A major Carl's Jr. franchisee filed for Chapter 11 bankruptcy protection last month, directly blaming California's $20-an-hour minimum wage law for fast-food workers, and the chain's broader California retreat is now visible in its own franchise documents.
Friendly Franchisees Corporation, which operates 59 Carl's Jr. locations across California and employs roughly 1,000 workers, sought bankruptcy protection after falling behind on rent, royalties, and other payments tied to several franchise agreements. Some of its locations now face possible termination. The company's CEO and founder, Harshad Dharod, said the wage increase had "materially increased operating expenses" even as the business continued to pull in millions in monthly revenue.
The filing landed just as the California Fast Food Workers Union announced strikes at Carl's Jr. locations over allegations of unsafe conditions, understaffing, and wage violations. Together, the bankruptcy and the labor unrest paint a picture of a fast-food brand caught between a state-imposed cost floor and a customer base that is spending less, a combination that California's Democratic leadership either did not foresee or chose to ignore.
Court filings tied to subsidiary Sun Gir showed the business generated approximately $19.9 million in net sales during the first three months of 2025, averaging between $6 million and $7 million per month. That is not a small operation. Yet the company still posted a net loss of around $2 million over the same period, as the Daily Mail reported, citing "significant ongoing operating expenses" described in the filings.
Nearly $20 million in quarterly revenue, and the operator still lost money. That gap tells you everything about the cost environment California has created for fast-food businesses.
The bankruptcy filing stated the company needed access to cash collateral to continue meeting payroll, purchasing food inventory, paying insurance, and keeping stores open during restructuring. Friendly Franchisees Corporation's collapse touched roughly 11 percent of Carl's Jr.'s California operations, with 52 of its locations concentrated in Southern California.
Dharod did not pin blame on the wage law alone. He pointed to weakening sales, tougher competition, what he called a "lack of innovation at the franchisor level," "reduced marketing effectiveness," and executive turnover within the wider Carl's Jr. system. But the wage mandate was the factor he named first and described in the most concrete terms.
Carl's Jr.'s California store count tells a story of steady contraction. Franchise documents show the chain operated 613 locations in the state in 2023. By 2025, that number had dropped to 588, a loss of 25 stores in two years, a period that coincides almost exactly with the rollout and implementation of the $20 minimum wage law, which took effect in 2024.
Consumer spending data reinforces the trend. Circana, a market research firm, reported that total consumer spending at Carl's Jr. fell 4 percent in 2025. The chain is not just losing locations; it is losing customers.
The fast-food industry nationwide has faced margin pressure from inflation and shifting consumer habits. Subway has closed hundreds of U.S. locations as part of a decade-long contraction. But California's wage mandate adds a layer of cost that operators in other states simply do not carry, and the results are showing up in bankruptcy dockets and franchise disclosures alike.
The $20 wage deal emerged from a political compromise between organized labor groups and restaurant industry leaders after state lawmakers considered an even higher sector-wide wage mandate. The compromise was sold as a balanced outcome. For operators like Friendly Franchisees Corporation, the balance has tipped toward insolvency.
Last week, the California Fast Food Workers Union announced strikes at Carl's Jr. locations, citing what it described as unsafe working conditions, chronic understaffing, and wage issues. Workers and union organizers alleged that employees had endured "several violent attacks and robberies" over the past year.
The union described incidents including an alleged threat involving a frying basket, an alleged punch to an employee's face, and a reported theft of cash from a worker's hand. In a statement, the union said:
"Nearly every day we're subjected to aggressive and violent behavior by angry customers who yell at us and throw food at us."
Another union statement added: "We live in fear just walking to work from the parking lot."
An unnamed worker, whose comments the union shared on Instagram, described conditions inside the store as "humiliating" and alleged that staff were sometimes required to work off the clock and miss legally mandated breaks. The worker claimed employees were forced to work with broken cleaning equipment and inadequate disinfectant supplies.
"I'm on strike at Carl's Jr. because my coworkers and I have experienced chronic understaffing, lack of proper cooking and cleaning supplies, and inadequate personal protective equipment."
The worker also claimed that employees who raised concerns later saw their hours reduced "without warning and explanation." Carl's Jr. has not publicly responded in detail to the latest allegations.
These are serious claims, and they deserve investigation. But it is worth noting that every one of them comes from the union or from workers whose statements the union distributed. No police reports, arrest records, or injury documentation have been cited. Franchisee financial distress is a documented, growing problem across the fast-food industry, and labor disputes tend to intensify when operators are already struggling to keep the lights on.
Jonathan Turley, a law professor at George Washington University, framed the Carl's Jr. situation as part of a wider pattern of economic damage in the state.
"California's war on basic economics continues to rack up losses."
The $20 wage law was supposed to lift fast-food workers into a better financial position. What it has delivered, at least in this case, is a franchisee in bankruptcy, stores at risk of closure, workers alleging that conditions have worsened rather than improved, and a chain pulling back from the state where it was born.
Carl's Jr. even tried to generate cultural buzz, hiring TikTok star Alix Earle as the face of its Super Bowl campaign last year. Marketing flash has not been enough to offset the structural cost problem California created.
Meanwhile, competitors that have found ways to deliver value to inflation-battered customers are holding their ground. McDonald's recently beat Wall Street expectations by leaning into value meals and new menu items. The gap between chains that can absorb higher costs and those that cannot is widening, and California's wage mandate accelerates the sorting.
The state's political leadership has shown little interest in measuring the downstream consequences of the policy. Store closures, reduced hours, franchise bankruptcies, and a 4 percent drop in consumer spending at the affected chain are treated as background noise, not as evidence that the policy is producing the opposite of what was promised.
Some chains continue to thrive through operational discipline and brand loyalty. But thriving despite government-imposed cost burdens is not the same as thriving because of good policy. The operators who cannot absorb the hit are the ones filing for bankruptcy, and their workers are the ones walking picket lines.
The people California's wage law was designed to help, front-line fast-food workers, are now employed by a bankrupt operator, alleging unsafe conditions, claiming their hours have been cut, and striking for better treatment. The $20-an-hour floor did not protect them from any of that.
What it did was raise the cost of doing business past the break-even point for a company running 59 locations and employing a thousand people. Court filings show the math. Nearly $20 million in revenue over three months, and the operator still lost $2 million. That is not a business model problem. That is a cost-structure problem imposed from Sacramento.
California lawmakers got the headline they wanted: the highest fast-food minimum wage in the country. The workers got a bankrupt employer, stores at risk of closing, and, if the union's allegations hold up, conditions that are worse than before the raise kicked in.
When the policy's intended beneficiaries are the ones filing grievances and walking off the job, it is fair to ask whether the policy was ever really about them, or whether it was about giving Sacramento another chance to prove that it knows better than the market how to run a restaurant.
The market's answer is sitting in a bankruptcy court.