Bill includes exemption for places that ‘produce’ bread. No one can agree on who qualifies.
Gavin Newsom (Mario Tama/Getty Images)
Fast-food industry insiders are disputing California Democratic governor Gavin Newsom’s claim that the bakery chain Panera Bread will have to comply with the state’s sweeping $20 minimum wage law for fast-food franchises, as the governor faces criticism for allegedly exempting the bakery chain to benefit a billionaire donor.
The governor has faced sharp blowback following a Bloomberg report that he fought for a carveout for any franchise that “operates a bakery that produces [bread] for sale on the establishment’s premises” at the behest of billionaire Greg Flynn—a former high school classmate of the governor and owner of two dozen Panera franchises who has given more than $160,000 to Newsom’s campaigns. The exemption was understood to include Panera, but Newsom’s lawyers said last week that since Panera does not mix its bread dough onsite, it does not qualify. This argument appears to run counter to the governor’s own acknowledgment when he signed the bill that Panera was indeed exempt—a fact he attributed at the time to political ”sausage-making.”
Fast-food industry insiders say the exemption is so vague that the governor’s interpretation would have to be litigated in court, while California Republicans and other franchisees dispute it outright and see Newsom’s walk-back as motivated by the negative publicity.
“It’s our understanding that Panera Bread is exempt,” said GOP assemblyman Josh Hoover. “It seems convenient that we’re now saying they’re not exempt.”
Newsom himself on Monday stumbled over a question on which bakeries qualify for the carveout, if Panera doesn’t. The governor first said that Panera is exempted, before realizing his mistake and reiterating that the franchise is not. In an NBC interview over the weekend, Newsom again denied the Bloomberg story but conceded that he had had “some discussions around bakeries and this and that.”
The law states that to be exempt from the wage law, bakeries have to ”produce” bread and sell it as a separate menu item on their premises—and to have done so prior to Sept. 15, 2023. The text never defines the word “produce,” but Newsom’s legal team is interpreting the word to mean from-scratch mixing of the dough, rather than raising and baking frozen dough, as Panera and other chains do. Panera representatives did not respond to a request for comment, and legislative staff for the State Assembly’s labor committee, which vetted the bill, could not take a position.
“I don’t know many places, if any, that mix dough onsite,” said Keith Miller, a consultant with Franchisee Advocacy Consulting who advocates for franchises in the California Legislature. He added that as a Subway franchisee himself, his stores also get frozen dough sticks, which they thaw and bake. “I’d think people say that’s producing bread,” he said.
Newsom’s attempt to defray criticism for allegedly negotiating on behalf of a donor came the same day California Republicans asked Democratic attorney general Rob Bonta to investigate the potential “pay-to-play.” Representatives for Bonta, who is expected to run for governor when Newsom’s term expires, did not respond to a request for comment.
“Governor Newsom has a record of doing favors for political donors, going back before COVID-19,” said Hoover, the GOP assemblyman—citing carveouts to California’s law cracking down on freelancers and independent contractors. Hoover also pointed to Newsom’s push to exempt prison guards from COVID-19 vaccine mandates after the guards’ union gave the governor $1.5 million to fend off a recall campaign.
Rep. Kevin Kiley (R., Calif.) on Monday vowed to use his congressional investigatory powers to look into the scandal.
“I will be using all available oversight powers to get answers about Newsom’s corruption,” Kiley said, citing his position as the chairman of a subcommittee overseeing workplace regulations.
For his part, Newsom says there is nothing to the Bloomberg report that he exempted Panera as a favor to a donor.
“The governor never met with Flynn about this bill and this story is absurd,” Newsom spokesman Alex Stack said in a statement. ”Our legal team has reviewed and it appears Panera is not exempt from the law.”
Why are industry insiders, Republicans, and franchisees questioning the governor’s change of position on the exemption?
M over the inclusion of an exemption for bakeries in California’s minimum wage law has sparked controversy and debate. The governor’s alleged favoritism towards Panera Bread, a major bakery chain, has raised concerns about possible political motivations behind the carveout.
According to a Bloomberg report, Governor Gavin Newsom fought for the exemption at the request of billionaire Greg Flynn, who owns two dozen Panera franchises and has been a significant donor to Newsom’s campaigns. While the exemption was initially seen to include Panera, Newsom’s lawyers later argued that since the chain does not mix its bread dough onsite, it does not qualify for the exemption. This conflicting stance has prompted criticism and accusations of inconsistency from both industry insiders and political opponents.
The vagueness of the exemption’s language has also come under scrutiny. Fast-food industry insiders argue that the interpretation of the exemption would have to be settled in court, while Republicans and other franchisees of California question the governor’s sudden change of position, suggesting it may be a response to negative publicity.
Assemblyman Josh Hoover, a Republican, stated, ”It’s our understanding that Panera Bread is exempt. It seems convenient that we’re now saying they’re not exempt.” This sentiment highlights the ongoing confusion surrounding the exemption’s applicability.
Governor Newsom himself stumbled when questioned about which bakeries qualify for the carveout if Panera does not. Initially, he stated that Panera was exempted before correcting his statement to clarify that the franchise is not exempt. In another interview, Newsom denied the Bloomberg story while acknowledging discussions about bakeries had taken place.
The dispute centers around the interpretation of the term “produce” as stated in the law. To be exempt from the minimum wage requirement, bakeries must produce bread and sell it as a separate menu item on their premises before September 15, 2023. However, the law does not provide a clear definition of what “produce” means. Newsom’s legal team is interpreting the term to mean from-scratch mixing of dough, excluding baking frozen dough, which is the practice of Panera and other chains. The absence of a definition has made it difficult to determine the eligibility of bakeries for the exemption.
Franchisee advocates and consultants argue that very few places mix dough onsite, as most rely on pre-mixed frozen dough. Keith Miller, a consultant with Franchisee Advocacy Consulting and a Subway franchisee himself, stated, “I don’t know many places, if any, that mix dough onsite. I’d think people say that’s producing bread.” Miller’s perspective highlights the broader concern that the current interpretation of the exemption excludes many bakeries that are still considered to be producing bread.
Governor Newsom’s attempt to clarify the exemption and address criticism has only led to further confusion. The ongoing controversy surrounding this issue raises questions about the transparency and fairness of the exemption process and highlights the need for a more clearly defined and inclusive framework for the application of such exemptions in the future.
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