Newsom Faces Questions Over ‘Sausage Making’ in Wage Law

Gov. Gavin Newsom of California has increasingly been a national presence, flying to Washington to meet with President Biden, appearing on Sunday news shows and targeting conservative states with ads for reproductive rights.

This week, however, a more local concern abruptly drew his attention to Sacramento: allegations that the Democratic governor favored a campaign donor who owns two dozen Panera Bread franchises by pushing for a carve-out in a new minimum wage law.

The controversy, triggered by a report in Bloomberg, has unleashed a flurry of charges and countercharges. The State Legislature’s Republican leaders have written to the California attorney general, demanding an investigation. Editorial boards have weighed in. (“Californians knead answers,” the Los Angeles Times opinion page declared.) A spokesman for the governor’s office dismissed the accusation of favoritism as “absurd.”

Political analysts compared the furor to another restaurant-related pickle involving Mr. Newsom.

“It’s hard not to think of the French Laundry,” said Dan Schnur, who teaches political communications at the University of Southern California and the University of California, Berkeley, alluding to the 2020 haute cuisine dinner the governor had during pandemic lockdown that helped fuel an unsuccessful but still troublesome recall effort against Mr. Newsom.

“It’s déjà vu all over again, although this time Newsom seems to be trying to address it before a small problem turns into a big problem,” Mr. Schnur said. “Still, his office still hasn’t provided a credible explanation for why the bill was drafted the way it was.”

At issue is legislation signed by the governor in September that will increase the minimum wage for more than a half-million fast-food workers to $20 per hour starting next month.

The legislation codified yearlong negotiations that had warded off a ballot fight between the state’s powerful labor lobby and fast-food giants and granted major concessions to each side. California’s $16 minimum wage would rise to $20 this year for fast-food workers. Lawmakers would step back from a plan to hold fast-food corporations legally liable for labor violations in their franchise locations.

At a news conference celebrating the hard-fought deal, the governor was asked why the language included an unusually specific exemption for restaurants with on-site bakeries that sold bread as a menu item. “That’s part of the sausage making,” he said, chalking the language up to “the nature of negotiation.”

“There are a lot of component parts in the industry,” he said. “It’s not just Jack in the Box, not just McDonald’s.”

On Wednesday, in a look at the new rules, Bloomberg reported that at least one industry component — Panera — had benefited from the unusual exemption. The report suggested, in fact, that a driving force behind the carve-out had been Greg Flynn, a Bay Area billionaire who has done business with the governor and is a longtime campaign donor.

Mr. Flynn’s company, which generates billions of dollars in sales from an assortment of franchises, owns two dozen Panera franchises in California, the report pointed out, and Mr. Flynn and Mr. Newsom attended the same high school in the Bay Area. Mr. Flynn has donated a little more than $200,000 to Mr. Newsom’s campaigns during the past seven years, campaign records show.

Republican legislative leaders lashed out, calling the report “the latest example” of the favoritism by California’s ambitious governor toward campaign backers.

“It’s not, ‘Oh, hey, this is just politics,’” said James Gallagher, who is the Republican leader in the Assembly and represents the rural northern Sacramento Valley. “This is not how our government should run.”

Conservative activists on Monday began another recall drive against Mr. Newsom, though political consultants in both parties said the bid has almost no chance of qualifying. It is the seventh such attempt against Mr. Newsom; the only one that reached the ballot was soundly rejected by voters in 2021.

In contrast to his sluggish reaction to the French Laundry fallout, which boosted recall signatures during the pandemic, the governor’s response to the Panera uproar was swift and forceful.

“The governor never met with Flynn about this bill and this story is absurd,” Alex Stack, a spokesman for the administration, said in a statement. Mr. Newsom has raised tens of millions of dollars in campaign donations from thousands of donors, and met with dozens of business owners in the course of the bill negotiations, administration officials said.

Moreover, Mr. Stack said, under the bakery exemption, the “establishment” must operate a bakery that “produces” bread “for sale on the establishment’s premises.” Many chain bakeries such as Panera Bread mix dough at centralized off-site locations and then ship that dough to retail locations for baking and sale.

“Our legal team has reviewed,” Mr. Stack said, “and it appears Panera is not exempt from the law.”

Tia Orr, executive director of S.E.I.U. California, a service workers union that was instrumental in negotiating the law, issued a statement saying that “there was never an intent to exclude one company, but instead to provide clarity on what constitutes a fast-food establishment.”

Similarly, a memo on Friday from Jot Condie, the president and chief executive of the California Restaurant Association, to the group’s board of directors asserted that the group was “involved in virtually every meeting” on the bill, “including the final negotiations in the governor’s office.” It added that “there was never a discussion — or even a mention — of any restaurant brand seeking an exemption from the law, including Panera Bread.”

In a statement to the television station KCRA, Mr. Flynn said that while he had opposed the initial fast-food law, so had “thousands of other California restaurant owners” and “at no time did I ask for an exemption or special considerations.”

Mr. Flynn said he had met with the governor’s office, but not the governor himself. He had sought not to exclude his own restaurants, but the whole category of “fast-casual” sit-down restaurants. He said he was “surprised” to see the special bakery exemption because it was too narrow to have much practical value. As fast-food wages rise, he said, fast-casual restaurants would have to increase pay to compete for workers.

Also, he said, he had not met the governor in person until he was an adult. Although they attended the same high school, he said in the statement, “I never met him there.”

Keith Miller, a Subway franchisee in Northern California who staunchly opposed the fast-food legislation, said that while the bread exemption had always struck him as odd, it’s far from his biggest concern with the new law.

Mr. Miller, a vocal advocate for fellow restaurant owners, said that too few franchisees were involved in the talks about shaping the legislation with Mr. Newsom’s team and union leaders.

In recent months, Mr. Miller said, he has fielded calls from several other franchisees about next steps and how to prepare financially for when the law takes effect April 1.

“Our opposition is not simply based on wages,” he said. “Why is the law segregated to go only after franchisee owners of fast-food restaurants? People who work at big box stores or hotels don’t need a fair wage?”

Willie Armstrong, the chief of staff for Chris Holden, the Democratic assemblyman from Pasadena who sponsored the legislation, said the lawmaker would not offer insights on Friday into the exemption for bread bakeries.

“However, half a million fast-food workers in our state now have the power to improve their workplace,” Mr. Armstrong said in a statement, and “will be able to put more food on their own tables.”