Panera is exempted from California's fast-food wage increase. A billionaire franchisee previously donated to Gov. Newsom.

• Panera was exempted from California's new minimum wage increase for fast-food chains in September. 
• Gov. Gavin Newsom is getting heat because Panera franchise owner Greg Flynn is a campaign donor.
• The clause exempts fast-food chains that sell bread as a stand-alone item.

California's minimum wage increase from $16 to $20 an hour for fast-food restaurant workers, set to go into effect in April, caused a stir among fast-food chains — but not Panera.

Now, California Gov. Gavin Newsom is getting heat following revelations of his connection to billionaire restaurant owner Greg Flynn — who happens to be a campaign donor.

Flynn is the founder and CEO of Flynn Group, which has over 2,600 US locations for Applebee's, Taco Bell, Panera, Arby's, Pizza Hut, and Wendy's.

He owns 12 Panera locations in California. There are 188 locations in the state, according to Panera's website.

Flynn Group's also owns Applebee's locations in California, but the law does not apply to full-service restaurants.

The news — first reported by Bloomberg on Wednesday — has already prompted calls for an investigation by top Republicans in the state, according to the San Francisco Chronicle, and lots of angry posts on social media.

The two have known each other for years and apparently attended the same high school, Bloomberg reported.

Flynn has been donating to Newsom's campaigns since 2014, and Flynn Properties Inc. gave about $164,800 in 2021 and 2022 toward causes for Newsom, campaign finance records show. That includes $64,000 toward his reelection and $100,000 toward the "stop the Republican recall of Governor Newsom" campaign.

Flynn's Panera locations enjoy a narrow exemption from California's wage increase in September because of a clause that excludes any establishment that sells bread as a stand-alone menu item — not bagels, not croissants, just bread as defined by the US Food and Drug Administration.

Nor does the exemption apply if the bread is available for sale as part of another menu item, say as a footlong Subway sandwich.

Nor can sub shops start selling loaves or burger shops baking their buns in-house in order to get their labor costs down — the rule only applies to restaurants that have been doing so as of September 15 last year.

When asked last year about the bread exemption that baffled many, Newsom said, "That's part of the sausage-making," declining to elaborate further.

In a response to Bloomberg, Newsom's office said the law was the "result of countless hours of negotiations with dozens of stakeholders over two years."

Flynn, in a conversation with Bloomberg, denied having a hand in the bread exemption.

Newsom's office, Flynn Group, and Panera did not immediately respond to a request for comment from Business Insider.

In short, that excludes basically many major fast-food chains besides Panera. A few smaller brands appear to benefit from the carve-out, including Paris Baguette and Great Harvest Bread Co, Bloomberg reported.

The new minimum wage rate is set to increase to $20 an hour in April for fast-food workers in California. Restaurants with 60 or more locations will have to implement the new pay rate and chains like McDonald's, Chipotle, and Jack In the Box have already planned for an $250,000 extra annual cost and say they will raise menu prices at their California stores.