Speaker 1: All right, welcome to Chopping It Up Episode five. I'm
Speaker 1: your host, Michael Halen, the senior restaurant and food service
Speaker 1: analyst at Bloomberg Intelligence. Today I'm joined by Riley Loguson
Speaker 1: and Jonathan Sack to discuss the impacts of the Fast
Speaker 1: Act and unionization on the restaurant industry. So, Riley is
Speaker 1: a shareholder in the chair of the Global Restaurant Industry
Speaker 1: Group at Greenberg traw Rig, and Jonathan is also a
Speaker 1: shareholder at the firm. So thanks for joining me, gentlemen,
Speaker 1: Thank you for having us. Mike. Thanks, Mike, great to
Speaker 1: be here. Sure, I think so. For those of you
Speaker 1: that aren't familiar, I have to very highly respected West
Speaker 1: Coasts lawyers to help kind of flesh these topics out. Uh.
Speaker 1: So we're gonna start with the Fast Act. So, from
Speaker 1: what I understand, the fast Fast Act scaled back. So
Speaker 1: can you give us a quick rundown about the version
Speaker 1: that was passed in California on August twenty nine, And
Speaker 1: you know what what should concern quick, sir? Of its
Speaker 1: restaurants owners and franchise wars most Yeah, great, great question, Mike. Yes,
Speaker 1: some significance. Significant amendments were made to the Act that
Speaker 1: came down last week. I think, taking a step back,
Speaker 1: it's important to look at this from a broad perspective
Speaker 1: that the Fast Act, as well as the unionization efforts
Speaker 1: that were currently seeing around the company are a part
Speaker 1: of a longstanding, well funded, and well coordinated strategy led
Speaker 1: by the unions to change the landscape of labor in America.
Speaker 1: And so when we look to the history of this
Speaker 1: uh starting with the Fight for fifteen movement that began
Speaker 1: around two thousand and twelve and two thousand thirteen, we
Speaker 1: can see the origins of that with the fast food
Speaker 1: walkouts in New York and other cities, which very quickly
Speaker 1: led to significant minimum wage increases and acted in a
Speaker 1: number of cities around the country, including almost immediately Los Angeles,
Speaker 1: San Francisco, Portland, Seattle, New York, and others. Others have followen.
Speaker 1: So this is part of a strategy. It should come
Speaker 1: as no surprise to those that have been following the
Speaker 1: industry that these efforts with both the Fast Act and
Speaker 1: unionization are related and well coordinate and part of an
Speaker 1: overall strategy, like I said, for groups to change the
Speaker 1: face of labor in America, starting with restaurants and looking
Speaker 1: obviously at other industries. So you know, it's it's important
Speaker 1: to have that big picture. So not just viewing this
Speaker 1: in isolation and not just thinking that this applies only
Speaker 1: to fast food restaurants, because it does not. Um the
Speaker 1: Fast Act itself. Fast food, you know, has been an
Speaker 1: easy target, as unions found with a Fight for fifteen
Speaker 1: because people generally have a perception about quote unquote fast
Speaker 1: food and their labor practices. And when they're able to
Speaker 1: bring out employees and tell stories about how they can't
Speaker 1: uh you know, make enough you know to know living
Speaker 1: age and so forth, and very emotional and in uh
Speaker 1: in the public connects with that understandably. And so the
Speaker 1: story has been uh hated through the Fast Act that
Speaker 1: the workers in California who work in the quote unquote
Speaker 1: fast food industry need enhanced protection, and that's what this
Speaker 1: Act is professing to provide, you know, by the creation
Speaker 1: of a council uh that will oversee uh, you know,
Speaker 1: labor practices you know, in the state of California, an
Speaker 1: unelected body that will that will do so comprised in
Speaker 1: folks that as a part of an amendment to the
Speaker 1: Fast Act, are going to be appointed by the governor.
Speaker 1: I think it's also important to note that in the
Speaker 1: last couple of years, especially since the pandemic, wages and
Speaker 1: benefits and restaurants in fast food around the country have
Speaker 1: probably never been hired for employees, given UH the lack
Speaker 1: of people returning to the workforce and competitive nature. But nevertheless,
Speaker 1: you know, this is the premise upon which the Act
Speaker 1: been created and promoted and passed by the legislature UH
Speaker 1: this week. So the most significant amendment that was made
Speaker 1: to the fast Act was the removal a joint employer
Speaker 1: liability and and so there were there were two big issues,
Speaker 1: and there's the establsion of the Council which remains, but
Speaker 1: joint employer liability was the one that was the most
Speaker 1: significant concerned especially to the franchise restaurant and industry, because
Speaker 1: essentially what those provisions said that was that the franchise
Speaker 1: award would be responsible for labor code violations committed by
Speaker 1: their franchise eads, amongst other things, which essentially turned the
Speaker 1: whole notion and rule of the separation of liability between
Speaker 1: franchises and franchises for employment related matters absolutely upside down.
Speaker 1: And so from a franchise or perspective, UH, it would
Speaker 1: be very difficult to want to continue doing business in
Speaker 1: California under that construct, given the risk of being liable
Speaker 1: for labor code violations by franchise e for things that
Speaker 1: the franchise arguably has no control over. Now, under the law,
Speaker 1: if a franchise or exercises a certain amount of control
Speaker 1: over the labor practices of a franchise e and actually
Speaker 1: stepped into the role of being a joint employer, that
Speaker 1: could be labinility. And that's that's long standing law. But
Speaker 1: typically the franchise laws UH require the franchise us to
Speaker 1: be responsible for uh, you know, complying with local law
Speaker 1: and in finding their own council to comply with with
Speaker 1: local laws. And so in order to you know, established
Speaker 1: this joint liability, the drafters of the frand Act Fast
Speaker 1: Act made that out of a day a hard coded
Speaker 1: room and so that was eliminated from this Act. Not
Speaker 1: to say it can't come back, because the council has
Speaker 1: the ability that's been established to promulgate new rules. And
Speaker 1: this joint employer liability issue has been uh a hot
Speaker 1: topic for almost a decade. So you know, we're not
Speaker 1: going to see that go away anytime soon, but at
Speaker 1: least for the time being, it was taken out the
Speaker 1: Fast Act. They also made some other adjustments to the Act,
Speaker 1: including changing the original or the previous draft at thirteen
Speaker 1: council members. Uh, you know, this one has ten. There's
Speaker 1: some changes you know to you know, who is on
Speaker 1: on the council. There's there's two representatives from uh fast
Speaker 1: food quota. Because I say fast food, it's fast food
Speaker 1: u uh, not to digress, but fast food is any
Speaker 1: establishment you know, uh, you know that sells food for
Speaker 1: immediate consumption. Two consumers who order or select items and
Speaker 1: pay before eating, with items prepared in advance, including items
Speaker 1: that may be prepared in bulk, they kept hot, or
Speaker 1: with items prepared or heated quickly, or with limited or
Speaker 1: no table service. So those are the criteria for fast food.
Speaker 1: And so a lot of people assume that this applied
Speaker 1: to the just the big chain restaurants, you know. And
Speaker 1: in the language, the new Act changes the number of
Speaker 1: locations earlier draft of thirty nationally, now it's a hundred nashally,
Speaker 1: So a lot of folks assume that it just applied
Speaker 1: to traditional large fast food restaurants, but it also covers
Speaker 1: a whole bunch of other types of restaurants that are
Speaker 1: not necessarily associated traditional fast food, so especially any any
Speaker 1: counter service restaurant UH in the state of California. So
Speaker 1: a lot of fast casual restaurants are going to be
Speaker 1: covered by this UH coffee UH concepts, um, even the
Speaker 1: fat restaurants, and so it hast a much brighter net.
Speaker 1: And it's not just franchise this which is the other
Speaker 1: important station UH, this is effects company owned restaurants that
Speaker 1: meet criteria. Yet there's no representation on the council for
Speaker 1: for people from those companies as of yet, which is
Speaker 1: which is quite interesting and also concerning at the same time.
Speaker 1: In addition, one of the other key changes that was
Speaker 1: put in was the Council has the ability to raise
Speaker 1: the minimum wage in California to up to twenty two
Speaker 1: dollars in our next year and afterwards three and a
Speaker 1: half percent increases each year thereafter for a certain number
Speaker 1: of years. So that's something that was put in there
Speaker 1: that when you think about it, if the council does
Speaker 1: problemly gate bad and now restaurants that meet this quote
Speaker 1: unquote fast food and criteria are required to pay that
Speaker 1: That is going to affect essentially every other restaurant in
Speaker 1: the state of California because very few are paying a
Speaker 1: minimum wage of two an hour, so from a competitive landscape,
Speaker 1: if that happens, they're going to be required to rethink
Speaker 1: their compensation practices. So for that and a number of
Speaker 1: other reasons. Uh, this act affects all restaurants in California
Speaker 1: and every but you should have their eyes on this
Speaker 1: because it's not going away and it's not just staying California. Yeah,
Speaker 1: it's uh, it's really interesting. Um, there's so many, you know,
Speaker 1: things we could talk about in uh in that response.
Speaker 1: Um number one, you know, it's interesting that they're going
Speaker 1: after their fast food because it's probably the easiest to automate. Right. Um,
Speaker 1: but you know, let's kind of I guess moved to
Speaker 1: that that last point you made about the potential in
Speaker 1: our minimum wage and and like you say, all restaurants
Speaker 1: are going to be impacted. And it's not just gonna
Speaker 1: be the hourly workers, right, Like a general manager is
Speaker 1: going to require you know, it's going to want to
Speaker 1: continue to be paid better than the hourly employees. So
Speaker 1: you're gonna have to raise the um salaries for your
Speaker 1: assistant GM and your gms and and everyone down the line.
Speaker 1: You know, people that have been with you for years.
Speaker 1: They isn't fair for them if if their experience and
Speaker 1: very good at what their what they do, and somebody
Speaker 1: had just walks in all the streets making twenty two dollars.
Speaker 1: But you know, by our calculation at twenty two bucks,
Speaker 1: California restaurants are going to have to raise prices to
Speaker 1: maintain profitability, assuming traffic remains flat. And that's not even
Speaker 1: including commodity inflation, which we know is running extremely hot,
Speaker 1: as hot as I've ever seen it. Right, So we
Speaker 1: think traffic gets hard, hits hit hard, requiring price increases
Speaker 1: of over for change that can do it just so
Speaker 1: they can remain profitable, profitable. So how concerned or politicians
Speaker 1: about the inflationary impact of the bill? Right, because it's
Speaker 1: usually low and middle income consumers that are shopping at
Speaker 1: and purchasing food at these types of establishments. Um to
Speaker 1: the politicians understand that that the wage could render many
Speaker 1: restaurants in California unprofitable. Well, uh, politicians in California do
Speaker 1: not seem to really care, because if they did they
Speaker 1: would not have passed this act. These issues have been
Speaker 1: well covered and debated throughout the legislative process, and so
Speaker 1: the current state of politics in California is such that uh,
Speaker 1: anything that is essentially uh, you know, labor driven uh
Speaker 1: is going to stand a much better chance of getting
Speaker 1: past like this then UH, legislation that is grounded in
Speaker 1: business judgment and economics and facts and reality and so um. Naturally,
Speaker 1: nobody wants, you know, from a consumer standpoint, you know,
Speaker 1: from a business standpoint to see you know, mass pricing increases,
Speaker 1: especially in the state of where we are with significant
Speaker 1: inflation and economic uncertainty. UM. But that's where we are,
Speaker 1: and that's the situation that the passage of this act presents,
Speaker 1: and so uh it's going to be really interesting just
Speaker 1: to see how this unfolds um over time, the ramification
Speaker 1: of this. It's it's really hard to wrap your head
Speaker 1: around how many issues this is going to create, because
Speaker 1: there are so many uncertainties left uh, you know, wide
Speaker 1: open that are only going to be uh known through
Speaker 1: the implementation of this. And I think, um your point
Speaker 1: about the substantial price increases and so forth, that's all
Speaker 1: what we've been hearing as well twenty percent or or
Speaker 1: or more, but it's it's really hard to tell. And
Speaker 1: also behind the backdrop of this, California also has probably
Speaker 1: the most complex and expensive and litigious, uh you know,
Speaker 1: labor scheme in terms of class action lawsuits and other things.
Speaker 1: That has been a problem for operating in California for
Speaker 1: many years with wage and our claims, POGA claims and others.
Speaker 1: So you drop this into the suit and you have
Speaker 1: a situation that is very complex and very concerning and
Speaker 1: uh incredibly expensive, which um, the consumer is going to
Speaker 1: ultimately have to pay for the cost of this that
Speaker 1: the employees are as well, because it's going to cost jobs. Uh,
Speaker 1: it's going to cost businesses not to hire to replace
Speaker 1: labor with technology to do the things they've been doing
Speaker 1: over the years, but just on a much more expedited scale. Yeah,
Speaker 1: for sure, a lot of these technologies are going to
Speaker 1: start to have an our r o I at twenty
Speaker 1: two hours an hour. And you know, some of the
Speaker 1: chans we cover, like Tripotle a is um has robots
Speaker 1: that are making tortilla chips and uh, you know Jack
Speaker 1: in the Box is working with automation uh in the
Speaker 1: kitchens as well. These are two companies that that are
Speaker 1: hebably um, that are based out of California and have
Speaker 1: a large percentage of the restaurants in the States, so
Speaker 1: that I guess they've seen this uh coming down the pike.
Speaker 1: But um, you know, I guess getting back a little
Speaker 1: bit to the joint employer provision. You know, why do
Speaker 1: you think that was pulled? I mean, obviously it would
Speaker 1: have been a significant blow to the franchise industry and
Speaker 1: turned decades of contract law on its head. I mean,
Speaker 1: was this the cooler heads prevail? Does this make it
Speaker 1: easier to pass? Was this something that the Governor's office
Speaker 1: kind of required? Correct? From what I understand, the amendments
Speaker 1: are almost all of them that came through came directly
Speaker 1: from the Governor's office, and that was if this is
Speaker 1: going to be passed, that provision needs to be removed.
Speaker 1: And that was, in my personal opinion, absolutely the right
Speaker 1: right thing to do, as flow as the opinion of others.
Speaker 1: Imposing that type of liability on franchise oors would um
Speaker 1: create a situation in California where existing and new franchise
Speaker 1: oars would not do business there and the franchise restaurant
Speaker 1: business in California is such a significant part of the
Speaker 1: California economy, providing a very substantial number of jobs. And
Speaker 1: you know, we had clients reaching out, as as many
Speaker 1: others have over the course of many months, urging the
Speaker 1: removal of this provision. So it's it's good to see
Speaker 1: that it was removed at least for now. Um. But
Speaker 1: as said at the outside of the conversation, this is
Speaker 1: an issue that's been going around for a very long
Speaker 1: time outside of the fast Act, and so you know,
Speaker 1: it's just kind of a wait and see, you know,
Speaker 1: how much, uh or if ever this will return. And
Speaker 1: I know that was a case was brought before the
Speaker 1: n l RB, McDonald's case right during the abomb administration.
Speaker 1: So so I guess is that something you expect the
Speaker 1: n l RB to tackle on a national level. It
Speaker 1: sounds like that's that's probably a better way, uh for
Speaker 1: them to approach it versus you know, harming a state. Um. Yeah,
Speaker 1: I think we may see that being revisited. And I
Speaker 1: don't know if John has anything more current on that,
Speaker 1: but it's it's something you know that's been out there
Speaker 1: for a while. Yeah, it is a it is a
Speaker 1: mechanism that the n LRB likes to likes to challenge
Speaker 1: UM at the behest at the behest of the people
Speaker 1: who file the untre labor practice charges and the election petitions,
Speaker 1: mainly unions UM, in that it it can make it
Speaker 1: easier for the UM for the unions too, uh to
Speaker 1: organize with relatively less effort. Thanks. And uh so it
Speaker 1: sounds like the Governor's office has had had a hand
Speaker 1: in these amendments. So so what are the odds I
Speaker 1: guess where you placing the odds right now that Governor
Speaker 1: knews some signs of bill into law. From what we
Speaker 1: are hearing, the odds are are very high that uh
Speaker 1: government signs it into law. And uh and you know,
Speaker 1: I don't know if I'm off base asking this question,
Speaker 1: but uh, you know, well, us I guess is why
Speaker 1: I have you on here. Well, the fast Stact hold
Speaker 1: up against legal challenges, I mean, do you see any
Speaker 1: potential legal challenges uh to this bill? Yeah, there are
Speaker 1: potential legal challenges the bill. Uh, you know, both the
Speaker 1: establishment the Council and UM the joint and player liability.
Speaker 1: The last several weeks that's been a hot topic. What
Speaker 1: if this passes, will there be a legal challenge. So
Speaker 1: there are potential legal challenges to the bill, and UH,
Speaker 1: I'm not sure if they will be made, but my
Speaker 1: assumption is that there will be uh some some legal challenges.
Speaker 1: And also there's some other potential options UH in California
Speaker 1: that I'm not as well versed in personally as some
Speaker 1: of our government affairs and policy team members are on
Speaker 1: the ground of Sacramento, but includes voter referendum and these
Speaker 1: types of items that you know are a little more
Speaker 1: difficult than time consuming and expensive to make happen, but
Speaker 1: there there are potential options to challenge this. So UM,
Speaker 1: I think for the time being where a wait and
Speaker 1: see mode one. First see if the governor does sign it,
Speaker 1: which we assume he will, and UH then see what
Speaker 1: unfolds O good stuff. And UH do you expect of
Speaker 1: the states to follow suit should the bill get passed?
Speaker 1: And if so, which which one should we keep an
Speaker 1: eye on. We do expect to see similar efforts in
Speaker 1: other states, and this is similar to the fight for
Speaker 1: fifteen as I mentioned in beginning to call. Once California
Speaker 1: does something, UM, it sets the pace for some other
Speaker 1: states in cities, and so we would expect uh, Oregon uh.
Speaker 1: City of Portland, UH, Seattle, State of Washington, UH, New York,
Speaker 1: possibly other states that have been early adopters of UH
Speaker 1: through the Fight for fifteen efforts that have been more
Speaker 1: progressive in these areas, we would expect them to be
Speaker 1: likely candidates for this type of legislation UH uh. And
Speaker 1: we would expect that to be coordinated through those that
Speaker 1: are behind the Fast Act. Who this is. We said,
Speaker 1: this is part of a concerted effort to change the
Speaker 1: face of labor nationally. So those are the easier UH
Speaker 1: targets geographically, and so we would expect those to be
Speaker 1: focused on first, but there are likely other places where
Speaker 1: they have been very active. You know, we're seeing unionization
Speaker 1: efforts in general touch on a few moments and in
Speaker 1: places where we thought they wouldn't occur in Texas, uh.
Speaker 1: You know, and and so we're living in a very
Speaker 1: different world than we were a few years ago in
Speaker 1: terms of how you know, these things can move, you know,
Speaker 1: and you know how quickly they can grant gain the
Speaker 1: ground UH swell of support in these local communities. Great,
Speaker 1: and we're gonna wrap up our discussion about the Fast
Speaker 1: Act UH here. UM, you know, thank you both. So
Speaker 1: much for your time before we go. What's the best
Speaker 1: way for our listeners to contact you? Oh, uh can
Speaker 1: email me. My information is online, as is uh John's.
Speaker 1: I'm Riley Logison, you know at Greenberg Trog. So Riley
Speaker 1: dot loguson at Greenberg Troig and uh John, Yes, Jonathan
Speaker 1: Sack also from Greenberg Trig and my information is online
Speaker 1: and my email is Sack J. S A C k
Speaker 1: J at g T law dot com. Thanks for your time, guys, Yeah,
Speaker 1: thanks Bike