Fast food franchise owners consider raising prices due to new $20 minimum wage

ALAMEDA, Calif. - Fast food workers in California received a pay raise Monday, as a new law took effect that sets a $20 hourly minimum wage for workers at large chains.

The new law applies to some 500,000 California employees at fast food chains with more than 60 restaurants.

It also creates a new fast food council, made up of industry and union representatives, to address future wages and working conditions.

UC Berkeley labor expert Ken Jacobs says research shows historically, employment has not decreased during past minimum wage hikes. Jacobs says the fast food industry has been shown in research to have a downward pressure on industry wages.

"In the franchise model, we see higher numbers of health and safety violations, obviously very low wages," Jacobs, Co-Chair of the UC Berkeley Labor Center said. "A vast majority are adults, about a quarter have children of their own, and the pay is so low right now, that one half of all fast food workers in the state either themselves or have a family member relying on our social safety net programs."

Some major chains, including McDonald's, Chipotle, Starbucks, Jack-In-the-Box & Shake Shack say they will have to increase prices.

Alex Johnson owns ten Bay Area Auntie Anne's and Cinnabon stores. He says the timing is terrible.

"We have soft sales. We have declining traffic counts. So for a business owner, I mean, that's the worst time to have to raise prices, but I see it as a necessity," Johnson said. "I want to do right by my employees, and  want to pay them as much as I can, but this bill, AB 1228, has really hit our operations hard. We're no longer hiring. We're not back-filling positions,"

Another franchise group owner, Harsh Ghai, agrees. He is California's largest operator of Burger King restaurants. His franchise group owns 200 restaurants, which includes some Taco Bell locations.

"We did...close eight restaurants last year, because of profitability issues across the state. And we anticipate closing at least six more restaurants," Ghai said.

Ghai says franchise owners were left out of the bill negotiations.

"There were no franchisees, no employers actually involved in those conversations," Ghai said.

Jacobs says the chains could easily reduce fees for franchisees to minimize the impact.

"The ten largest fast food companies had $6.1 billion in stock buybacks in 2023. It's an extraordinary amount of money," Jacobs said.

Michael Grandi of Oakland said he supports the pay increase for workers and wouldn't mind paying a little more if menu prices rise.

"I'd pay a dollar more to have that," Grandi said. "It's so expensive to live here in the Bay Area, so if you can't afford rent, then you can't afford to work in these places."