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12 April 20244 minute read

California implements disclosure requirements in response to California Fast Food Act

In response to the recently enacted California Fast Food Franchisor Responsibility Act (Fast Food Act), the California Department of Financial Protection and Innovation (DFPI) is requiring franchisors of national fast food chain restaurants to incorporate disclosures specific to the new law into their franchise disclosure documents (FDDs).

The Fast Food Act (California Assembly Bill 1228, codified at Cal. Lab. Code §§ 1474-1475) establishes a minimum wage of $20 per hour for certain fast food restaurant employees, effective April 1, 2024. It additionally establishes a Fast Food Council (Council), which is charged with developing fast food employment standards over the next five years, including, as appropriate, standards on wages, working conditions, and training to protect and ensure the wellbeing and security of fast food restaurant employees. The Council has the authority to, among other things, raise the minimum wage each year from 2025 to 2028 by 3.5 percent or the consumer price index for the year, whichever is less. The Council had its first meeting in March 2024, but it has not yet issued any proposed employment standards.

Subject to certain exemptions, the Fast Food Act applies to limited services restaurants that are part of a fast food chain of more than 60 units nationally. These restaurants must (1) share a common brand or be characterized by standardized options for decor, marketing, packaging, products, and services, and (2) be primarily engaged in providing food and beverages for immediate consumption on or off-premises with customers generally ordering or selecting items and paying before consuming, and limited or no table service.

The DFPI has advised fast food chain restaurant franchisors to review their franchise systems to ensure compliance with the minimum fast food restaurant employment standards (including standards on wages, working conditions, and training) and to amend their FDDs to reflect any changes that may be necessary to comply with the Fast Food Act. More specifically, according to the DFPI’s guidance, these franchisors should make the following disclosures:

  • In Item 1, franchisors should disclose the Fast Food Act in the section describing laws and regulations specific to the franchise business.

  • In Item 5, franchisors should disclose any additional fees charged to franchisees for initial training, safety, and security measures specific to the Fast Food Act’s requirements and standards.

  • In Item 6, franchisors should disclose costs payable to franchisor or its affiliate for any additional training specific to the Fast Food Act’s requirements and standards.

  • In Item 7, the estimated initial investment should consider costs of any additional training, assistance, and standards implementation related to the Fast Food Act.

  • In Item 11, franchisors should disclose safety measures that franchisees must adopt at their restaurants specific to the Fast Food Act’s requirements and standards.

Franchisors that plan to offer and sell franchises in California are expected to comply with these disclosure requirements in their initial or renewal filings (as applicable). Given that the Council has not issued any employment standards to date, most franchisors will not have implemented new training or policies related to the Fast Food Act. Accordingly, to comply with the DFPI requirements, such franchisors may need to disclose that they are not currently providing assistance or guidance related to the Fast Food Act. However, as the extent and specificity of the disclosures the DFPI expects are somewhat unclear, franchisors that comply with the disclosures above may still expect to receive comment letters from California state regulators regarding these FDD disclosures. As the Council continues to meet and develop employment standards, the extent and scope of the required disclosures will likely evolve.

If you have any questions, or if you would like to discuss how the Fast Food Act may relate to your franchise system, please reach out to the authors or your DLA Piper relationship partner.