■Newsom administration denies seeking exemption in new fast food minimum wage law.

■The exemption applies to restaurants with on-site bakeries.

■The exemption is linked to opposition from Panera Bread franchisee Greg Flynn, a Newsom supporter.

SACRAMENTO, Calif. — California Gov. Gavin Newsom’s administration has denied a news report that he pushed for an exception to the state’s new fast-food minimum wage law that benefits a wealthy campaign donor.

California’s minimum wage is $16 per hour. But starting April 1, most fast-food restaurants in the state must pay their workers at least $20 an hour under legislation Newsom signed last year to much fanfare. It doesn’t apply to restaurants that have on-site bakeries and sell bread as a stand-alone menu item.

Unexplained Exception

That exception puzzled some industry watchers and was never fully explained by Newsom or other supporters of the law. But Bloomberg News on Wednesday reported it was connected to opposition from Panera Bread franchisee Greg Flynn, whose company owns 24 of the restaurants in California and has donated to Newsom’s campaigns.

“This story is absurd,” Newsom spokesperson Alex Stack said Thursday.

Flynn said in a statement Thursday that he opposed the initial legislation and suggested fast casual restaurants like bakeries, bagel shops, and delis be excluded “if the intent of the bill was to address alleged labor code violations in fast food restaurants.”

But he denied asking for “an exemption or special considerations” and said he was surprised when the exemption appeared in the final bill. He said he met with Newsom’s staff about the bill alongside other restaurant owners but did not speak to the governor about it.

Donations and Exemptions

The Flynn Group and Flynn Properties operate 2,600 restaurants and fitness centers across 44 states, according to the company’s website. Campaign finance records show Flynn Properties and Greg Flynn — the founder, chairman, and CEO — have donated more than $220,000 to Newsom’s political campaigns since 2017. That included a $100,000 donation to Newsom’s campaign to defeat a recall attempt in 2021.

The governor’s office is now arguing Panera Bread is not exempt from the law.

Stack said to be exempt from the minimum wage law as a bakery, restaurants must produce bread for sale on site. The Governor’s Office said many chain bakeries, such as Panera Bread, mix dough at a centralized off-site location and then ship that dough to the restaurant for baking and sale.

Exemption Controversy

Since last year, Panera Bread has been reported as a restaurant exempt from the law and Newsom’s office has not said otherwise, even when the governor was directly asked why the chain was exempt.

A message left with Panera Bread about their baking process were not immediately returned. Flynn’s statement did not directly address that argument, but he says its likely his restaurants will have to raise wages either way.

“Such a narrow exemption has very little practical value. As it applies to all of our peer restaurants in the fast casual segment, we will almost certainly have to offer market value wages in order to attract and retain employees,” he said.

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Call for Investigation

Republican leaders in the state Legislature highlighted the report and called for an investigation.

“Put simply, campaign contributions should not buy carveouts in legislation,” Republican state Senate leader Brian Jones said. “It’s unacceptable.”

Assemblymember James Gallagher, the Republican leader in the Assembly, said Attorney General Rob Bonta or another entity responsible for investigating conflicts of interest should look into the matter.

“This exemption, there is no explanation for it. Someone had to push for it,” he said.

Bill Author’s Response

The law was authored by Assemblymember Chris Holden, a Democrat from Pasadena. Holden told reporters Thursday he was not involved in the negotiations over the bill’s final amendments, which included the $20 minimum wage increase and the exemption for bakeries. He said those talks happened between the business community and labor unions — groups Holden said were brought together “through the governor’s leadership.”

Holden said he did not know Flynn or his status as a Newsom campaign donor. He declined to discuss if there were any legitimate policy reasons for exempting bakeries from the law.

“I’m not going to try to start parceling every individual group,” Holden said. “The way that the bill moved forward, everyone who’s in is in.”

Compromise and Controversy

The law represented a compromise between labor unions and business groups. Tia Orr, executive director of the Service Employees International Union California, said the law was “a transformational step toward an economy that works for all, not just billionaires.”

“Like all transformational initiatives, it addressed difficult questions around its scope, including what constitutes a fast-food restaurant as opposed to a bakery, for example, and it involved literally hundreds of businesses in discussions,” Orr said. “But the big picture is clear: a half million fast food workers in our state now have the power to improve their workplaces.”

Dan Schnur, who teaches political communications at the University of Southern California and the University of California, Berkeley, said the issue has the potential to damage Newsom, much like when Newsom went to dinner at the French Laundry during the pandemic at a time when he was urging people to avoid public gatherings to prevent the spread of the coronavirus. That issue gave momentum to a recall effort, which voters ultimately rejected.

“The last time the governor got in the middle of a restaurant-related controversy, his hesitation to address it turned a small problem into a much bigger one,” Schur said.

Future Exemptions

Lawmakers are considering more exemptions for the fast-food minimum wage increase. On Thursday, the state Senate approved a bill that would exclude fast-food restaurants in “airports, hotels, large event centers, theme parks, museums, gambling establishments, corporate campuses and certain public lands.”

Holden said workers in these restaurants are attempting to negotiate salaries higher than $20 per hour. He said they were concerned being included in the minimum wage law would hurt those negotiations.