Why California’s new Fast Food Council law is good for business

A worker in the drive-thru of a Wendy’s in Pinole, Calif.
California Gov. Gavin Newsom has signed a new law to give fast-food workers more power and protections, despite warnings from the industry that the measure would drive up consumers’ costs.
David Paul Morris - Bloomberg - Getty Images

Now that AB 257 has been signed into law, California has a unique opportunity to launch a path-breaking high-road business and employment strategy for owners and workers in its fast food industry.

AB 257 creates a statewide “Fast Food Council” composed of industry, worker, and government representatives to set minimum wage, safety, and employment and training standards for workers in large fast food chains and their franchises. The bill also encourages cities with 200,000 or more residents to create their own regional councils.

So far, AB 257 has been largely framed as an employment standards board that will be good for the sector’s 550,000 workers, which of course, at its core it is. Framed solely that way, it was met with strong opposition from industry lobbyists. 

The key to making AB 257 a success for business as well as for the industry’s workforce is that it will cover all fast food chain stores in this sector, both those owned and operated directly by the big fast food chains and those operating under franchises from the chains. Doing so will level the playing field and create pressure on low-paying firms to learn how to manage their businesses and workforce with high-road strategies.

A high-road business strategy is one that can compete successfully by paying good wages and benefits because it achieves high productivity and low turnover through training and developing its talent, engaging its workforce in problem-solving and continuous improvement, treating people fairly, and respecting workers’ rights.

This contrasts with a low-road strategy that depends on low wages, high turnover, and strong resistance to any form of worker expression to remain competitive. While research has shown that in industries like fast food either strategy might work for firms to compete successfully, only the high road firms can do so and provide high-quality jobs.

Given that it will be composed of industry, government, and worker representatives, the Fast Food Council can do much more to promote and support the high-road practices that level the playing field between stores that are already providing high-quality jobs and those holding them back by competing in a low-wage, high-turnover pattern.  

To do so, the council would need to go beyond just setting minimum standards to work with industry and workforce leaders to pursue a sector-wide strategy to upgrade the full set of employment practices that research has shown produces both good jobs and profitable companies.    

This could start with a sector and region-specific approach to training and development. Experts in this field have concluded this is the best way to advance workforce development–and it works well in other industries such as hospitality and regions such as southeastern Wisconsin. These approaches overcome the classic market failure that keeps many individual firms from investing in training: If they train workers, competitors bid them away, so the business pays the costs and its competitors get the benefits. State and federal workforce development agencies understand this and are eager to support sector and regional-based initiatives. By encouraging cities to set up their own councils, the bill is further well positioned to solve this market failure.

Given that 80% of the fast food workforce in California is made up of people of color, better training and internal development and promotion practices will help companies meet the diversity, equity, and inclusion (DEI) goals that most firms espouse but too often remain elusive. Combining these development efforts with promotional and upward mobility opportunities will help firms build a reputation as an employer of choice that will attract the next generation of talent and take a step toward achieving greater economic equity as called for in the California Future of Work report.

If the council’s business, labor, and government representatives work effectively together at the sectoral level, they will demonstrate there is an alternative to the pitched battles over worker representation that are all too common when workers seek to gain a voice at their workplaces in this industry. The council could provide education and training for managers and worker representatives on how to build high-quality labor-management relationships that evidence shows have better outcomes for the firm and its workforce.

We must carefully evaluate how this experiment works and see what it might imply for business strategies that are good for investors, employers, and workers, not only in California but across the nation.

Thomas Kochan is Professor Emeritus at the MIT Sloan School of Management, co-founder of the Worker Empowerment Research Network, and author of Shaping the Future of Work:  A Handbook for Change and a New Social Contract.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not reflect the opinions and beliefs of Fortune.

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