Multiple Pizza Hut operators throughout California announced on Tuesday that they would be laying off hundreds of drivers before the new state minimum fast food wage of $20/an hour comes into effect on April 1st.
The new law, Assembly Bill 1228, has been one of the most contentious of the year. Originally, the bill would have raised the minimum to $22 an hour and hold franchise corporations accountable for labor law violations at individual locations. In addition, thanks to a new Fast Food Council created from a new law signed last year (AB 257), benefits like paid leave and predictive scheduling would be introduced. Fast food companies swiftly took action, to hold a referendum on the minimum wage, as well as more electronic kiosks going up to replace cashiers.
After months of back and forth, it was agreed earlier this year that AB 1228 would be altered to have minimum wage for fast food workers bumped only to $20 an hour rather than $22, with local governments prohibited from raising it even further, in exchange for dropping the referendum as well as other smaller provisions.
Following passage in October, fast food companies and groups have been warning of dire consequences. This has included more automation, higher prices, reliance on third party companies, and numerous layoffs to help stay profitable.
“The law is going to have a wage impact for our California franchisees,” said McDonalds CEO Chris Kempczinski during an earnings call in late October. “I don’t think at this point, we can’t say exactly how much of that is going to work its way through pricing.”
“Certainly, there’s going to be some element of that that does need to be worked through with higher pricing. There’s also going to be things that I know the franchisees and our teams there are going to be looking at around productivity. How all of that plays out, there will certainly be a hit in the short-term to franchisee cash flow in California, tough to know exactly what that hit will be because of some of the mitigation efforts.”
Many other franchises have, in the past several months, reduced seating and installed more automated kiosks in stores to reduce labor in preparation for the higher wage. Others, like McDonalds and Chipotle, have announced higher prices. This led to the announcement by multiple Pizza Hut franchises on Tuesday that they would be eliminating all drivers as a cost saving measure. In total, over 1,200 drivers have been laid off so far, with restaurants being affected in Los Angeles, Orange, Riverside, Sacramento, Ventura and San Bernardino counties.
Massive Pizza Hut driver layoffs in California
“PacPizza, LLC, operating as Pizza Hut, has made a business decision to eliminate first-party delivery services and, as a result, the elimination of all delivery driver positions,” said the Employment Development Department through a WARN Act notice on Tuesday. “Another operator, Southern California Pizza Co. also announced layoffs of around 841 drivers across the state.”
Those layoffs are currently set to occur now through early February, with severance pay being offered. Following the layoffs, the Pizza Hut locations will rely on delivery companies such as Uber Eats, GrubHub and DoorDash to deliver pizzas.
Experts told the Globe on Tuesday that more fast food layoffs are likely to be announced in the coming months before the April 1st date when fast food minimum wages go up from $16 to $20.
“They have been warning everyone like crazy that things like this were going to happen,” said fast food restaurant consultant Linda Medina to the Globe. “A lot of people in favor of the law were saying how companies would be warning of layoffs but then just rolling with it. Well, this kind of shut them up today.”
“And this is just two operators for Pizza Hut. It’s not even January. This may very well be the starting gun. Other pizza franchises and other operators may follow their example now that they did this. I know that many have it in discussions now that they have done this. Other places, once those touchscreens are in, that’s a lot of cashiers out. Some other places are looking more into pre-made things so they can save on preppers, or have more simplified ways to prepare food. Soda machines are also being moved behind the counter too.”
“It’s sad that it has to come to layoffs for some, but that extra $4 an hour is such a huge pay bump all at once. It should have been much, much more gradual, but they really didn’t think this through. They thought, hey, let’s just give them more money, let’s give people a livable wage. It’s a nice sentiment, but wow, they didn’t foresee the consequences. Now, over a thousand people are losing their jobs because of [Assemblyman] Chris Holden (D-Pasadena) and others in Sacramento. Not the franchise, the people who made this law.”
“And like I said. this is just the beginning. Who knows how many more thousands are going to be out of work now.”
As of Tuesday evening, it is currently unknown how many more fast food operators are planning cuts by April.
