New York recently became the third and largest city in the United States to enact legislation that helps ensure schedule security for fast-food workers in the area. One of the key components of the new law is that fast-food restaurants must schedule their workers at least two weeks in advance or pay extra for shift changes. San Francisco and Seattle have already passed similar laws.
The changes these cities have made are well-intended. They are passing laws to give fast-food workers more predictable schedules and paychecks, and I think that’s great. From my perspective as a franchise coach, the challenge we have is not so much the “well-intended” part, but the unintended consequences of these laws.
The legislation in these markets amounts to a penalty program for fast-food restaurant owners, which is not always justified. Owners of these fast-food establishments create schedules weeks and months in advance. They know how many hours are needed and schedule out those hours. So, why is it that they have people being called in at the last minute? The most frequent reason is that employees don’t show up for work. The business owners or their managers have hours scheduled well in advance and then they get a call from an employee who can’t make it in that day. When the worker doesn’t come in, the restaurant needs someone to fill in that gap and must also pay extra to those picking up those shifts.
These penalties place an additional burden on fast-food restaurants that are already feeling the squeeze with labor costs. A couple of years ago some cities and states began to increase the minimum wage from $7-$8 per hour to upwards of $15 per hour. If you as a business owner are forced to double your labor costs, your profit margins are slashed overnight and you find yourself running a failing business.
What are the options for restaurant owners?
One choice is to increase efficiencies and try to get more work out of the same employees and/or to deliver a product using fewer labor hours. Several years ago, in response to this, restaurants began to automate their ordering systems. Wendy’s will have over 1,000 stores this year that will automate the ordering system, and many McDonald’s are doing the same thing.
This is very similar to what happened in the airline industry, which saved airlines a lot of money. Instead of standing in line and dealing with an agent to check in, you can now get your boarding pass at home or from a kiosk. Fast-food restaurant owners are looking at their profits and losses and saying they need to reduce labor costs because they are not profitable anymore with these new rules such as mandatory wage increases and regulations such as the schedule security laws.
The other alternative for restaurant owners in these situations is to significantly increase the cost of the product to get back to the point where they have profitability again. Certainly, this is not something consumers want to see, and it could considerably decrease the number of customers patronizing these fast-food restaurants. And naturally, decreased customer flow means less profit and fewer jobs.
How should restaurant owners respond to these scheduling changes?
If they are part of a larger chain, I would suggest they listen to the franchisor, who have people that specialize in scheduling and creating the labor practices in place. If they are independent restaurant owners who don’t have those resources, I would recommend reading industry publications for articles on the issue and watching what other successful restaurant owners are doing in response before emulating them.
The most important thing is that we should always maintain a level playing field. There have been minimum wage increases passed recently that only apply to franchised businesses but not independent restaurants. If you have one restaurant with one set of expenses and another restaurant with a different set of expenses, it creates an uneven playing field. If a state or government is going to make these proclamations regarding what these costs are going to be, then they need to at least make sure it is fair for both sides.
While this regulation is certainly well-intended for the workers in these cities, it creates a major financial problem for these fast-food restaurant owners. This will force these owners to make changes, either raising prices for customers or laying off some employees — or even going so far as eliminating the need for employees by automating all processes.