When it comes to economic policy, California is a cauldron of terrible ideas, and the latest one is its inflated minimum wage for employees in the fast-food industry. On April 1, a new law took effect raising the state’s minimum wage for about a half million of them to $20 an hour, which for many amounted to an immediate raise of 25% from before the law. Just a couple of months later, the predictable—and predicted—results are starting to manifest themselves, and suffice it to say they’re not good.
The minimum wage law, AB 1228, passed last September with much fanfare from the legislature and Governor Gavin Newsom. It repealed and replaced another law, AB 257, known as the Fast Food Accountability and Standards Recovery Act, which passed in 2022 but was suspended pursuant to a referendum petition.
Like AB 257, AB 1228 aims to micro-manage the fast-food industry with unelected bureaucrats. It installed 12 individuals on a so-called “Fast Food Council” with the power to dictate various terms of employment like wages and benefits for all fast-food restaurants whose brands have more than 100 locations nationwide, regardless of whether those terms make any business sense. Unlike AB 257, AB 1228 included the new minimum wage, which most certainly does not.
As it was being considered, California restaurant chain owners and franchisees warned lawmakers that AB 1228 would drive up labor costs and force them to respond by raising prices, automating jobs, cutting hours, or even closing altogether. Not long after it was passed, some companies like McDonald’s and Chipotle Mexican Grill realized those predictions and announced plans to raise prices. According to the Wall Street Journal, other restaurant chains, pizza chains in particular, announced plans to cut thousands of jobs while some have declared that they would simply avoid opening any new restaurants in California.
Unfortunately for some employers, the new minimum wage effectively destroyed their businesses in the Golden State. One such employer, Rubio’s Coastal Grill, decided to close all 48 of its restaurants in California on May 31, saying in a statement that “the closings were brought about by the rising cost of doing business” in the state. Another employer who operated an iconic Arby’s location in Hollywood for 55 years likewise just closed its doors on June 15.
Those are just a few examples of AB 1228’s impact, but there are bound to be more. One would hope that legislators would take these real-world consequences to heart, but at least in California, the bulk of them seem intent on remaining oblivious to economic reality.
About the authors
Sean P. Redmond
Sean P. Redmond is Vice President, Labor Policy at the U.S. Chamber of Commerce.
