(Bloomberg) -- Billionaire Greg Flynn, who owns two dozen Panera Bread franchises in California, said he suggested excluding fast-casual restaurants from a bill raising minimum wages for fast-food workers in the state, but was surprised when chains that make and sell bread were specifically exempted from the final legislation. 

“To be clear, at no time did I ask for an exemption or special considerations,” Flynn said in a statement late Thursday after Bloomberg News reported that Governor Gavin Newsom pushed for places that make and sell bread to be excluded from the bill. “I was surprised when the exemption appeared in the final legislation.”

​Flynn, a long-time Newsom campaign donor and one of the world’s largest restaurant-franchise operators, said he never met with the governor over the bill, though he “did meet with his staff in a group meeting with other restaurant owners.” 

The sweeping wage law, which takes effect in April, will lift minimum pay for fast-food workers to $20 an hour from $16 at chains with at least 60 locations nationwide — legislation that is poised to provide a boost to many Californians. 

The specificity of the bread carve-out has puzzled observers for months, especially after Newsom was asked about the exemption during a September press conference and he said it came about as “part of the sausage-making” of politics and that it was “part of the negotiation.” 

Panera didn’t reply to multiple requests for comment. 

Bloomberg News reported that Flynn urged the governor’s top aides to reconsider whether fast-casual chains such as Panera should be classified as fast food. While that measure wasn’t adopted, the key labor union that sponsored the bill agreed to a narrower exemption for chains that bake bread to secure Newsom’s support, Bloomberg reported, citing a person with knowledge of the negotiations.

Following the article’s publication, Republican lawmakers called for an explanation around Newsom’s role in the negotiations around the law. The governor’s office said that after the story was published, it conducted a legal review. Based on the review, it appears that Panera wouldn’t benefit from the bread exemption, Newsom’s office said, revising an earlier stance. 

“Our legal team has reviewed, and it appears Panera is not exempt from the law,” the governor’s office said in a statement, calling the Bloomberg article “absurd” and saying the governor had never met with Flynn about the exemption. 

Until this week, the governor’s staffers had understood that the bread exemption applied to Panera, said Erin Mellon, Newsom’s communications director.

“Because of your reporting the lawyers have gone back and looked at the exemption and their analysis is that Panera may not be exempt,” she said. “The exemption was never about Panera. It was always about defining fast food from fast casual.”

The bread carve-out was crafted by legislators, business, and labor leaders, said Alex Stack, deputy communications director for Newsom. The intention was to establish a definition of “fast food” that would “capture the fast food chains where workers have been historically underpaid,” he said. 

“We believe establishments would not be exempted from the law if they bake dough that is mixed and produced off-site — unlike how a traditional bakery makes bread,” Stack said in an email to Bloomberg News. 

Under the law, a company can be exempt if it “produces for sale on the establishment’s premises bread,” as defined by a federal regulation, and sells it as a standalone item. That regulation says bread is “produced by baking mixed yeast-leavened dough prepared” from certain ingredients.

Stack acknowledged that the opinion from the governor’s office “is not the final word on implementing this legislation.” A fast-food council may help develop regulations. The California Department of Industrial Relations has enforcement authority over claims in individual cases, he said. The agency didn’t reply to a request for comment.

“Ultimately, the courts may have to make the final ruling,” Stack said. 

Tia Orr, who directs the California chapter of the Service Employees International Union, which championed the wage law, was cited by Politico as saying that there was never an intent to exclude one company, but rather to give clarity on what constitutes a fast-food establishment. 

Wage Increases

Bloomberg reported that a handful of other companies, such as Great Harvest Bread Co. and Paris Baguette, also appear to qualify for the carve-out, according to company websites and a review of data compiled by research firm Technomic, although details remain uncertain ahead of the law’s debut. 

Some chains widely considered to be part of the fast-casual segment, including Chipotle Mexican Grill Inc. and Cava Group Inc., have said they expect to raise wages to comply with the new law. 

As for Flynn, he said he’ll probably have to raise wages, too. 

“Such a narrow exemption has very little practical value,” he said. “As it applies to all of our peer restaurants in the fast-casual segment, we will almost certainly have to offer market value wages in order to attract and retain employees.” 

In recent years, Flynn’s donations to Newsom’s political campaigns have included $100,000 to fight off a conservative-led recall effort and $64,800 to support the governor’s reelection in 2022. 

He and Newsom attended the same high school in the San Francisco suburbs, but they didn’t know each other at the time, Flynn said in his statement. 

“Although we attended the same high school, I never met him there and in fact didn’t meet him until decades later,” he said. 

©2024 Bloomberg L.P.