A California law raising the minimum wage of fast food workers to $20 an hour took effect on Monday, immediately taking a bite out of the bottom line of several major restaurant chains. Facing as much as a 25 percent increase in salary costs, franchises including Starbucks, McDonald’s, and multiple pizzerias are laying off hundreds of employees, slowing hiring, and cutting back on hours for the workers who remain.

Under the Fast Food Accountability and Standards (FAST) Recovery Act, fast food chains with 60 or more locations in the state of California (counted across individually owned franchises) are obligated to abide by the new wage laws. The previous average salary for food service workers in the state was $16.

According to The Wall Street Journal, pizza franchises were the hardest hit by the new salary requirements, leading to hundreds of job cuts ahead of the bill taking effect yesterday. In December, Pizza Hut informed more than 1,200 employees that they would be let go at the end of February, as did Southern California Pizza Co.

Both chains eventually discontinued delivery services in California altogether to cut the necessary number of jobs. Round Table Pizza, Excalibur Pizza LLC, and other pizza chains similarly announced impending job cuts, most of them for delivery drivers.

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“The franchisee is transferring their delivery services to third-party. While it is unfortunate, we look at this as a transfer of jobs,” said a statement from Round Table’s parent company. “As you know, many California restaurant operators are following the same approach due to rising operating costs. We anticipate third-party delivery providers in turn will see a boost in their businesses, which will require additional staff on their end.”

The new minimum wage laws also extend beyond the pizza industry, encompassing any businesses that “feature ice cream, coffee, boba tea, pretzels, or donuts,” as well as any that provide sweets and drinks, meaning McDonald’s, Auntie Anne’s Pretzels, Starbucks, and Cinnabon, must increase pay as well.

A California law raising the minimum wage for fast food workers to $20 an hour took effect on Monday, taking a bite out of the bottom line of major chains.
(AP Photo/Damian Dovarganes, File)

However, a bizarre carveout was included in the bill exempting any restaurants that “bake bread and sell it as a standalone item.” Greg Flynn, a multi-billionaire restaurant franchisee with a monopoly on Panera Bread locations in California, was the primary beneficiary of this provision, raising questions about the legality of the law given his close ties to state Governor Gavin Newsom.

Related: Panera Bread Exempt from California $20 Minimum Wage After Owner Donates to Gavin Newsom

Newsom has since denied any impropriety and further claimed that Panera Bread will not benefit from the exemption.

Across all franchises, owners expressed concerns about passing higher costs on to customers, particularly in light of already-increased costs from inflation. As a result, substituting automated processes and outsourcing delivery work has become the most straightforward cost-cutting measure.

“I can’t charge $20 for Happy Meals. I’m leaving no stones unturned,” said Scott Rodrick, owner of 18 McDonald’s restaurants in Northern California.

“Restaurants are struggling to stay above water, and Democrats just threw them an anvil,” California Assembly Republican leader James Gallagher told FOX Business. “We warned Democrats this new mandate would cost jobs. They ignored us, and here we are with the highest unemployment rate in the country poised to get even worse.”

Connor Walcott is a staff writer for Valuetainment.com. Follow Connor on X and look for him on VT’s “The Unusual Suspects.”

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