Why Were Bakeries Exempt From California's Minimum Wage Law? Confidentiality Pact Only Deepens Mystery

As California prepares to enforce a new $20-per-hour minimum wage for fast food workers next month, an unusual exemption for eateries that bake their own bread has come under scrutiny due to allegations it was initially intended to benefit a wealthy donor to Democratic Gov. Gavin Newsom’s campaign.

However, details have been hard to come by because of a tactic rarely associated with public policymaking: a signed confidentiality agreement that prevents some private groups from talking about their negotiations.

Two sources familiar with the negotiations confirmed to The Associated Press the agreement signed last summer covered some of the private parties involved, including labor unions representing restaurant workers and the industry group for restaurants. The agreement did not include Newsom or any other public officials. They said the agreement — first reported by KCRA — was not meant to shield the public from details that could embarrass public officials. Instead, it enabled two sides who distrust each other to come together and work out a compromise.

The sources spoke only on condition of anonymity due to the sensitivity of the negotiations.

Such agreements are common in the context of employment agreements, settlements of lawsuits, and deals involving trade secrets or intellectual property. But they’re less common in the legislative process, said David Loy, legal director of the First Amendment Coalition, a group that advocates for transparency in government.

“I think the public does have a right to know how the sausage is being made, so to speak. And if the deal is essentially cut between private parties and more or less rubber-stamped in the Legislature, it’s troubling that the public doesn’t get to know what deals are made,” Loy said. “On the other hand … a private organization is not obligated to produce records or comment to the media that doesn’t want to. So, I would say it’s a complicated issue.”

Bob Hertzberg, a former Assembly speaker and state Senate majority leader, called concerns about the confidentiality agreement “much ado about nothing.” He noted that the Legislature must vette all legislation in public. This agreement, he said, was likely just a mechanism “to start a discussion.”

“What ends up happening in these situations is … you end up having people in the same room who hate each other, don’t trust each other,” Hertzberg said. “The bottom line is you need to build trust. Everything is about trust to get people even to get into the room.”

The legislation establishing a $20-per-hour minimum wage for restaurant workers included an oddly specific exemption for eateries with on-site bakeries that sell bread. The exemption was also in a similar bill that passed in 2022, predating the confidentiality agreement.

Bloomberg News cited unidentified sources last month in reporting that Newsom had pushed for the bakery exemption to benefit Greg Flynn, a campaign donor whose company owns 24 Panera Bread restaurants. Newsom has called that allegation “absurd.” His administration’s legal team then analyzed the law and said Panera Bread was likely not exempt.

Flynn also denied the allegations and said that starting in April, he would pay all hourly workers at his Panera Bread restaurants $20 per hour or more.

Still, the mystery remains over who pushed for the bakery exemption and why it was included in the law. Even Democratic Assemblymember Chris Holden, the author of the law, said he didn’t know how it got in there.

That’s in part because the origins of the law reflect the reality of public policymaking in the United States. While all legislation must be vetted in public hearings and voted on by elected officials, in many cases, bills start with private parties — including companies, trade groups, and advocacy organizations — seeking to either protect their interests or resolve problems.

Lawmakers often act as referees on contested pieces of legislation. In the most intense conflicts, they will sometimes publicly urge both sides to talk with each other directly to resolve the thorniest issues.

That’s what happened in California last summer when labor unions and the fast food industry were locked in an escalating conflict over workers’ rights and companies’ legal liabilities. That conflict appeared headed toward the ballot box in the form of a referendum asking voters to decide. But that path would have cost both sides millions to pay for campaigns.

Democratic state Sen. Tom Umberg — chair of the powerful Judiciary Committee — implored both sides to “get to the table, stop posturing and negotiate a global settlement.”

Those groups, which included the Services Employees International Union and the California Restaurant Association, worked through the summer to reach an agreement that would withdraw the referendum from the ballot. That agreement turned into legislation, which eventually became a law requiring a $20 minimum wage for fast food workers beginning April 1.

While management and labor often negotiate in the workplace, they rarely work together at the state Legislature. At the time, labor unions were actively trying to organize workers at fast-food restaurants. And the industry was fighting to avoid an expansion of its legal liability that they said would have made it much harder to do business in the state.

The minimum wage law got public hearings in the Legislature. It was also debated on the floor of the state Assembly and Senate, where lawmakers made no changes, voted on it and sent it to Newsom, who signed it into law.

Republicans — whose numbers in the Legislature have dwindled to the point that they have almost no power to influence legislation — have long complained that Democrats negotiate major bills in private, only to then rush them through the required hearings with no changes.

Republican Assemblymember Vince Fong said he would introduce a bill this year that would ban nondisclosure agreements with public officials as part of negotiating legislation. It’s unclear if Fong’s proposal would have applied in this situation, as the confidentiality agreement did not include public officials.

“Transparency in government is the foundation of our democracy. It builds trust and confidence in the public process,” Fong said. “The fact that there are organizations that are using NDAs to prevent the public from knowing what’s going on — that’s wrong.”

Newsom spokesperson Alex Stack said Fong’s proposal would not change anything for their office because “the Governor’s office doesn’t sign NDAs, for legislation or anything else.”