When fast food restaurants across California have to start paying workers $20 an hour on April 1, one major chain will be exempt from the mandate — and it happens to have a connection to a longtime friend and donor of the governor Gavin Newsom.
Panera Bread is poised to get a boost from a bizarre clause in the fast-food minimum wage law that exempts “chains that bake bread and sell it as a stand-alone item,” Bloomberg reports, adding that “Newsom pushed for that pause, according to people familiar with the matter.”
That exemption will benefit Greg Flynn, owner and CEO of Flynn Restaurant Group, a conglomerate that operates more than 2,300 restaurants nationwide and is the second largest Panera franchisee in the world, according to the company’s website. Flynn and Newsom talk about a long time ago: Bloomberg reports that the two attended the same high school at the same time — Flynn was student body president during Newsom’s freshman year — and the restaurateur donated to Newsom’s gubernatorial campaigns and boasted to colleagues about his close relationship with the governor.
This relationship probably explains the strange exemption that would exempt bakeries from the new minimum wage law, even if no one involved is willing to admit it.
Asked directly about the baked goods exemption at a news conference last year, Newsom said it was “sausage making” part of the legislative process. “We went back and forth, and it was part of the negotiation,” he added.
BloombergThe report suggests this was something Newsom was seeking in those negotiations: The exclusion of bakeries “was adopted as a means to gain the governor’s support for the legislation, a person familiar with the discussions said. The rationale was the report The governor’s longtime franchise with a Panera franchisee, the person said.”
Newsom signed the Fast Food Accountability and Standards Recovery Act (FAST Act) in September 2023. The law includes the $20 per hour minimum wage and a number of other regulations that will apply to restaurant chains with more than 60 locations in national level.
Since labor costs represent a significant portion of any fast food restaurant’s overhead, the new law is expected to have several impacts. McDonald’s and Chipotle have already announced plans to raise menu prices. Pizza Hut delivery drivers have been fired. More automation is likely to occur.
Flynn also operates franchised franchisees of Applebee’s, Taco Bell, Arby’s, Wendy’s, Pizza Hut and Planet Fitness in 44 states, according to his company website, but his only California-based establishments are several Applebee’s (which are not subject to the new law since it is not defined as a fast food restaurant) and 24 Panera cafes.
It’s fair to wonder how much the carve-out will matter to Panera. In an environment where other fast-food restaurants competing with Panera for labor are required to pay $20 an hour, Panera will likely have to offer comparable wages to attract and retain workers. (You might also wonder if McDonald’s and Burger King will suddenly do this enter the bakery sector.)
In other words, the real story here it is not that a successful businessman could get a special exemption written into law. And, indeed, it’s hard to blame Flynn for paying attention to what’s in the best interests of his businesses here: He previously warned state lawmakers that passage of the FAST Act would “effectively kill the franchise business model in the state” and would have created 728,000 jobs. at risk.
The real scandal is that Newsom was apparently willing to push for this special exemption to benefit his personal friend, throwing other California businesses (and consumers) under the bus.
The deeper lesson is that giving the government more power to set wages (or regulate other aspects of the economy) creates the conditions for exactly this kind of thing to happen. It could be that a wealthy special interest used his connections to the governor to secure special treatment, or that a governor tried to help his friend. In any case, this could not have happened without the government interfering in the relationship between workers and employers.
And the more the government does this, the more opportunities there will be for officials to reward their friends and punish their enemies. It’s not right, nor should it be desirable. Panera – or any other business – should not survive or fail in California because of its connections in the halls of power.