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California’s Tough New Fast Food Wage Law Is Exactly What Business Deserves

The private-sector solution—unionization—is usually preferable to regulation. But the business lobby hates unions more than big government.

Flags in support of the FAST Recovery Act are flown at a rally of fast food workers and supporters outside a McDonalds in the Boyle Heights neighborhood of Los Angeles, California.
Mario Tama/Getty Images
Flags in support of the FAST Recovery Act are flown at a rally of fast food workers and supporters outside a McDonald’s in the Boyle Heights neighborhood of Los Angeles.

California’s new fast food law, the FAST Recovery Act, which regulates wages for workers in the fast food industry, is the latest demonstration that the business world prefers command-and-control government regulation of its labor practices to the market solution of collective bargaining.

This is not a stated preference, of course, and it may not even be a conscious one. Businesses say they hate the FAST Recovery Act, and the fast food lobby is busy collecting signatures to get a repeal measure on the California ballot. (It’s too late for November 5 but not for the next state election.) But there would likely be no FAST Recovery Act if the majority of fast food workers had union contracts, which business hates even more than government regulation. Nationwide, only 3.1 percent of restaurant workers are represented by a union; no occupation tracked by the Bureau of Labor Statistics has a lower unionization rate. Possibly the percentage of California fast food workers is a little higher than 3.1 percent because a higher proportion of California workers are union members (15.9 percent versus 10.3 percent nationally). If so, though, it isn’t by much.

There’s a lot in the new California law for fast food franchisees to hate. It creates a 10-member Fast Food Council empowered to recommend to the state legislature wage floors and other mandatory working conditions. If the legislature fails to respond, the recommendations become law.

Four of the panel’s 10 members will represent industry, and four will represent workers. The other two members will be from California’s Department of Industrial Relations and the governor’s Office of Business and Economic Development. Since labor and management will likely deadlock, any panel recommendations will require assent from the two representatives from government agencies. California hasn’t elected a Republican to statewide office since 2006, so unless I’m missing something, the Fast Food Council will pretty reliably be pro-labor. (The legislature is overwhelmingly Democratic.)

Fast food franchisees often operate on very narrow profit margins driven by excessive demands from corporate fast food franchisors, the real villains in this story, who don’t care that much about franchisee profits because they take their money off the top. These small businesses could use a union themselves, but franchise contracts often forbid them from joining any association that might push back against franchisors. Their ostensible lobby, the International Franchise Association, or IFA, is dominated by McDonald’s and other big corporate franchisors.

But franchisees don’t think of themselves as the proletariat, and they don’t act like it. They got themselves into this mess by resisting union drives, and the broader business community contributed to the mess by supporting government policies to limit union power. The FAST Recovery Act was pushed hard by the Service Employees International Union, which is also behind the Fight for $15 movement to raise the minimum wage at the state level. Like a lot of unions, SEIU has put more energy in recent years into lobbying, because federal restrictions on unions make organizing extremely difficult (though SEIU does that too).

Preservation and enhancement of legal barriers to union organizing are favored strongly by the business lobby. But labor unions like SEIU are invisible fingers on Adam Smith’s invisible hand—invisible to business and invisible even to Smith himself. Permit me, if you will, a digression on The Wealth of Nations (1776).

In a chapter titled “The Wages of Labor,” Smith was dismissive of what today we’d call concerted action (“a contrary defensive combination of the workmen … to raise the price of their labor”). Such concerted action is nowadays typically organized through a labor union. Smith disliked concerted action, but not because it ran contrary to his larger scheme. Rather, he disliked it because it was futile. Collective worker protests, he wrote, were the acts of “desperate men” and were bound to fail because employers could always fall back on “the rigorous execution of those laws which have been enacted with so much severity against the combination of servants, labourers, and journeymen.

Smith was writing in eighteenth-century England, where the law was rigged against workers. Concerted action was a crime, punishable by law. Indeed, any individual worker judged in violation of his employment agreement could be sent to jail. Smith was therefore unable to conceive of a society that would permit—much less protect—concerted action, as ours strives (however imperfectly) to do. In such a society, there’s no reason to judge workers’ collective pursuit of private self-interest any less the benign working of an invisible hand than the capitalist’s individual pursuit of private interest. In a well-functioning economy, both will create prosperity for all.

Back to California. The California Restaurant Association, which lobbied furiously against the FAST Recovery Act, calls itself “union neutral,” taking no position, pro or con, on whether restaurants should unionize. But that doesn’t fool anyone. “The Unions Are Coming to Try to Eat Your Lunch,” blared a CRA announcement for a union-busting seminar in July. “Are You Ready to Refuse Service to Them?” The announcement noted ominously “a dramatic increase in unionization efforts.”

The other organization that lobbied heavily against the California bill was the IFA. Its website’s proposed “Answers to Employee Questions About Unions” furnishes a list of answers intended to discourage organizing efforts. For example, if an employee asks, “Do we need a union here?” the franchisee is advised to “emphasize that the company respects its employees’ rights and will honor its employees’ choice, but that there are important reasons why a union would not be in the best interests of all concerned.”

As is true of a lot of pro-worker state legislation, the FAST Recovery Act has a carve-out for workers covered by a collective bargaining agreement. Workers are exempt from rulings by the Fast Food Council if they’re covered by a collective bargaining agreement that sets the wage minimum at least 30 percent higher than the hourly state minimum (currently $15). But very few such workers exist. Perhaps the FAST Recovery Act, by creating this carve-out for union members, will create more of them.

The U.S. Chamber of Commerce put out a report in 2016 purporting great shock at similar union carve-outs in state minimum wage laws. “Many of the campaigns to increase the minimum wage are led by organized labor,” the Chamber said, continuing:

Nonunionized employers are presented with a dilemma. They can either shoulder increased labor costs or seek to make an accommodation with a union. Organized labor’s hope is that they will choose to unionize.

Well, yes. Unions recognize that government regulation is often a somewhat clumsy tool and that the best way to govern a workplace is usually to have labor and management meet at the bargaining table. If the business lobby feels it’s being subjected to a plague of new state regulations governing workplaces—minimum wage hikes, the California fast food law, state and local limits on “just in time” worker scheduling—it’s only because it’s rejected the much more practical solution, which is collective bargaining.

If Adam Smith were around today, I think he’d tell the Chamber and the CRA and the IFA to remove government from the equation and bargain directly with workers through their union. The FAST Recovery Act is a second-best solution. This is an industry plagued not only by low wages but by wage theft (mostly failure to pay overtime) and unsafe working conditions. The new Fast Food Council will address those problems as well. But what fast food workers need most of all is a union to defend their interests at the ground level.