The Impact of California’s $20 “Fast Food” Minimum Wage on Restaurant Managers

08.22.2024

Introduction

California’s minimum wage increased by 25% to $20 per hour on April 1 for limited-service restaurants with at least 60 locations in the U.S. Little attention has been paid to a part of the law that will cause thousands of managers in these businesses to lose their exempt status and may increase wage and hour lawsuits against these businesses. The law raised the salary threshold from $1,280 to $1,600 per week for limited-service restaurant managers to be exempt from California’s wage and hour laws if they work in businesses with at least 60 locations.[1] This article explains that about one eighth of the approximately 49,500 limited-service restaurant managers in California were directly affected by the new law because they were earning salaries less than $1,600 per week in larger restaurant chains at the time the law was enacted. The article also explains how the higher salary threshold is expected to have indirect effects on restaurant managers not directly impacted by the new threshold and how this may raise meal prices for California consumers.

One-Eighth of Limited-Service Restaurant Managers Were Directly Impacted by the New Salary Threshold

I estimate there were about 49,500 managers employed in limited-service restaurants in California when the new salary threshold was enacted.[2] In addition, just under half of California restaurant managers were paid a salary rather than by the hour when the law was enacted.[3] Managers paid by the hour are expected to be non-exempt from California’s wage and hour laws. Using the same data I estimate that about one quarter of limited-service managers in California were paid a salary below $1,600 per week (inflation-adjusted) at the time the new salary threshold was enacted. However, not all these managers are subject to the new salary threshold because some work in businesses with fewer than 60 locations.

A recent article by Xiaofan Liang and Clio Andris of Georgia Tech University identified “chain” restaurant businesses that operate multiple locations in the U.S.[4] These researchers provided a list of restaurant chains with at least 60 locations in the U.S. Examination of restaurant websites and other online sources indicate that 228 businesses, with 60 or more national locations, operate 49.5% of the limited-service restaurants in California. If about one-half of limited-service restaurant managers in California are employed by these larger restaurant chains, about one-eighth of all limited-service restaurant managers (or about 6,100 managers) earned less than $1,600 per week and were employed by businesses with at least 60 locations in the U.S. when the new threshold was enacted.

To summarize, about one-eighth (6,100) of the 49,500 limited-service restaurant managers in California were directly impacted by the new salary threshold because about one-half of managers were already paid the hour, about one-half work for businesses with fewer than 60 locations, and about one-half already earned more than $1,600 per week.

Expected Economic Impact of the Law for Limited-Service Restaurant Managers in California

Unlike the $20 minimum wage for hourly workers, the $1,600 per week salary threshold does not require limited-service restaurants with 60 or more locations to pay higher salaries to their managers. The law only requires that managers who earn a salary of less than $1,600 per week in these establishments be non-exempt from the overtime, meal and rest break, and other provisions of the California Labor Code for wage earners despite their managerial duties. Managers in these establishments earning just below $1,600 per week may have received a slight increase in their salary to maintain their exempt status. However, the average manager directly impacted by the law was earning at least 15% less than the new salary threshold and was likely re-classified as an hourly non-exempt manager due to the law.

In addition to the 6,100 limited-service restaurant managers directly affected by the new salary threshold, many other managers will be indirectly impacted by the law. For example, some restaurant chains may pay more experienced managers in some locations more than $1,600 per week while paying salaries below the new threshold to less experienced managers in other locations. While some restaurant chains may choose to classify some managers as salaried and exempt and others as hourly and non-exempt depending on their experience and level of compensation, it seems more likely that restaurant chains will choose the same classification for all their managers to avoid the administrative costs of different pay systems depending on the experience of the manager of a specific location. Restaurant chains that pay their least experienced managers less than $1,600 per week may therefore re-classify as non-exempt their more experienced managers who earn more than $1,600 per week threshold.

About half of the limited-service restaurants in California are subject to the $20 minimum wage and the new higher salary threshold for managers. The establishments subject to these new mandates operate as part of the more than 220 limited-service restaurant chains in California with 60 or more locations nationwide. Many of these establishments are not operated by the national restaurant chain but instead by small business owners who operate one or more franchise locations.

The businesses targeted by the new law will face higher labor costs due to the $20 minimum wage for hourly employees and higher compliance and expected legal costs from the likely increase in wage and hour class actions and Private Attorney General Act (PAGA) litigation involving their managerial staff. When the law was enacted, about half of limited-service restaurant managers were already paid by the hour in California despite their managerial duties. As California’s minimum wage for limited-service restaurants increases, a growing percentage of the managers of these establishments will be non-exempt from California’s wage and hour laws and contribute to the growth in wage and hour litigation in the state.[5] Customers of limited-service restaurants in California should expect higher meal prices due to both the 25% increase in the minimum wage and the higher compliance and expected legal costs as more employees in these businesses are subject to California wage and hour laws.

Conclusion

The $20 minimum wage and higher salary threshold for the exempt status of managers result in a competitive disadvantage for limited-service restaurants in California that are part of a restaurant chain with 60 or more locations nationwide. Managers who earn between $1,280 and $1,600 per week and would be exempt from California’s wage and hour laws if they managed other businesses will be non-exempt not because of the duties they perform but because of the size of the restaurant chain for which they work.

CITATIONS

[1] The new threshold is twice the minimum wage for 40 hours per week which is equivalent to $83,200 for a full year of employment.

[2] This estimate is based on data from Bureau of Labor Statistics employment data for California in 2023 and 2024 and Current Population Survey (CPS) data in 2022 and 2023. Recent trends in County Business Patterns data also indicate there are about 48,700 limited-service restaurant establishments in the state.

[3] This is also based on CPS data. The CPS is the household survey used by the U.S. Department of Labor (DOL) to estimate the number of employees paid by the hour in its proposed rules for the Fair Labor Standards Act (FLSA).

[4] Xiaofan Liang and Clio Andris, “Measuring McCities: Landscapes of Chain and Independent Restaurants in the United States,” Environment and Planning B: Urban Analytics and City Science, Volume 49, Issue 2, February 2022, Pp. 585-602.

[5] See https://www.shrm.org/topics-tools/employment-law-compliance/california-class-action-trends for a discussion of trends in class action lawsuits in California.