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California's New $20 Fast Food Minimum Has Immediate Impact as Franchisees Are Forced Into a Bind

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Editor’s Note: Our readers responded strongly to this story when it originally ran; we’re reposting it here in case you missed it.

Lawrence Cheng, whose family owns seven Wendy’s locations south of Los Angeles, took orders at the register on a recent day and emptied steaming hot baskets of French fries and chicken nuggets, salting them with a flourish.

Cheng used to have nearly a dozen employees on the afternoon shift at his Fountain Valley location in Orange County.

Now he schedules only seven for each shift as he scrambles to absorb a drastic jump in labor costs after a new California law boosted the hourly wage for most fast food workers on April 1 from $16 to $20 an hour.

“We kind of just cut where we can,” he said. “I schedule one less person, and then I come in for that time that I didn’t schedule and I work that hour.”

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Cheng said he hoped the summer — when business is traditionally brisk with students out of school and families traveling or spending more time eating out — would bring a better profit to help cover the added costs.

Joseph Bryant, executive vice president of the Service Employees International Union, which pushed for the raise, claimed not only that the industry has added jobs under the new law but that “multiple franchisees have also noted that the higher wage is already attracting better job candidates, thus reducing turnover.”

But many major fast food chain operators say they are cutting hours and raising prices to stay in business.

“I’ve been in the business for 25 years and two different brands, and I never had to increase the amount of pricing that I did this past time in April,” said Juancarlos Chacon, an owner of nine Jersey Mike’s in Los Angeles.

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A turkey sub for under $10? It’s now $11.15.

While customers are still coming in, he’s seeing them cut back — no drinks, no chips, no dessert.

Since the chain’s core business is lunch, Chacon has reduced staffing in the mornings and evenings. He also has cut a few part-time employees, going from 165 total to about 145.

It wasn’t only entry-level workers that got a pay raise. Shift leaders, assistant managers and everyone else up the ladder had to get raises too, and labor represents about 35 percent of his costs.

“I’m very nervous,” Chacon said.

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Jot Condie, president and CEO of the California Restaurant Association, which opposed the minimum wage bill, said businesses are simultaneously feeling the squeeze from rising rents and food costs.

“When labor costs jump more than 25 percent overnight, any restaurant business with already-thin margins will be forced to reduce expenses elsewhere,” Condie said. “They don’t have a lot of options beyond increasing prices, reducing hours of operation, or scaling back the size of their workforce.”

Aaron Allen, founder and CEO of a global restaurant consulting firm, said he has received panicked calls from California restaurant operators and suppliers who are still recovering from the COVID-19 lockdown.

He predicted a growing divide between corporations such as McDonald’s that have money to invest in automation and reduce costs through “menu reconfiguration” and “smaller, more regional chains that might go under or face a major reduction in stores.”

Cheng said he has no plans to lay off any of his 250 Wendy’s workers and instead has turned to cutting overtime and reducing the number of workers on each shift. He also raised menu prices by about 8 percent in January in anticipation of the law.

Still, he said his books show that he was $20,000 over budget for a two-week pay period.

Julieta Garcia, an employee at a Pizza Hut in Los Angeles for a little over a year, said she’s now working five days instead of six. But that’s not a bad thing, she said, since she can spend more time with her 4-year-old son.

The extra money means she can pay her cellphone bill on time, instead of having to turn off service, and take her son to get his tonsils checked out, Garcia said.

Enif Somilleda, a general manager at a Del Taco in Orange County, said she used to have four people working per shift. She now has only two.

“Financially it has helped me,” Somilleda said. “But I have less people so I have to do a lot more work.”

The Western Journal has reviewed this Associated Press story and may have altered it prior to publication to ensure that it meets our editorial standards.

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