By Mark Gutglueck
The California Attorney General’s Office has opened up an investigation into whether Governor Gavin Newsom made special arrangements to accommodate one of his major campaign donors during negotiations relating to California’s controversial AB 1228 passed in September 2023, which raised the minimum for most fast-food workers to $20.
Prior to that bill being refined into its final form and voted upon by the full Assembly and then the California Senate, an exception was cut out for a limited set of fast food businesses, virtually all of which are ones that are part of a chain owned by billionaire Greg Flynn, who has invested $178,800 in Newsom’s career as a state politician since 2010, including $100,000 that went toward the 2021 effort to fight off Newsom being recalled from office and $64,800 provided to him during his 2022 reelection campaign.
On April 1, AB 1228 will go into effect, raising California’s minimum wage at fast-food operations to $20 an hour from $16. Unaffected by the pay hike will be all 188 Panera Bread locations throughout California, of which Flynn owns 24.
According to those knowledgeable with regard to the issues now being examined by the state attorney general, Flynn and lobbyists working on his behalf succeeded in shaping the form of that law, and were able to do so as a consequence of the intercession of the governor. The governor’s office acknowledges taking part in the negotiations relating to deriving the final language of the bill, but has not responded to requests for comment on suggestions that Newsom did so at the request of Flynn.
AB 1228 drew a distinction between workers in the fast-food industry and those employed in other capacities in the Golden State. The has been pressure toward increasing minimum wage in California generally for some time. Within the last three-and-a-half years, a movement toward placing fast food workers into a unique category emerged. That momentum encountered pushback along multiple fronts, not the least being among some labor groups, which saw in the concept the potential that workers in other industries would be given short shrift in their efforts to negotiate a higher minimum wage across the board if the state’s half of a million fast food workers were to be granted separate status and and an additional 25 percent wage concession. Corporate and entrepreneurial interests, already staggering under the state’s existing minimum wage law which had escalated the cost of their doing business radically over the last several years, were virtually universally opposed to the separate numbers that were emerging in the discussions within the Democrat-controlled legislature that ultimately led to the drafting of what turned out to be Assembly Bill 1228.
Over the years, the minimum wage has escalated in California.
On March 1, 1997, the minimum was $5.00. As of September 1, 1997 it grew to $5.15. As of March 1, 1998 it rose to $5.75. As of January 1, 2001 it became $6.25. On January 1, 2002 it reached $6.75. Upon January 1, 2007 it climbed to $7.50. On January 1, 2008, the minimum wage stood at $8.00. On July 1, 2014, workers could be paid no less than $9.00 per hour. That minimum was raised to $10,00 on January 1, 2016. As of January 1, 2017, it became $10.50. A slight bump to $11.00 came on January 1, 2018. On January 1, 2023, the state minimum wage leapt to $15.50. A relatively minor increase to $16 per hour went into effect on January 1 of this year.
In 2021, discussion about taking restaurant workers to a starting pay grade beyond that of other workers first began, under the auspices of the Fast-Food Accountability and Standards Recovery Act, dubbed the FAST Act, legislation that was sponsored by four Democrats – Assemblyman Chris Holden, Assemblywoman Wendy Carrillo, Assemblyman Evan Low and Assemblywoman Luz Rivas.
There was solid, indeed virulent, opposition raised to the FAST Act. One of the things that proponents of the higher minimum for fast food workers were missing, it was said, was that many of the jobs at places like McDonalds or Burger King were entry level, not just entry level at the particular location where the worker was employed but entry level into the workforce all the way around. These were jobs that were very simple ones requiring only minimal skills and training. No college degree was required. No high school diploma was needed. Indeed, there were virtually no prerequisites beyond being able to fog up a mirror and, perhaps, speak English, and in some cases even that was not required. Traditionally, many fast-food workers were high school students working part time at what would be for most his or her first job.
Gregory Flynn, who through his San Francisco-based company, Flynn Restaurant Group, is believed to be the world’s most prolific owner of restaurant franchises, emerged as a leader among a group of more than 400 fast food franchise holders throughout the state seeking to stop not only the separate and higher minimum wage law for fast food employees but a number of other policies and laws they considered inimical to their business.
Flynn, through Flynn Restaurant Group, counts among his possessions franchises for 1,245 eateries, including full service sit-down restaurants that are not cataloged as fast-food establishments, which include 458 Applebee’s, along with even more fast-food restaurants, including 283 Taco Bells, 367 Arby’s and 194 Wendy’s. Into that mix, Flynn Restaurant Group owns some estaminets which do not neatly fit in the category of either fast food restaurants or formal restaurants, including 937 Pizza Huts and 135 Panera Breads.
Accounts differ as to the degree to which his fellow and sister franchisees willingly entrusted to Flynn the lead role in doing so, but there is no dispute that he undertook a dynamic and multi-pronged effort to untrack the FAST Act as well as the legislative initiatives mirroring it and augmenting it that followed.
A central provision of the FAST Act called for the creation of the California Fast-Food Industry Council, one which, despite its name that might be construed to indicate it was intended to fight on behalf of restaurant owners and entrepreneurs, was actually intended to serve as an advocate on behalf of workers in such establishments, dictating the minimal hourly wages they were entitled to on a continuous basis. The California Fast Food Industry Council was to be a 10-member panel empowered to to set wage and labor standards across the fast-food industry. It was to be composed of two state officials, along with union representatives, worker representatives and employer representatives. Given that California’s state government is dominated by the Democratic Party, with the positions of the govern, lieutenant governor, state attorney general, secretary of state, state controller, superintendent of public schools and insurance commissioner all held by Democrats and both houses of the legislature – the Assembly and State Senate – controlled by a supermajority of Democrats, fast food entrepreneurs uniformly believed that a supermajority of the California Fast-Food Industry Council – that being either seven or eight of its ten members – would be sympathetic to fast food employees and hostile to fast food franchise owners/operators. Under its charter, the California Fast-Food Industry Council was to hold discretion over raising minimum wages for fast food workers, initially to no higher than $22 an hour, subject to annual cost of living increases of either 3.5 percent or each successive year’s consumer price index.
In 2022, Flynn authored an op-ed which ran in the California political newspaper Capitol Weekly in which he prognosticated that the FAST Act would doom restaurant franchises in the state.
Despite the fast-food restaurant industry’s opposition, the FAST Act, contained in the language of Assembly Bill 257, passed in 2022.
Springing off of the FAST Act, Assemblyman Christopher Holden angled toward passage of yet another bill he authored, Assembly Bill 1228, which was intended to actuate the concept of raising the minimum wage for fast food workers beyond the state’s basic minimum wage.
In his framing of Assembly Bill 1228, Holden pushed past objections by those who pressed the contention that fast food jobs were entry level ones that served as workplace training for those who had yet to reach the age of majority. He noted that while typical workers manning the counter or drive-thru window at fast food establishments in the past were teenagers looking to fill their pockets with some change, that was increasingly no longer the case. Employees in such positions more and more tended to be adults and not just young adults or older ones beyond retirement age, but those who had families to support, mortgages or rent to pay, ones who were struggling to hold not just their own body and soul together but raise children. He drafted legislation that would provide such workers more than what someone working at the car wash or working in a factory might make.
Already reeling from the passage of Assembly Bill 257 and the FAST Act, the fast-food industry and Flynn fought back. A first sally against the Democrat-dominated state political structure they contemplated was placing on the 2024 Ballot a proposition ballot that would have abolished the California Fast Food Industry Council and another that would have prevented the legislature and/or governor from setting more than a single minimum wage.
This caught the Democrat Establishment’s attention. Quietly, while Assembly Bill 1228
was yet moving through committee hearings in 2023, communications began between the governor’s office, reportedly involving Governor Newsome directly, representatives of the fast food industry, reportedly including Flynn, and at various times in consultation with the Service Employees International Union and its national president, Mary Kay Henry, and its California president, David Huerta, aimed at allowing legislation growing out of the FAST Act, such as Assembly Bill 1228, to proceed. While those talks were privately, indeed informally, held without any minutes, word has emerged as to what issues were dealt with and what compromises emerged.
One such compromise is said to have been that Newsom persuaded members of the legislature to forsake not yet fully gestated legislation separate from Assembly Bill 1228 that was to accompany Assembly Bill 1228 in 2023 or otherwise be taken up in 2024 which would tie together a franchisee’s legal liability with regard to labor violations such as wage theft or failure to pay overtime with the franchiser corporations, something that would inhibit the relations between franchisees and franchisers and require franchisees to obtain expensive liability insurance that would have cut into their profitability margins.
It is another part of that dialogue which led to another compromise that, sources say, is at the center of the investigation by the California Attorney General. Newsom, who was said to be militating on behalf of Flynn specifically, was at one point pressing those in the legislature to make an alteration to the Assembly Bill 1228 that would allow for a very narrow definition of what a fast-food operation consists of.
Already established was that full-service restaurants, ones at which diners are seated by a host or maître d’ and waited upon by waiters or waitresses did not qualify as fast food establishments, and therefore its employees were not subject to the higher minimum wage or potentially higher minimum wage than common workers. What Newsom was pressing for was that businesses such as Pizza Hut and Panera Bread, which claimed a certain cachet beyond that of a fast-food restaurant but which legislators and the Service Employees International Union defined as fast food operations, be defined as full-service restaurants, such that they would not be subject to the higher minimum wage. The strategy was, according to those with knowledge of what went on during the discussions, to press the rationale that restaurants such as Panera Bread and Pizza Hut do not actually fit within the category of fast food but are what is referred to as fast casual operations. Ultimately, the Service Employees International Union proved unwilling to allow for the creation/use of the term “fast casual” in the language of Assembly Bill 1228. Nevertheless, Newsom successfully obtained from the union and legislators involved in the negotiation an agreement to fold into the language of Assembly Bill 1228 an exception for any operation which bakes its own bread and sells it as a standalone item.
Those familiar with the negotiations say Governor Newsom became the prime mover in pushing for that exception, which is definitely applicable to Panera Bread and potentially applicable to Pizza Hut. The highly specialized exception threw many of those who were in a position to know about it as Assembly Bill 1228 was progressing toward passage or considered the bill closely after its passage.
Governor Newsom refused to dwell or expound on the provision when he was queried with regard to it, alluding only to “sausage-making,” a reference to a statement by Otto von Bismarck, the chancellor of Germany who observed, “Laws are like sausages. It’s better not to see them being made.”
A compromise among legislators, the governor, the Service Employees International Union and the representatives of the fast-food industry having been reached, Assembly Bill 1228 was passed by the legislature and signed into law by Governor Newsom on September 28, 2023.
In making his public pronouncement upon the signing, Newsom emphasized the victory Assembly Bill 1228 represented, while minimizing any compromising that took place and which he had engaged in as a broker between the state legislature and the fast-food industry, which counts Flynn among its most prominent elements.
“California is home to more than 500,000 fast-food workers who – for decades – have been fighting for higher wages and better working conditions,” Newsom said. “Today, we take one step closer to fairer wages, safer and healthier working conditions, and better training by giving hardworking fast-food workers a stronger voice and seat at the table.”
In the more than four months since he signed Assembly Bill 1228, despite recurrent questions as to how and why the changes to allow a very narrowly defined set of businesses that were initially to be subject to the higher minimum wage standard to slide out from underneath it, the only concession that Newsom’s office has made is to acknowledge that prior to the passage of the law, intensive negotiations involving both labor and management, the union, legislative representatives and the governor took place “to the satisfaction of all stakeholders” without further elaboration.
Statements by Assemblyman Holden suggest that he hand no hand in altering Assembly Bill 1228 to include the cave out for operations involving baking bread.
It appears that one side or the other, or perhaps even both, were dismayed with the compromising in the framing of Assembly Bill 1228, and that “all stakeholders” are not satisfied with what occurred.
Entrepreneurs with fast food franchises were once intent on seeking a referendum from voters up and down the state to see if they were willing to overturn the FAST Act. A deal, apparently pushed through by Newsom at the behest of Flynn, has headed that off. Some of them are not pleased.
Employees with fast food operations that have ovens which potentially or actually can be used for baking bread are now in the position of receiving $4 dollars less per hour than operations without bread ovens. They question the fairness of what has happened to them.
At issue in the California Attorney General’s probe is whether the substantial amount of money Flynn provided to Newsom’s various campaigns influenced his action in altering Assembly Bill 1228 in favor of his campaign donor.
Under California Law, it is legal for an elected official to take official action, or vote on a matter impacting, a campaign donor as long as the money was not provided to the politician conditional upon the action being taken or a favorable vote being cast. If, however, there is any interaction between the elected official and the donor by which entails a quid pro quo, that is, an exchange of money for an official act, such a circumstance can be construed as an act of bribery.
Moreover, under Government Code Section 1090, an elected government official or appointed government official is guilty of a felony if he or she takes action in an official capacity in which he or she has a financial interest. Taking official action which financially impacts a current or former business partner and/or individual or company with which one had a financial relationship can, under certain circumstances, be construed as a violation of Government Code Section 1090.
Governor Newsom and Gregory Flynn have had a long personal relationship, which included a commingling of their financial affairs.
When Newsom arrived at Redwood High School as a freshman in the small Marin County city of Larkspur on the San Francisco Bay in 1981, Flynn was a big man on campus, indeed, perhaps the biggest man on campus as the high school’s student body president. Both were scions of wealthy and established families, Newsom the son of a state appeals court judge and attorney for Getty Oil, and Flynn the son of the owner of Burger King franchises in San Francisco. Their paths would cross and intermingle while they were young adults.
There has been a business relationship between the two going back at least a decade. While Flynn has told – indeed bragged – to friends, other partners and acquaintances that he can summon Newsom with a text message, both he and Newsom have been coy as to the precise nature of their shared financial interests.
Flynn was supportive of Newsom in his successful campaigns for mayor of San Francisco and in 2003 and 2007.
While Newsom and some of his supporters contemplated him making a run for governor in 2010, he ultimately filed to run for lieutenant governor in that year’s election.
Flynn provided him with $5,600 toward that successful campaign.
In 2018, Flynn provided Newsom with $8,400 for his successful campaign for Governor.
In 2021, he provided $100,000 to the Committe to Stop the Republican Recall of Governor Newsom.
In 2022, he provided Newsom with $64,800 for his gubernatorial reelection campaign.
In 2014, Flynn purchased the Carneros Inn from PlumpJack Management Group LLC, Newsom’s company for what is still an undisclosed price, but reported to be in the neighborhood of $60 million.
The Sentinel is informed that the premise for the “quid” in the investigation by the California Attorney General’s Office’s is Newsom’s effort to remove the “fast casual” restaurants from the applicability of Assembly Bill 1228 and the financial benefit that represents to Flynn but has not been able to learn what the exact focus relating to the “quo” element of the probe is, i.e., whether the potential Government Code Section 1090 conflict of interest pertains to the $178,800 in political donations made to Newsom for his electoral, reelectoral and recall-resisting campaigns or rather to his business dealings and payments from Flynn, or both. Nor is it clear what evidence might exist of an explicit exchange between the governor and Flynn with regard to a nexus between the money provided to Newsom and the advocacy he engaged in with regard to modulating Assembly Bill 1228.
In what may have been a bid ahead of time to ward off any problems for Newsom insofar as being held legally or criminally accountable for using his gubernatorial reach and authority to assist him, Flynn on June 30, 2023 donated $5,000 to California Attorney General Rob Bonta for his 2026 reelection campaign. That ploy may have backfired, as Bonta in the glare of publicity may now find it advisable to make a demonstration of his integrity by undertaking a scrupulous examination of the interaction between the governor and one of his most generous campaign donors and its implication.