Fast Food Minimum Wage Claims: AB 1228 Coverage and Defenses

Most fast food minimum wage claims are coverage disputes. Since April 1, 2024, Labor Code section 1475 has set a $20 hourly minimum for employees of covered fast food restaurants, but only restaurants that meet the definition in section 1474 and fall outside its exemptions are covered. A restaurant operator that pays the general minimum wage at a location it believes is exempt has to be ready to prove the exemption. If it can’t, the back pay comes with liquidated damages and penalties.

Which restaurants does the $20 minimum wage cover?

Limited-service restaurants that belong to a large national chain. Section 1474(a) defines a national fast food chain as “a set of limited-service restaurants consisting of more than 60 establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services.” The restaurants must be “primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service.”

Franchise status doesn’t matter. The Labor Commissioner’s fast food FAQ says the law “applies to employers of ‘fast food restaurant employees’ regardless of whether the employer is the business entity that owns the national brand, or a franchisee or licensee of that national brand.” A franchisee with three locations in one county is covered if the brand has enough establishments nationwide.

The type of food doesn’t matter either. The same FAQ answers yes to whether a shop “that features ice cream, coffee, boba tea, pretzels, cookies, or donuts” can be a covered restaurant.

How does an operator count to 60?

Carefully, because the statute and the agency describe the line differently. The statute says “more than 60 establishments nationally.” The Labor Commissioner’s FAQ describes a chain “of at least 60 establishments nationwide.” For a brand sitting near that number, the gap matters, and the statutory text is the stronger ground.

The FAQ also narrows what counts. It says off-site locations where employees perform “administrative, warehouse, or preparatory food production tasks, are not counted as ‘establishments’ toward the 60 establishment minimum.” Commissaries and central kitchens stay out of the count.

What does primarily engaged mean?

More than half of revenue. The FAQ says a chain is covered if it “earns more than 50% of its gross revenue from” selling food or beverages for immediate consumption. It adds that “Food sold to be baked, cooked, or heated at home is not for immediate consumption.”

That makes sales data the core of the defense for a mixed-format chain. A brand that sells mostly packaged goods, take-and-bake items, or retail products may fall outside the definition even though some customers eat on site. The revenue split should be documented at the chain level and kept current, because a shift in product mix can change the answer.

Which exemptions apply?

Several, each with its own conditions. Section 1474 excludes a restaurant located within a grocery establishment when “the grocery establishment employer employs the individuals working in the restaurant.” It excludes restaurants located in an airport and restaurants connected to or operated with a hotel, a large event center, a theme park, a museum, or a gambling establishment. It also excludes certain concession operations on public land and in single-company office campuses.

The bakery exemption draws the most disputes. The statute excludes an establishment that “on September 15, 2023, operates a bakery that produces for sale on the establishment’s premises bread,” as long as it keeps doing so. The exemption “applies only where the establishment produces for sale bread as a stand-alone menu item, and does not apply if the bread is available for sale solely as part of another menu item.”

The Labor Commissioner reads the bakery exemption narrowly. Its FAQ says bread “is defined as a single unit item that weighs at least ½ pound after cooling,” and that “Baking pre-made dough, i.e., dough that was mixed or prepared at another location, does not constitute ‘producing’ bread at the establishment where the bread is sold.” The exemption is decided location by location, so two stores in the same chain can come out differently.

Who has the burden on coverage?

In practice, the employer. The FAQ tells employees that the “employer will carry the burden of showing they are not covered by the new law.” Whatever a court decides about the burden, a restaurant claiming an exemption should assume it will have to prove it with records.

For the bakery exemption, that means proof of on-site dough production and stand-alone bread sales from September 15, 2023, forward. Recipes, production logs, POS data showing bread sold by the loaf, and equipment records all help. A manager’s memory that the store always baked bread won’t carry much weight without them.

What does a coverage mistake cost?

The ordinary minimum wage remedies, at the higher rate. Section 1475 makes the $20 rate “the state minimum wage for fast food restaurant employees for all purposes under this code and the wage orders of the Industrial Welfare Commission,” enforceable by the Labor Commissioner or “by a covered worker through a civil action, through the same means and with the same relief available for violation of any other state minimum wage requirement.”

That relief adds up fast. Labor Code section 1194 allows recovery of the unpaid balance “including interest thereon, reasonable attorney’s fees, and costs of suit.” Section 1194.2 adds “liquidated damages in an amount equal to the wages unlawfully unpaid and interest thereon.” A coverage error across a workforce also produces wage statement and waiting time claims and, often, a PAGA notice.

There’s one defense on liquidated damages. Under section 1194.2(b), a court or the Labor Commissioner may reduce or deny them if the employer shows the act “was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation.” A written coverage analysis prepared before the employer stopped paying $20 at a location is the best evidence of good faith.

What about salaried managers?

The salary floor for exempt status rose with the wage. The FAQ states that “If your salary is less than $83,200 as a fast food restaurant employee starting on April 1, 2024, you are not an exempt employee.” That figure follows from Labor Code section 515(a), which ties exemption to a salary of “no less than two times the state minimum wage for full-time employment.”

General managers and assistant managers paid below that amount become overtime-eligible employees, and claims for unpaid overtime and missed meal and rest periods follow. A manager who oversees both a fast food counter and other store operations gets a blended weekly salary threshold under the FAQ, calculated “based on the percentage of time spent on those tasks.”

Can the Fast Food Council raise the wage?

Yes, within limits. Section 1475(d) lets the council set annual increases “by no more than the lesser of” 3.5 percent or the change in the CPI-W, “rounded to the nearest ten cents ($0.10).” The council can’t set the fast food rate below the general state minimum wage. Operators should watch the council’s notices, because any increase applies to every covered location on its effective date.

Cities can’t set their own fast food rate. Section 1475(l) bars any local ordinance “that sets the amount of wages or salaries for fast food restaurant employees,” while preserving local minimum wages “generally applicable to all industries.” Where a city’s general minimum exceeds $20, the city rate controls.

The statute also bars retaliation for council participation. Section 1476 says an operator “shall not discharge or in any manner discriminate or retaliate against any employee due to the employee’s participation in or testimony to any proceeding convened by the council.”

How do the coverage questions compare?

What should a restaurant operator do once a fast food wage claim arrives?

These claims are won or lost on the coverage record. Assemble it before anyone responds.

1. Preserve payroll and timekeeping data for every affected location since April 1, 2024, the wage statements, the posted wage order supplements, and the written analysis behind any decision to treat a location as exempt.
2. Calendar the deadline on the wage claim, PAGA notice, or lawsuit, and check for an arbitration agreement and an employment practices liability (EPLI) policy with notice requirements.
3. Identify the people who made the coverage decision and the managers at the location, and stop any action against the employee who raised the claim until counsel has reviewed it.
4. Pull the chain’s establishment count, the revenue split by product type, and, for a bakery claim, the production and sales records going back to September 15, 2023.
5. Talk to a lawyer before responding, changing pay rates at the location, or offering anything to resolve the claim.

Operators looking for wage claim defense for California restaurant operators can review the firm’s practice page.

Fast food wage questions from California operators

Does the $20 wage apply to a franchisee with only a few stores?

Yes, if the brand qualifies. Coverage depends on the size of the national chain, not on how many locations a franchisee owns. The Labor Commissioner says the law applies to the brand owner, a franchisee, or a licensee alike. A single-unit franchisee of a qualifying chain owes the fast food rate unless an exemption applies to that location.

Can a covered restaurant credit tips toward the $20 minimum?

No. The FAQ states that “An employer may not use an employee’s tips as a credit toward its obligation to pay the minimum wage per hour.” California has never allowed a tip credit, and AB 1228 didn’t change that. Meal and lodging credits stay at the amounts allowed under the general minimum wage.

Does the fast food rate apply to employees who split time with a non-covered store?

For the hours in the covered restaurant, generally yes. The FAQ says an employee working in a covered restaurant inside a store that isn’t a grocery establishment is covered “for the hours you work in the fast food restaurant.” Timekeeping should record which operation each hour belongs to. Without that, a claimant will argue that every hour was covered.

Should an operator that lost the bakery exemption fix pay now?

Yes. Once a location stops producing stand-alone bread on site, the statute ends the exemption. Raising pay going forward limits the exposure, though it doesn’t resolve the past period. Make the change with counsel if a claim is already pending, so the timing isn’t framed as an admission.

If a fast food wage claim reaches your company

If your company has received a wage claim, PAGA notice, or lawsuit alleging that a restaurant location owed the fast food minimum wage, the chain’s establishment count, its revenue mix, and the location’s exemption records usually decide how much of the claim is real. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving the fast food minimum wage. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.

Sources

The statutes are Labor Code section 1474, section 1475, section 1476, section 1194, section 1194.2, and section 515. The agency guidance is the Labor Commissioner’s Fast Food Minimum Wage Frequently Asked Questions.

This post is general information about California employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.