California Dems Can Now Set Wages for Private Businesses. Critics Say This Will 'Destroy Jobs.'

'The business climate in California was already bad, and this makes it worse'

Gov. Gavin Newsom (D., Calif.) / Getty Images
July 13, 2023

California is resurrecting a long-defunct commission that allows the state to set wages in certain industries, which experts warn could kill small business franchises.

A provision of the budget that Gov. Gavin Newsom (D.) signed on Monday will revive the Industrial Welfare Commission, a labor regulatory board that the Legislature defunded in 2004. The board, whose five members will be appointed by Newsom, will have the power to set wages and hours for fast-food restaurants and other franchises. Critics say Democrats are using the commission to push unsustainable minimum wage hikes under the guise of improving workplace conditions.

"To put it bluntly, this commission could micromanage the operations of every small business franchise in California," Assemblyman Vince Fong (R.) told the Washington Free Beacon.

Fong, the top Republican on the Assembly's Budget Committee, said the provision could "destroy jobs and businesses in California."

"The business climate in California was already bad," Fong said, "and this makes it worse—if that's even possible to imagine."

A combination of regulation and rising crime has driven companies out of the Golden State. More than 350 businesses left California between 2018 and 2021, according to the California Globe. The 127-year-old Anchor Brewing this month joined a growing number of businesses to depart San Francisco.

California labor unions in 2004 pushed to defund the original iteration of the Industrial Welfare Commission, to stop then-governor Arnold Schwarzenegger (R.) from deploying the commission in ways Big Labor found objectionable. The commission was dead until earlier this year, when California Democrats quietly inserted a budget item reviving the Commission.

Opponents say the revival is an attempt to circumvent a referendum blocking the creation of a 10-member board to regulate labor rules for fast-food restaurants, nicknamed the "Fast Food Council." The Legislature approved the new board last August, but a ballot initiative collected more than a million signatures, temporarily freezing the law's effect and putting the proposal to the voters in 2024.

Tom Manzo, the president and founder of the California Business and Industrial Alliance, says that California Democrats are reviving the commission specifically to get at fast-food franchises.

"I think that's the whole reason they're talking about kick-starting the [Industrial Welfare Commission] and I think that'll be the first thing on their agenda," Manzo said.

Rebekah Paxton, the research director at the Employment Policies Institute, told the Free Beacon that the commission could enact "skyrocketing" minimum wage increases.

"Thirty years of economic research shows that this would reduce employment for fast-food workers," Paxton said. "It would cause fast-food businesses—whether small or larger chains—to close down or even leave California. It's going to limit business opportunities in California, shut down livelihoods for California's employees, and make the fast-food industry a less competitive place for people to start business."

The law directs the commission to "prioritize" industries with more than 10 percent of workers living below the federal poverty line, which can include a wide range of industries at any time.

The state's Chamber of Commerce, Restaurant Association, Retailers' Association, and other business groups in a joint statement last week denounced the proposal, saying the commission's focus on low-wage industries would "only create unnecessary confusion, create layered burdens on employers, and subject businesses to more frivolous litigation."

David Huerta, the president of SEIU California, praised the governor for "listening to workers and taking the bold action needed to make progress against a growing tide of inequality and poverty experienced by low-wage workers and people of color."

Supporters of the crackdown on fast-food franchises, including the SEIU, claim the restaurants commit a disproportionate number of wage violations. But data from an Employment Policy Institute study last year show that the industry accounted for 1.6 percent of wage claims in the past five years while employing 3.2 percent of all workers in California.