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This year is bringing significant challenges for operators in the quick-service restaurant industry. Some may come as a surprise, and some are a continuation of the biggest hurdles in recent years, as new laws, increasing threats, and economic pressures that aren't letting up create a perfect storm capable of taking down even the most beloved brands and restaurant locations. Sustainable growth and success in this highly competitive landscape requires extensive planning and, ideally, a cross-disciplinary team of advisers familiar with the QSR space. Below are some of the biggest challenges facing QSRs today and practical guidance on how to navigate them.
Navigating Employment Challenges and Rising Wage Costs
Jobs in fast food, fast casual, and QSR environments are a hot topic and often at the center of the minimum wage debate. States like California illustrate the massive downstream effects of mandatory wage increases in the sector. In 2024, California passed the Fast Food Accountability and Standards Recovery Act (FAST Act), which raised the minimum wage to $20 per hour for some national fast-food chains with more than 60 locations operating in the state. Meanwhile, for restaurants not subject to the FAST Act, the California minimum wage increased to $16.90 on January 1, 2026.
While studies are conflicting as to the effect this wage increase has had on the QSR industry, the California WARN report for the period from August 1, 2024 through June 30, 2025, reveals that Shake Shack and McDonald's laid off hundreds of workers in California. Meanwhile, the U.S. Bureau of Labor Statistics released quarterly census data in September 2025 showing that California's fast food industry continued to lose jobs through the first quarter of 2025, with 15,988 fast food jobs lost since the FAST Act went into effect. The same report reflects that the rate of fast-food jobs in California since September 2023 (–3.3 percent of jobs lost) more than doubled the losses in fast food restaurants nationally (–1.6 percent of jobs lost) during the same time period.
The Fast Act also created the Fast Food Council (FFC), a nine-member group that is part of the Department of Industrial Relations (DIR). While the FFC is empowered to raise wages annually by up to 3.5 percent or the Consumer Price Index, whichever is less, the DIR website reflects only two subcommittee meetings and no meetings of the entire council. Reportedly, the group has been inactive since the former chair stepped down in May 2025. The DIR still lists the Chair position as "vacant." Businesses and employees alike are eager to see if the FFC will implement wage increases in the coming year.
As if these wage issues weren't challenging enough, amendments to California Labor Code Section 351, which went into effect on January 1, 2026, give the state's Labor Commissioner authority to investigate and pursue civil actions in response to employee complaints about unpaid tips. Section 351 provides that tips paid, given to, or left for an employee or group of employees are their property, and it further requires that the payment of a gratuity made by a patron using a credit card must be paid to the employee not later than the next regular payday following the date the patron authorized the credit card payment.
States like California are also diligent about required postings and notices of protected rights. California's Workplace Know Your Rights Act requires all employers to post this new notice by February 1, 2026, and to permit all employees to designate specific emergency contacts for arrests or detentions at work or while on duty by March 30, 2026. Meanwhile, the California Division of Labor Standards Enforcement (DSLE) has updated the state Paid Sick Leave poster to reflect expanded rights to use paid sick leave.
On a national level, the crackdown in immigration enforcement has led to loss of employees—while at the same time impacting the ability to hire new workers—as many foreign-born employees are fearful of going to work as ICE raids continue.
Avoiding Costly Lawsuits
State and federal consumer privacy laws have continued to impact the sector, requiring QSRs to be mindful of their compliance, including with laws that extend to AI services like chatbots or management tools. New types of zombie privacy claims continue to appear regularly, and it can be costly to defend against settlement-hungry plaintiff's firms. QSR websites that use common adtech or marketing tools may be a target under pre-internet wiretapping and privacy laws, even if a cookie banner or privacy policy is already in place. QSRs should ensure all website visitors have unavoidable notice of the contract and privacy practices governing their use. A binding contract with an effective dispute-resolution mechanism can help deter zombie claims. Additionally, reevaluating consent mechanisms and data-routing practices can help proactively mitigate these shifting risks.
Restaurants have also been increasingly targeted in consumer actions for alleged violations of California's Proposition 65, which requires businesses with 10 or more employees to provide a "clear and reasonable" warning to California consumers before exposing them to one of approximately 1,000 listed chemicals. The Office of Environmental Health Hazard Assessment (OEHHA), the California agency with oversight over Prop. 65, periodically adds new chemicals to the Prop. 65 list. Once a new chemical is added, businesses have one year to begin providing clear and reasonable Prop. 65 warnings before knowingly and intentionally exposing individuals to the chemical.
In December 2023, OEHHA added Bisphenol S (BPS), commonly used as a coating on thermal receipt paper, as well as tags, labels, and stickers, to the Prop. 65 list of chemicals. Restaurants have been the target of consumer Prop. 65 enforcement actions for using receipt paper containing BPS without providing Prop. 65 warnings. OEHHA has not established a No Significant Risk Level (NSRL) or Maximum Allowable Dose Level (MADL) for BPS. As a result, businesses cannot rely on a straightforward quantitative exposure defense and must either provide a warning or eliminate the exposure.
Potential penalties for failing to comply include steep civil penalties of up to $2,500 per day for each violation and payment of the plaintiff's attorney's fees. Enforcers have collected millions of dollars in attorneys' fees in connection with thermal receipt Prop. 65 claims, so QSRs operating in California must understand their potential liability and take measures to avoid using BPS in thermal receipt paper or employ warnings.
Balancing Inflation Against Customer Loyalty
As is the case for most industries right now, the implementation of tariffs mixed with an already turbulent economy has been wreaking havoc on prices and profits for QSRs. Menu items cost more, yet consumers struggling with less disposable income are spending less money dining or carrying out. Where possible, QSRs should consider modifying ingredients, boosting supply chain efficiency, or other means to lower their production costs, though this is easier said than done when margins are already thin.
With foot traffic decreasing and demand being elastic, brands will find the most success in differentiating themselves against competitors. Loyalty apps can help keep customers coming back, especially for brands offering frequent deals. Digital marketing is critically important for positioning oneself against competitors. Customers are continuing to be drawn to the most memorable experiences in a highly competitive market, and the brands that incentivize customer loyalty.
Originally published by QSR on the 28th of January, 2026.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
