Fast food strike and protest in Minnesota Credit: Fibonacci Blue

In May, McDonald’s workers in 15 cities led strikes to demand a $15 company-wide minimum wage. Fast food workers make just $11.80 an hour or $24,540 a year working full-time, on average, making them some of the lowest-paid workers in America. In California, fast food workers are going a step further. Last month, workers rallied for the FAST Recovery Act, a California bill that would create a council of labor and business interests to set stronger wages and working conditions across the industry. It would also make fast food brands liable for labor violations at all their independently owned franchises.

By holding parent companies accountable and improving labor standards across the industry, this bill would change the nature of competition in fast food. As it stands, strict franchising contracts push franchisees to make profits by squeezing workers’ wages, benefits, hours, and safety, since many other business decisions are out of their control. Setting comprehensive, worker-informed, industrywide labor standards can especially benefit workers in highly fractured industries with low union density, such as fast food—so long as workers do not lose any labor rights in the process (which a sectoral bargaining proposal for New York gig workers threatens to do).

Fast food corporations exploit and abuse workers. California fast food workers are some of the lowest paid in the state, averaging $13.27 an hour. According to the SEIU, more than 70 percent of these workers are people of color. Scheduling can be unstable for working parents, and fast food workers experience exceptional levels of wage theft and other labor violations. Sexual harassment and racism are also rampant, according to worker surveys and Imelda Rosales, who has worked at McDonald’s in the Los Angeles area for 11 years. “So many fast-food workers are afraid to talk about issues in their stores because they are afraid of retaliation,” Rosales said through a translator. Indeed, one survey of female fast food workers found 70 percent suffered consequences for reporting harassment. As the main income provider for her four kids, there have been times when Rosales had to accept any shift McDonald’s offered, take a second job, and work 6 a.m. to midnight seven days a week to support her family.

To understand California’s approach to protecting fast food workers, it’s important to remember how the fast food business model works. Massive fast food chains such as McDonald’s or Domino’s pride themselves in their uniformity globally, but most major fast food chains do not own the bulk of their restaurant locations. Some 73 percent of fast-food workers are employed by franchised chains, meaning independent local business owners hire workers and run the restaurants.

Changes in antitrust law have allowed franchisors to enact tighter contractual control over their franchisees, bringing into question whether these businesses are truly independent. In a sample of franchise contracts examined by Open Markets Chief Economist Brian Callaci, 95 percent dictated what products franchisees could sell, 92 percent set their hours of operation, 83 percent gave franchisors power to withdraw funds directly from the franchisees’ bank account, and 56 percent set maximum and minimum prices. On average, food services franchises also buy 63 percent of their supplies from sources dictated by the parent company.

Under these conditions, Callaci’s research finds that franchisees rely on cutting labor costs to compete with one another. “By removing non-labor variables from the franchisee’s profit-maximizing choice set, vertical restraints compel franchisees to focus on minimizing labor costs and extracting labor effort for their profit margins,” Callaci writes. Indeed, economic studies show that franchised fast-food locations offer lower wages and have more labor violations than locations directly owned by the parent company.

The FAST Recovery Act would disrupt this dynamic. For one, it would hold franchisors liable for labor violations at all their franchisees, forcing the mothership to think twice when drafting contracts that incentivize squeezing workers.

The bill would also create a government-sanctioned council of business representatives and workers to set industry-wide standards for wages, benefits, safety, scheduling, and other working conditions. The council would update fast food workplace standards at least every three years and allow for temporary emergency standards, such as pandemic safety protocol. It would also host hearings every six months for workers to share stories and forbid retaliation by employers. In addition to getting higher pay and more stable hours, Rosales wants the bill to pass to hold employers accountable for sexual harassment and racism. “We could get respect on the job and protection from things like sexual harassment,” Rosales said. “We would have a place to go.”

New York state raised fast food workers’ minimum wage through a similar wage-setting board, and Seattle created a multi-stakeholder board that sets labor standards for domestic workers, including independent contractors. “Sectoral councils are really well suited for industries where unions have little or no density and the structure of the industry is heavily fragmented and makes traditional organizing difficult or impossible,” explains David Madland, senior adviser to the American Worker Project at the Center for American Progress. Only 1.3 percent of all restaurant workers are union members, and even if one fast food location could manage to unionize, that wouldn’t prevent the franchise down the block from undercutting them on wages. “The sectoral council can help ensure that we have competition that’s based on productivity and improving the delivery of services, rather than on squeezing workers,” says Madland. 

It’s worth noting that not all industry standard-setting efforts are created equal. New York legislators recently introduced a sectoral bargaining proposal that, on paper, would allow delivery and ride-hailing gig workers to elect unions to negotiate with tech corporations, such as Uber and Instacart, for industrywide wages and benefits.

However, this proposal also requires gig workers to give up several rights, namely, their right to be classified as employees instead of independent contractors. Creating a legal carve out to permanently classify gig workers as contractors bars these workers from engaging in collective bargaining directly. The bill would also prevent workers from being paid for time spent looking for rides (undermining the value of any minimum wage unions may negotiate). The proposal also includes a no-strike clause and replaces existing state-level unemployment insurance with portable benefits that could be less generous, among many other issues raised by critics.

By contrast, the FAST Recovery Act in California does not preclude fast food workers from forming a union to bargain for benefits beyond the standards set by the sectoral council. The council also would not take away any existing workers’ protections and benefits. The bill has already been passed by the California Assembly Judiciary, Labor and Employment, and Appropriations Committees and awaits floor votes in the Assembly and Senate.

This piece originally appeared in Food & Power.

Claire Kelloway

Follow Claire on Twitter @clairekelloway. Claire Kelloway is a senior researcher-reporter for the Open Markets Institute and the lead writer for Food & Power.