With one day left to spare before the deadline to introduce new bills, on February 16, 2023, California Assemblymember Chris Holden (D-41) introduced Assembly Bill 1228, the “Fast Food Franchisor Responsibility Act.”  This bill would, among other things, impose joint employer liability on fast food franchisors for the acts of their franchisees.

The introduction of this bill comes on the heels of the California Secretary of State’s certifying a ballot referendum on earlier-passed (but delayed) legislation, the “Fast Food Accountability and Standards Recovery” or “FAST” Act (AB 257), which potentially creates the nation’s first statewide Fast Food Council to regulate California’s fast food industry.  In the weeks leading up to passage of the bill last year, significant negotiating took place in the state capitol to amend the law in order to get it passed in both houses and signed by the governor (93 amendments to be exact.)  Arguably the most important change to emerge from this legislative tussle was the removal of a provision in the bill that would have allowed joint employer liability of a fast food franchisor for the acts of a fast food franchisee.  Opponents of the law are engaged in an effort to repeal the measure by way of a statewide referendum. To that end, the FAST Act will be on the November 2024 ballot, much to the chagrin of organized labor and the legislative members who drafted the bill. 

With the FAST Act on hold for the next year and a half, the state legislature is revisiting the issue of joint liability in the fast food industry by way of AB 2188. Among other things, the bill addresses:

Joint Employer Liability. AB 2188 would add a new provision to the Labor Code, Section 2810.9, which would provide that a fast food franchisor would share civil legal responsibility and civil liability for its franchisee’s violations of:

• The Fair Housing and Employment Act;
• California’s Unfair Competition Law;
• Multiple California Labor Code provisions regarding wages, hours, and working conditions, including but not limited to: payment of wages, paid sick days, assignment of wages, gratuities, and working hours (overtime, alternative workweeks, meal and rest break, etc.);
• California Labor Code provisions regarding immigration status and contracts against public policy;
• CalOSHA rules and general sanitation and health standards;
• The Private Attorneys General Act (PAGA);
• Executive and Emergency Orders issued by the governor regarding employment standards, worker health and safety and public health and safety; and
• Orders issued by a county or municipality regarding employment standards, worker health and safety and public health and safety.

Right to Cure. Under the bill, a franchisor would have 30 days to “cure” a violation of the above laws before any civil action could be filed (extended to 60 days if the franchisor makes a written request to the issuing party for additional time to complete an investigation).  In order to “cure” a violation, a franchisor must:

• Abate every violation alleged;
• Ensure that its franchisee is in compliance with all laws, orders, rules and regulations stated in the violation notice; and
• Make whole any fast food restaurant worker who complained about the violation.

Franchise Contract Terms May Violate Public Policy. The bill specifically prohibits contracts between a franchisor and franchisee to negotiate indemnity agreements pertaining to the terms of this proposed Labor Code section; any agreement that shifts liability from a franchisor to a franchisee would be void and unenforceable.  In addition, if the terms of the franchise create a “substantial barrier” to the franchise’s compliance with this law (e.g., the franchise does not provide for funds sufficient to allow the franchisee to comply), then the franchisee may sue the franchisor for monetary or injunctive relief in order to ensure compliance.  Finally, there is a rebuttable presumption that any changes to a franchise contract that increases costs of the franchise is automatically seen as creating a “substantial barrier to compliance,” and would thus allow the franchisee to sue for monetary and injunctive relief.

Notably, this law does not sunset, unlike the FAST Act itself, which would sunset in 2029.  Therefore, even if the FAST Act no longer exists after its retirement date in 2029, joint employer liability could still remain in effect indefinitely for fast food franchisors under this law as currently written.

The International Franchise Association (IFA) quickly expressed its opposition to the measure, noting:

HB 1228 will close the door to opportunity and send aspiring entrepreneurs who want to open a business for themselves but not by themselves to another state. The International Franchise Association will not stop fighting to protect the thousands of small business owners, their employees, and their customers that California is trying to bring down.

WPI will continue to monitor the progress of this legislation and will keep readers apprised of relevant developments.