CA Legislature Roasts Small Business

By The Wall Street Journal Editorial Board

California is a leading exporter of progressive policy and businesses. So it’s worth paying attention to a bill heading to the Governor’s desk that would let the government fix fast-food worker wages and micromanage restaurants. Sayonara, McDonald’s dollar menu.

The bill passed by the Democratic Legislature this week creates a 10-member council appointed by the Governor and state legislative leaders with nearly carte blanche authority to fix wages, benefits and working conditions at most fast-food restaurants. This is a recipe for higher restaurant prices and lower business and job growth

The state’s $15 an hour minimum wage is already among the highest in the U.S., but the council could raise it as high as $22 next year and an additional 3.5% every year after that. It could also require that employers provide paid vacation or “protest days” off as some tech companies do. A bill establishing a 32-hour work week stalled in the Legislature this year, but the council could impose one for fast-food workers. Its orders would take effect without even a rubber stamp by the Legislature. Democrats have delegated sweeping powers to avoid political accountability.

Democrats pretend they’re not char-broiling small businesses since only restaurants that are part of chains with 100 or more establishments nationwide are covered by the law. But this includes some 16,753 franchise locations in the state run by 5,820 franchisees—that is, small businesses.

The Service Employees International Union championed the bill because it will help extort fast-food employers. Restaurants with collective-bargaining agreements that pay 30% more than the state minimum wage are exempt from most of the council’s orders, so owners would have an incentive to surrender to the union to avoid more costly regulation and potential lawsuits by the state Labor Commissioner.

Restaurants will almost certainly be forced to raise prices to the extent they can to cover higher labor costs. But most fast-food customers aren’t wealthy, so some restaurants may reduce worker hours or lay off employees. Those in lower-income areas may close. A University of California, Riverside study found that the state minimum-wage hike last decade had a much larger negative jobs impact on restaurants in low-income areas where restaurants couldn’t easily pass on the costs to customers.

“Even during this time of historic prices, we have resisted price increases on our customers because we know they can’t afford it,” says Jesse Lara, an El Pollo Loco franchisee in southern California. If the fast-food bill “becomes law, small businesses like mine will face no choice but to raise prices to stay afloat or be forced to shut our doors.”

The economic damage will extend beyond fast food since other businesses such as hotels, retail and food delivery services compete with restaurants for workers. Their extra labor costs will also be passed onto consumers.

Gov. Gavin Newsom is expected to sign the bill, which he hopes will build his progressive brand for a presidential run in 2024. He shouldn’t be surprised if more businesses close or leave the Golden State.