Rising Minimum Wage Triggers Workforce Changes and Job Cuts
Nearly 1,300 Pizza Hut delivery drivers in California are being laid off before the state’s minimum wage rises from $16 to $20 per hour for fast-food workers, Business Insider, USA Today and CBS News have reported. Two major Pizza Hut franchisees have filed notices of the layoffs in advance of AB 1228 taking effect on April 1, 2024; AB 1228 repealed the previously passed and signed FAST Act while implementing similar provisions.
The fast-food industry represents a major economic segment in California. It leads the U.S. in total fast-food eateries, with more than 30,000 total, according to Statista.com.
Franchisees Issue WARN Notices
PacPizza LLC, which operates a large number of Pizza Huts in the Golden State, stated in a Worker Adjustment and Retraining Notification (WARN) Act notice that the company was ending first-party deliveries and, as a result, would eliminate all delivery driver positions, Business Insider said. PacPizza’s layoffs will hit about 1,200 drivers, CBS said in a report.
Southern California Pizza Co., another Pizza Hut franchise operator with dozens of sites, also has issued a WARN notice that it will end delivery services. CBS said Southern California Pizza Co. had employed 841 drivers.
WARN filings are legally required in California when a company will undertake mass layoffs or will close a plant. The layoffs will mean job losses for drivers all over the state, including Los Angeles, Orange, Riverside, San Bernardino and Ventura counties along with the cities of Sacramento and Palm Springs, USA Today reported.
Statement from Parent Yum! Brands
Pizza Hut, which is owned by the umbrella franchisor Yum! Brands (its other restaurant brands include Taco Bell), told Business Insider that its “franchisees independently own and operate their restaurants in accordance with local market dynamics.” California’s FAST Act, which passed in 2023, will trigger the pay jump for an estimated 557,000 fast-food workers at the state’s quick-service restaurants.
Once the layoffs are completed, probably by the end of February, customers will have to use app-driven third-party delivery services such as DoorDash, GrubHub and Uber Eats for deliveries from restaurants owned and operated by these two franchises.
Menu Prices to Rise
In its report, Business Insider quoted restaurant-industry analyst Mark Kalinowski as saying he anticipates other California fast-food establishments will raise prices and fire employees “to blunt the impact of higher labor costs” required by the new law. The International Franchise Association (IFA) and fast-food franchisees had predicted that AB 1228 and its predecessor, the FAST Act, would result in higher menu prices and job losses.
Franchises such as Pizza Hut, Chick-fil-A and McDonald’s, with support from the IFA, had fought to derail passage of the FAST Act for many months. McDonald’s and Chipotle, which is not a franchise but also is affected by AB 1228, have said they will increase menu prices to counter the rise in the minimum wage.
Other Impacts of AB 1228
The provisions of AB 1228 represent a compromise between California unions and the fast-food industry, which had forced a showdown by gathering enough signatures to put the FAST Act on a ballot referendum in 2024. IFA and other trade associations and industry groups had spearheaded the ballot push.
In addition to next year’s pay boost, AB 1228 also established a Fast-Food Council made up of nine voting members, including fast-food workers, fast-food industry representatives, franchisees and one unaffiliated member of the public, plus two non-voting members who will weigh in on workers’ health and safety issues. This council also will oversee policies on training and working conditions for fast-food employees.
