The city of Seattle’s decision to phase in a $15 minimum wage has caused quite an uproar. There is one group in particular causing a ruckus: franchise owners. And it appears that they are doing so with good reason.
The Seattle City Council unanimously approved a minimum wage hike this past Monday, June 2. The new legislation will phase in a $15 per hour minimum wage annually over 3 to 7 years, depending on employer size. The phase-in process begins April 1, 2015. Many have championed the move as an important step in addressing income inequality. “Today we answer President Obama’s call and the moral call to address the plight of low wage workers,” Councilmember Sally J. Clark, chair of the City Council’s Select Committee on the Minimum Wage and Income Inequality, explained. “Seattle’s new law puts low wage workers on a path to $15 and does it in a way that respects Seattle’s love for local businesses and world-leading innovation.”
The Seattle City Council feels that this new measure is an appropriate compromise, balancing the need to address income inequality with the needs of business through a gradual, scaled implementation. “Seattle has found a workable and careful compromise that recognizes both the harm caused by stagnant wages and the harm to local businesses should we move forward too quickly,” Council President Tim Burgess said.
But not everyone is championing the measure as a necessary means of addressing income inequality. Franchise owners, particularly, are up in arms about the minimum wage boost. In an announcement Monday and follow-up press conference Tuesday, the International Franchise Association said it will sue to challenge Seattle’s new law. The lawsuit contends that the law unfairly discriminates against franchises.
The problem, the group explains, is the phase-in plan. The new Seattle legislation creates a tiered phase-in plan, under which big businesses must implement the $15 minimum wage faster than small businesses. Unfortunately, local franchises have been classified as big businesses, because they are part of a national organization that employs many workers in all. That means that a Seattle Subway will have to implement the changes faster than the local sandwich shop. Most franchises will have a mere three years to phase in the wage hike.
IFA president and CEO Matthew Caldeira contends that this is unfair and unacceptable. “This lawsuit is not about the minimum wage,” Caldeira said. “Franchisees are being punished because they choose to operate as franchisees. Decades of legal precedent have held that franchise businesses are independently owned businesses and are not operated by the brand’s corporate headquarters.”
Local franchise owner Chuck Stempler agreed. “This is just grossly unfair and unprecedented. We are significantly disadvantaged by this arbitrary and capricious decision,” he implored. The Seattle Times has also echoed this sentiment, opining that the city should amend the law to treat franchisees equally with other small business owners.
So, how will this all play out in the courtroom? It is far too early to tell for sure, but it looks like the IFA does have a good case. Setting franchise owners apart from other small business owners is a violation of the Federal Commerce Clause, said IFA attorney and former U.S. Solicitor General Paul Clement of Bancroft PLLC. Clement also explained that Washington state’s constitution contains a similar but stricter law that forbids local businesses from receiving more favorable treatment than those that have national ties. In all likelihood, these laws of equal protection will come into play in the IFA’s filing, which is still being prepared.
The IFA estimates there are roughly 600 franchise business owners in the Seattle area, employing about 19,000 workers. A ruling against the IFA could do serious damage to Seattle’s franchisees, while many speculate that a favorable ruling could undermine the entire minimum wage bill. Only time will tell how this all plays out. Regardless of the ruling, however, the case raises a variety of contentious issues regarding franchises, economic equality, and a fair wage.
Article by Jason Duncan, CEO/Founder of ManagerComplete.com. ManagerComplete is an online software application that helps multi-unit franchises manage operations effectively. Follow him on Twitter for latest updates.