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Carl’s Jr. is staring down the potential loss of dozens of California locations after a franchisee and its affiliates filed for bankruptcy protection — blaming the state’s staggering minimum wage.
Franchisee Sun Gir Inc., which is leading the Chapter 11 action, is putting 49 of its California restaurants up for sale as part of the proceedings.
Friendly Franchisees Corporation CEO and Founder Harshad Dharod said the state’s $20 minimum wage in the fast-food sector contributes to the chain’s financial distress ahead of bankruptcy filing under subsidiary Sun Gir, according to Restaurant Dive.
Dharod said the minimum wage, enacted in 2024, “materially increased operating expenses,” and the operator struggled with “reduced marketing effectiveness” and a “lack of innovation at the franchisor level.”
Sun Gir has cited “significant ongoing operating expenses,” worsened by the high minimum wage, for putting in default of its franchisee agreements at a number of locations. It also noted a “failure to timely pay rent, royalties and other required charges,” per the court filing.
Sun Gir will use cash collateral to pay about 1,000 of its employees, along with paying rent, insurance, and complete obligations under its franchise and lease agreements, according to Restaurant Dive.
Despite the bankruptcy proceeding, the company claimed on its website that it drove profits and sales “far above the brand average.”
California’s high fast-food minimum wage has spelled trouble for other fast-food operators,
A study published last year by the National Bureau of Economic Research (NBER) this month found that the state’s fast-food minimum wage hike cost the state thousands of jobs.
Researchers found that the the minimum wage hike has cost the fast-food sector 18,000 jobs since it went into effect in April 2024, representing a 3.2% decline in that sector compared to fast-food sectors in other parts of the country.
“Our median estimate translates into a loss of 18,000 jobs in California’s fast-food sector relative to the counterfactual,” researchers Jeffrey Clemens, Olivia Edwards, and Jonathan Meer wrote in their paper.
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