How Fast-Food Franchises Are Pushing Back on Newsom's $20 Minimum Wage Law

Bill includes exemption for places that 'produce' bread. No one can agree on who qualifies.

Gavin Newsom (Mario Tama/Getty Images)
March 5, 2024

Fast-food industry insiders are disputing California Democratic governor Gavin Newsom's claim that the bakery chain Panera Bread will have to comply with the state's sweeping $20 minimum wage law for fast-food franchises, as the governor faces criticism for allegedly exempting the bakery chain to benefit a billionaire donor.

The governor has faced sharp blowback following a Bloomberg report that he fought for a carveout for any franchise that "operates a bakery that produces [bread] for sale on the establishment's premises" at the behest of billionaire Greg Flynn—a former high school classmate of the governor and owner of two dozen Panera franchises who has given more than $160,000 to Newsom's campaigns. The exemption was understood to include Panera, but Newsom's lawyers said last week that since Panera does not mix its bread dough onsite, it does not qualify. This argument appears to run counter to the governor's own acknowledgment when he signed the bill that Panera was indeed exempt—a fact he attributed at the time to political "sausage-making."

Fast-food industry insiders say the exemption is so vague that the governor's interpretation would have to be litigated in court, while California Republicans and other franchisees dispute it outright and see Newsom's walk-back as motivated by the negative publicity.

"It's our understanding that Panera Bread is exempt," said GOP assemblyman Josh Hoover. "It seems convenient that we're now saying they're not exempt."

Newsom himself on Monday stumbled over a question on which bakeries qualify for the carveout, if Panera doesn't. The governor first said that Panera is exempted, before realizing his mistake and reiterating that the franchise is not. In an NBC interview over the weekend, Newsom again denied the Bloomberg story but conceded that he had had "some discussions around bakeries and this and that."

The law states that to be exempt from the wage law, bakeries have to "produce" bread and sell it as a separate menu item on their premises—and to have done so prior to Sept. 15, 2023. The text never defines the word "produce," but Newsom's legal team is interpreting the word to mean from-scratch mixing of the dough, rather than raising and baking frozen dough, as Panera and other chains do. Panera representatives did not respond to a request for comment, and legislative staff for the State Assembly's labor committee, which vetted the bill, could not take a position. Advertisements for available baking positions at Panera cafes in California describe the job responsibilities as "bake all the fresh bread and pastries your café needs each day," while maintaining "our high standards for flavor and quality, using 100 percent real ingredients."

"I don't know many places, if any, that mix dough onsite," said Keith Miller, a consultant with Franchisee Advocacy Consulting who advocates for franchises in the California Legislature. He added that as a Subway franchisee himself, his stores also get frozen dough sticks, which they thaw and bake. "I'd think people say that's producing bread," he said.

Newsom's attempt to defray criticism for allegedly negotiating on behalf of a donor came the same day California Republicans asked Democratic attorney general Rob Bonta to investigate the potential "pay-to-play." Representatives for Bonta, who is expected to run for governor when Newsom's term expires, did not respond to a request for comment.

"Governor Newsom has a record of doing favors for political donors, going back before COVID-19," said Hoover, the GOP assemblyman—citing carveouts to California's law cracking down on freelancers and independent contractors. Hoover also pointed to Newsom's push to exempt prison guards from COVID-19 vaccine mandates after the guards' union gave the governor $1.5 million to fend off a recall campaign.

Rep. Kevin Kiley (R., Calif.) on Monday vowed to use his congressional investigatory powers to look into the scandal.

"I will be using all available oversight powers to get answers about Newsom's corruption," Kiley said, citing his position as the chairman of a subcommittee overseeing workplace regulations.

For his part, Newsom says there is nothing to the Bloomberg report that he exempted Panera as a favor to a donor.

"The governor never met with Flynn about this bill and this story is absurd," Newsom spokesman Alex Stack said in a statement. "Our legal team has reviewed and it appears Panera is not exempt from the law."