Bay Area Auntie Ann’s Mogul estimates California’s new $20 minimum wage will cost him $470,000 per year
Most fast food workers in California will be paid at least $20 an hour beginning Monday when a new law is scheduled to kick in giving more financial security to an historically low-paying profession while threatening to raise prices in a state already known for its high cost of living.
Democrats in the state Legislature passed the law last year in part as an acknowledgement that many of the more than 500,000 people who work in fast food restaurants are not teenagers earning some spending money, but adults working to support their families.
That includes immigrants like Ingrid Vilorio, who said she started working at a McDonald’s shortly after arriving in the United States in 2019. Fast food was her full-time job until last year. Now, she works about eight hours per week at a Jack in the Box while working other jobs.
“The $20 raise is great. I wish this would have come sooner,” Vilorio said through a translator. “Because I would not have been looking for so many other jobs in different places.”
The law was supported by the trade association representing fast food franchise owners. But since it passed, many franchise owners have bemoaned the impact the law is having on them, especially during California’s slowing economy.
Alex Johnson owns 10 Auntie Anne’s Pretzels and Cinnabon restaurants in the San Francisco Bay Area. He said sales have slowed in 2024, prompting him to lay off his office staff and rely on his parents to help with payroll and human resources.
Increasing his employees’ wages will cost Johnson about $470,000 each year. He will have to raise prices anywhere from 5% to 15% at his stores, and is no longer hiring or seeking to open new locations in California, he said.
“I try to do right by my employees. I pay them as much as I can. But this law is really hitting our operations hard,” Johnson said.
“I have to consider selling and even closing my business,” he said. “The profit margin has become too slim when you factor in all the other expenses that are also going up.”
Over the past decade, California has doubled its minimum wage for most workers to $16 per hour. A big concern over that time was whether the increase would cause some workers to lose their jobs as employers’ expenses increased.
Instead, data showed wages went up and employment did not fall, said Michael Reich, a labor economics professor at the University of California-Berkeley.
“I was surprised at how little, or how difficult it was to find disemployment effects. If anything, we find positive employment effects,” Reich said.
Plus, Reich said while the statewide minimum wage is $16 per hour, many of the state’s larger cities have their own minimum wage laws setting the rate higher than that. For many fast food restaurants, this means the jump to $20 per hour will be smaller.
The law reflected a carefully crafted compromise between the fast food industry and labor unions, which had been fighting over wages, benefits and legal liabilities for close to two years. The law originated during private negotiations between unions and the industry, including the unusual step of signing confidentiality agreements.
The law applies to restaurants offering limited or no table service and which are part of a national chain with at least 60 establishments nationwide. Restaurants operating inside a grocery establishment are exempt, as are restaurants producing and selling bread as a stand-alone menu item.
At first, it appeared the bread exemption applied to Panera Bread restaurants. Bloomberg News reported the change would benefit Greg Flynn, a wealthy campaign donor to Newsom. But the Newsom administration said the wage increase law does apply to Panera Bread because the restaurant does not make dough on-site. Also, Flynn has announced he would pay his workers at least $20 per hour.
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Beam reported from Sacramento, California.
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