Catie Moore
California’s small business landscape is seeing major changes with the recent passage of the FAST Act. This legislative measure, introduced by Assembly member Chris Holden as Assembly Bill 1228, addresses significant labor issues by establishing the “joint employer standard.”
Experts, such as those at Franchise.Law, highlight that this new standard holds large corporations accountable for labor violations within their franchise locations, including poor working conditions and unpaid wages. Aimed at enhancing worker protections, the FAST Act compels parent companies to take greater responsibility for franchisee operations, reshaping labor standards across the state.
A Typical Case Study
Scott McDonald is a second-generation small business owner based in California. He operates ten fast-food franchises in the San Francisco Bay Area, providing jobs for over 100 people, including first-time job holders, new immigrants, and disadvantaged youths. His family business has been running for thirty years, but recent developments may force significant changes, as he just signed a deal to run nine stores in Nevada—a neighboring state.
The FAST Act
In 2022, California lawmakers passed the FAST Act, which affects approximately 14,000 businesses, primarily in the fast-food industry. This Act grants an unelected board the unilateral authority to set labor rules, including a significant increase in the minimum wage.
This legislation applies to fast-food establishments, affecting small business owners and franchisees like Scott McDonald. It does not extend to unionized businesses, which has led to concerns about potential pressure for franchisees to unionize.
Who Authored the Act, and What Does It Say?
Assembly member Chris Holden authored the Act, introducing Assembly Bill 1228. It focuses on the “joint employer standard,” aiming to hold larger companies responsible for their franchisee’s operations to end labor violations. Critics argue that the fast-food industry accounts for a relatively small percentage of California’s wage claims, suggesting that the legislation may unfairly target specific businesses while failing to address wage issues across other industries.
Opponents warn that enforcing this standard could increase operational costs for franchises, potentially leading to higher consumer prices and reduced job opportunities within the sector. Supporters, however, view it as a necessary step to ensure fair labor practices and hold corporations accountable for working conditions at all levels of their operations.
The Challenge Posed By the Act
While the Act’s intention may be to curb labor violations, it presents challenges for small businesses. Many franchisees are concerned about the potential consolidation of power under a few corporate entities. Joint liability could lead to administrative and litigation costs, impacting already narrow profit margins.
Additionally, some larger companies may opt for a corporate ownership model in California, potentially limiting opportunities for small business owners.
Benefits for Franchisees under the FAST Act
Despite its challenges, the FAST Act also offers various advantages for franchisees. It creates a more compliant and robust franchise network, creating a win-win situation for both franchisees and franchisors.
One notable benefit for franchisees is the increased emphasis on labor standards and working conditions. The Act sets a higher bar for larger franchisors to ensure that their franchisees maintain fair labor practices. This translates to improved working conditions, better wages, and job security for franchisee employees.
Additionally, the FAST Act introduces more transparency into the franchising relationship. Franchisees can expect better communication and access to vital information, which can be invaluable for managing their businesses effectively.
Conclusion
The recent passage of the FAST Act in California, introducing the “joint employer standard,” has undeniably presented significant challenges for small business owners and franchisees. While the intention behind this legislation is to address labor violations and ensure fair working conditions, it has raised concerns about potential power consolidation and increased costs for franchisees.
“On the brighter side, the FAST Act not only ensures a more compliant and robust franchise network for franchisees, but it also offers opportunities for market expansion and more efficient franchise management to franchisors. By embracing these opportunities, both parties can thrive and strengthen their presence in California,” says Attorney Jonathan N. Barber of Franchise Law.
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