Local fast food operators say a new $20 an hour minimum wage could drastically affect business, including the closure of stores.

“Surely, lower performing stores will need to make a business decision as to the viability of continuing or not,” said Ali Nekumanesh, executive vice president of Del Delicious.

However, a local labor leader says the fast food industry is painting a false narrative about the impacts of a higher minimum wage.

“I think it’s pretty common for industry leaders to criticize efforts to bring people out of poverty in their particular industries as job killers,” said Dillon Savory, executive director of the Central Labor Council representing the Fresno region.

In a deal brokered between the fast food restaurant industry and labor, workers will earn $20 an hour. In return, legislators will ease on pushing a proposal that fast food corporations would be responsible for labor violations by franchisees. The bill will still create a joint labor-management council to discuss working conditions.

The move also eliminates a proposed ballot measure next year sponsored by the fast food industry and franchisees, seeking to overturn a state law establishing a stronger state-run council to regulate wages and working conditions.

If signed by Gov. Gavin Newsom, the $20 an hour provision goes into effect on April 1, 2024. Yearly wages after that could increase by 3.5%. The current state minimum wage is $15.50 for most employees. It increases to $16 next year.

Unions Support Change, Franchise Operators Caught Off Guard

Labor union SEIU pushed for the increased wages, and supported the compromise bill.

“Half a million fast–food workers like me will get a raise in a matter of months, and we’ll finally be able to take a seat at the table with our employers to find solutions to low standards and unsafe working conditions that plague our industry,” said labor activist and McDonald’s employee Laura Pozos in a news release. “We look forward to showing the rest of the world what it looks like when fast–food workers step into our power and get to work building an industry that will allow all of our families and communities to thrive.”

JEM Restaurant Management Corporation, which operates 58 stores in California including several Wendy’s and KFC stores in the Fresno area, said the franchisees weren’t part of the deal.

“Franchisees were unaware that this was happening. So it wasn’t a compromise with franchisees,” said Kris Stuebner, JEM executive vice president.

Stuebner estimates the minimum wage hike could cost as much as $150,000 for his company per store.

More Kiosks Likely With Wage Hike

If the minimum wage is $20, Stuebner says, then other employees will have to be paid more as well.

“You can’t have your shift managers or assistants making the same as your team members,” Stuebner said.

Could the fight for $20 backfire?

“We’re looking at automation kiosks. We’re looking at bare minimum staffing now. So, you know, everything’s on the table,” Stuebner said.

Artificial intelligence is also a possibility, he said.

Stuebner hopes to keep stores open but may have to limit hours.

While the new wage won’t immediately apply to Deli Delicious — it has fewer than the 60-store nationwide threshold that triggers the higher wage — it expects changes, too.

“We suspect across-the-board cutbacks on scheduled hours and more automation in certain areas,” Nekumanesh said. “(It will be) far more difficult to recruit and hire staff, who could work for a national firm and start at $20 per hour.”

Stuebner also expects that sit-down restaurants, which are not affected by the law, will face labor shortages.

“The person working at Denny’s making the $15.50 an hour is now going to be coming to the fast food where I’ve got to pay $20 an hour to my team members,” Stuebner said.

Labor Leader Doesn’t Buy Doom and Gloom Scenario

Savory doesn’t buy into the doom and gloom argument from franchisees. Instead, he argues, lifting wages helps workers and the economy.

“These billionaire industry leaders make so much money in profit and they’re not willing to pay their workers a wage that will get them off of government subsidized programs,” Savory said.

Stuebner, the Fresno-based fast food franchisee, counters that his industry was designed as an entry-level employer to provide workers with skills to earn more money later.

“Where’s it going to end? And everybody raises prices. We have to be able to cover the bills. We can’t pay the bills if we don’t raise our prices to pay for the wages.”

Again, Savory isn’t moved.

“The profit margins are so great that they should be able to absorb that without passing it on to the consumer. It’s just another way for them to try to get around losing profits,” Savory said.

Stuebner expects the unions to target other industries next after the fast food win. Retail stores and sit-down restaurants could be next.

“Eight months after this happens, you’re going to see picketing. You’re going to see people going on strike,” Stuebner said. “ Is this going to shake up the entire state? This is what they wanted.”

How Central Valley Voted

The Central Valley delegation split along party lines on the final version of AB 1228.

In the Assembly, Joaquin Arambula, D-Fresno; Jasmeet Bains, D-Bakersfield; and Esmeralda Soria, D-Fresno voted in favor. Jim Patterson, R-Fresno; Devon Mathis, R-Porterville; and Vince Fong, R-Bakersfield voted no.

In the Senate, Maria Alvarado-Gil, D-Jackson; Anna Caballero, D-Merced; and Melissa Hurtado, D-Bakersfield voted yes. Shannon Grove, R-Bakersfield, voted no.