California’s New Wage Law
California is attempting to establish a livable minimum wage for fast food workers by raising the bottom line wage from $15 an hour to $20 an hour for fast food chains with more than 60 locations across the United States.
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Under the new law, certain bakeries and smaller outposts inside grocery stores, airports, and other venues are exempt from paying their employees $20 per hour.
The Struggle Behind the New Labor Law
California’s pay hike came after a contentious deal was struck by labor leaders, including the large Service Employees International Union, and fast-food companies.
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However, this increase has put a strain on some franchise owners, who are now either cutting hours, laying off staff members, or closing their doors.
An Unfortunate Surprise
Fosters Freeze made headlines after the small business owners and managers couldn’t figure out a way to pay their employees the new minimum wage and make a profit.
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The news of the restaurant’s closure made headlines after Monica Navarro, the former assistant general manager, and others showed up to find a note on the door that announced the restaurant had shut down.
Disbelief Among the Staff
Navarro told Fox News that the owner, Loren Wright, had previously told her and other employees that the $20 minimum wage increase for fast food workers was going to be hard on him and the business.
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However, Wright did not tell any other employees that he was going to close the restaurant as soon as the minimum wage went into effect.
Why Did Foster Freeze Close?
Wright disclosed that they saw no alternative due to the financial pressures of the new wage law, making shutting down the Fosters Freeze the “last thing” they wanted to do.
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The restaurant cited its increased labor costs as a deciding factor, despite some ambiguity about the exemption due to the number of locations. “He did blame it on the minimum wage increase,” Navarro revealed.
The Beginning of the End
The Fosters Freeze wasn’t the only restaurant to feel the burden of the new California law. Other small businesses are voicing their concerns about the harm the wage increase will cause for them.
Source: Fosters Freeze/Facebook
Navarro observed a worrying trend of local business closures, stating, “This is not the first business that’s closing … so I feel like this is just the beginning.”
Fosters Freeze Owner Explains Their Decision
Wright talked about his decision to close the location in a text, revealing that he couldn’t raise the wages of his employees without taking a major loss in profit.
Source: Fosters Freeze/Facebook
“Small businesses can’t survive a 120 percent plus min wage increase over the last 10 years,” Wright texted. “We are all more broke than we were 10 years ago. It’s clear raising the minimum wage isn’t helping… I am sad to see my employees off, and sad to see Lemoore off.”
The Uncertainty of the Job Market
Faced with unemployment, many Fosters Freeze employees are feeling the stress of uncertainty in finding new jobs, as each adjustment seemingly halts hiring to accommodate the new wages.
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“We would have rather stayed at the wage that we did have before,” Navarro stated, emphasizing the value of job security over higher pay in uncertain times.
MOD Pizza Closes 27 Stores Before Wage Hike
Fosters Freeze isn’t the only store to close its doors. Mod Pizza, which allows customers to customize their pizzas, has closed 27 restaurants, including 5 in California.
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All of these Mod Pizza locations closed their doors just a few days before California’s minimum wage increase became law, and it came without warning.
Former Employees Speculate the Reasons for the Closures
Former employees report that all these shutdowns occurred simultaneously. Although Mod Pizza has not officially attributed these shutdowns to the minimum wage increase, many employees speculate that it was the cause of the 27 closures.
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The employee told Fox 26 News, “Not directly from corporate, but I do have a feeling it had to do with the $20.00 an hour increase, seeing as they knew it was coming.”
No Notice Before the Closures
One former employee, who asked to remain anonymous because the company had them sign a nondisclosure agreement, said they were unaware that Mod Pizza was closing the doors to their restaurant until two days before their final shift.
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“It saddened me the way things were done,” said a former shift lead. “It was definitely a shock considering that we were told we had job security.”
MOD Pizza's Questionable Decision
According to the California WARN Act, all employers need to be given a 60-day notice that employees will be affected by imminent layoffs. Former MOD Pizza employees said the company did not give any reason or notice that the closures were happening.
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“I love this company. It really sucks. I put, you know, blood, sweat, and tears into this,” said a former employee. “I opened the Fresno location. They closed that location. I helped open this location, and now it’s closed as well.”
MOD Pizza Give Some Employees Severance
While most companies would help their former employees find another job at a nearby location, Mod Pizza did not offer to transfer employees to a different location. Instead, the company gave former employees a couple of thousand dollars in severance.
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This severance could help others as they look for work elsewhere, but the lack of jobs in the fast-food service industry has become a point of stress.
Pizza Hut Also Lays Off Hundreds of Employees
In December, Pizza Hut laid off hundreds of delivery drivers ahead of the wage hike. They chose to switch to apps like Uber Eats and DoorDash.
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Unfortunately, these delivery apps push more delivery fees onto customers, making a $20 pizza cost closer to $40 with a tip.
California's Good Intentions
Fast food jobs are among the lowest-paying jobs in the U.S. economy. While wages have grown in recent years, the pay isn’t enough to justify the increasing inflation and high cost of living across the country.
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These workers are often women, immigrants, and people of color who all live below the poverty line.
California Has the Highest Minimum Wage in the U.S.
California tends to set the pace for the other states in the U.S. when it comes to business decisions. The Golden State has helped citizens by increasing wages in the past, with many counties offering well above the federal minimum wage.
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Currently, the federal minimum wage sits at $7.25 per hour. Since 2009, the federal minimum wage has remained at $7.25 per hour, having been increased from $5.15 per hour.
Good Intentions With Negative Effects
Currently, fast-food restaurants are increasing wages but are reducing the working hours of employed individuals, thus placing a heavier burden on the remaining workforce.
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Many fast food brands and owners anticipated the challenges that California’s attempt to improve worker welfare is facing.
How Fast Food Restaurants Fight Back
It seems that the current economic business landscape was not ready for the increased wages, even if the workers desperately needed it. To combat the wage increase and inflation, California restaurants are raising menu prices (again).
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Other establishments are considering reducing hours of operation or replacing employees with automation.
Skyrocketing Menu Prices
For the stores that are staying open, owners are raising prices to make a profit while paying their employees a proper California wage. According to Kalinowski Equity Research, menu prices at some restaurants have jumped 8 percent.
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Leading the price hike is Wendy’s at 8 percent. Starbucks and Chipotle have both raised their menu prices by over 7 percent.
The Price Hikes Were "Entirely Predictable"
The California Restaurant Association told NCB Los Angeles that the reaction to the minimum wage increase was “entirely predictable.”
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“Since it took effect, job losses, reduced working hours, restaurant closures, and higher prices for California’s inflation-weary consumers have been ongoing,” the group said.
Consumers Feel the Affects
Now, Californian consumers are feeling the effects on their wallets. “I used to pay $10. Now it’s $13. Over time that’ll be like $6 more or $9—it just keeps going,’ Owen Peralta, a Chipotle customer in Brea, said.”
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Owens continued: “If I’m going to start paying restaurant prices, then I’m going to have to go somewhere else.”
Two California Cities Raised Wages Before the Law
While many Republicans in California have come out against this brand new minimum wage law, arguing that the state should focus on lowering the cost of living and increasing job opportunities, many cities are taking wage laws into their own hands.
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San Francisco and Los Angeles have already raised their wages before the law took effect, given the high cost of living in those cities.
The Consequences of California’s Good Intentions
The closure of Fosters Freeze could mark a dangerous trend for how we talk and address minimum wage laws and their effects on jobs and the economy.
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California has proved time and time again that good intentions in lawmaking could lead to complicated results in the real world.