A.B. 1228: Implications for Exempt Employees in the Fast Food Industry

03.20.2024

Signed into law by Governor Gavin Newsom on September 28, 2023, Assembly Bill No. 1228 (“A.B. 1228”) is set to take effect in California on April 1, 2024. A.B. 1228 has been implemented, in large part, in order to increase the minimum wage for non-exempt fast food restaurant employees to $20 per hour, among other developments. In addition to an increased minimum wage for covered non-exempt employees, the fast food industry should brace for the impact of A.B. 1228 on the minimum required salary for employees to be considered exempt under the California administrative, professional, or executive exemptions.

Under existing law, California Labor Code section 515, employees exempt under the administrative, professional, or executive exemptions must be paid a salary of at least twice the state minimum wage for full-time employment. A.B. 1228 provides that “the hourly minimum wage established [by A.B. 1228] shall constitute the state minimum wage for fast food restaurant employees for all purposes under [the Labor Code] and the wage orders of the Industrial Welfare Commission.” (Emphasis added.)

Therefore, it appears that the applicable minimum salary for fast food restaurant employees covered by A.B. 1228 to qualify for the California administrative, professional, or executive exemptions will be $83,200 per year (i.e., 2 x $20 x 40 hours/week, or $1,600/week) come April 1, 2024. The California Labor Commission, also known as the Division of Labor Standards Enforcement (“DLSE”), recently confirmed this interpretation of A.B. 1228 in FAQ No. 15 within its Fast Food Minimum Wage Frequently Asked Questions (https://www.dir.ca.gov/dlse/Fast-Food-Minimum-Wage-FAQ.htm).

Fast food chains, broadly defined as “limited-service restaurants consisting of more than 60 establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services, and which are primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service” will fall under the ambit of A.B. 1228. Based on the DLSE’s response to FAQ No. 6, A.B. 1228 “applies only to employees of fast food restaurants” as defined above. (Emphasis added.) This suggests that employees performing administrative and personnel functions in the company’s corporate office(s) probably do not fall under the new law.

Given the magnitude of A.B. 1228, lobbying efforts are underway to carve out exceptions to the law. Indeed, this is the case with Assembly Bill No. 610 (“A.B. 610”), a related bill pending in the legislature, which was introduced on February 22, 2024. AB 610 seeks to clarify the scope of fast food restaurants and employers covered by A.B. 1228. If enacted, A.B. 610 will immediately exempt the following food service establishments from the industry-specific minimum wage and other standards set forth by A.B. 1228:

Bakeries (i.e., establishments producing bread for sale on premises as a “stand-alone menu item”), though A.B. 1228 already contains a similar exemption; and
Fast food restaurants located within specified:
- Grocery stores
- Hotels
- Event centers (e.g., stadiums, concert halls, convention centers, etc.)
- Theme parks
- Museums
- Casinos
- Corporate campuses
- Public lands

We will continue to monitor this pending legislation. A.B. 610 is listed as an urgency bill, meaning it would become law immediately upon signature by the Governor.

The DLSE has made clear that that the “employer will carry the burden of showing they are not covered by the new law.” Accordingly, national fast food employers with a presence in California should endeavor to familiarizes themselves with A.B. 1228 and ensure compliance with its requirements, particularly with respect to calculating the pay of exempt employees.

As time goes on, there is little doubt that the ripple effects of A.B. 1228 will become known and felt throughout the labor market across different industries, as employers face increased pressure in compensating and retaining their employees. Among other things, covered employers will need to be mindful of the myriad ways that budgets, staffing, and consumer prices will inevitably be affected as a consequence of higher operating costs in California.

Should you have any questions concerning the obligations under A.B. 1228, please do not hesitate to contact the authors or your usual counsel at AALRR for clarification and guidance. With decades of combined experience and extensive knowledge, AALRR attorneys are trusted advisors well-equipped to navigate you through uncharted legal landscapes.