosperity. Today’s action gives hard work speed – food workers have a stronger voice.” And a seat at the table for setting fair wages and important health and safety standards throughout the industry.

The state Senate passed AB 1228 on Thursday.

NOA said franchisees, suppliers and McDonald’s “should get involved in supporting California McFamily” and outlined steps it said each should take, with ideas ranging from franchisees creating 501(c)4 entities to state political action committees (PACs) creating a formal lobbying arm. On the government.

He urged suppliers to reduce costs in operations that could lead to cost savings for the fast food restaurants they work with.

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The NOA called on McDonald’s to direct “rental and service fees collected from sales” from potential price increases in response to the bill to efforts such as “repairing” the operational platform and conducting more business-related research and development to help franchisees.

In its memo, NOA also made allegations about a “small coalition of franchisees” who “negotiated a deal with” the Service Employees International Union without the participation of franchisees “resulting in the legislative outcome now being certain.” McDonald’s mentioned the National Restaurant Association and the International Franchise Association.

McDonald's sign

McDonald’s logo at a restaurant in Streator on October 15, 2022. (Jakub Purzycki/Noor Photo via Getty Images/Getty Images)

IFA CEO Matthew Haller told FOX Business that he participated in the negotiations with the goal of making sure franchisees are involved and represented. He added that some franchisees spoke directly to the governor’s office.

FOX Business has also reached out to the National Restaurant Association for comment.

“Over the past year, I have worked closely with company leaders, a task force of fellow franchisees and our independent advisors as part of a coalition of brands working to protect our business model against an all-out attack on restaurant owner/operators,” said McDonald’s California franchisee Roger Delph told FOX Business.

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“Anyone who suggests that this was not a collaborative and successful effort to protect the California franchisor’s business model, or that franchisor participation was absent, either was not involved or is misrepresenting the facts.”

NOA suggested that the passage of AB 1228 could lead to similar efforts by legislatures elsewhere in the country, adding: “We need to stay united so this can’t get a foothold anywhere else.”

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In a recent internal letter obtained by FOX Business, McDonald’s told its restaurant system that the terms of AB 1228 are “completely different” compared to the previous version of the bill, which it called “harmful to our system.”

AB 1228 created a “limited fast food board,” repealed AB 257, prevented the application of joint liability to franchisors and franchisees, and established a “clearer and more predictable pay schedule through 2029,” among other things, she said.

McDonald’s “worked tirelessly” with its “California Owner/Operator Task Force” and others in the state “to protect the ability of owner/operators to make decisions about their businesses locally and to protect their restaurants and staff,” the company said in the letter. .

Californians have put a fast food law on the ballot for 2024

Those steps included creating a “coalition of brands to refer AB 257 to California voters in November 2024” and significantly increasing their “political engagement in the state,” according to the letter.

California McDonald's restaurant

A sign hangs in front of a McDonald’s restaurant on April 28, 2022, in San Leandro, California. (Justin Sullivan/Getty Images/Getty Images)

The company said it has created a “cross-functional, agile team of McDonald’s employees as well as owners and operators from California, New York and Illinois, to co-invest and collaboratively work on a business plan.”

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It will “pilot innovative short- and long-term solutions” for California using best practices adapted from other places that have seen similar legislation, according to the internal letter.

Jay Caruso contributed to this report.

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