Why the International Franchise Association Is Suing Seattle
The franchise industry and the city of Seattle are ready to duke it out on the topic of minimum wage.
On Tuesday, oral arguments began on the International Franchise Association's (IFA) preliminary injunction to block portions of Seattle's minimum wage hike, passed last June. The offending portions put franchised companies on the fast-track to raising minimum wage in three years, while allowing most small businesses seven years until they are forced to raise employee pay to $15 per hour.
The IFA and five Seattle franchisees sued the city in June 2014 on this issue, arguing that franchised locations with less than 500 employees should be allowed up to seven years until they raised employee pay. In August, the IFA and franchisees filed for a preliminary injunction, hoping to speed up the process to allow franchisees the necessary time to prepare for increased labor costs.
“Our lawsuit has nothing to do with the minimum wage increase to $15 and everything to do with creating a level-playing field for franchisees so they can continue to operate as the independent, locally-owned businesses that they actually are,” IFA president Steve Caldeira said in a statement on Tuesday.
The IFA argues that the minimum wage hike is purposefully targeting and punishing franchised companies in the minimum wage hike. The injunction quotes Seattle Mayor Ed Murray's statement on the topic from June, which reads, "There is a problem in the franchise business model and I believe this is a discussion franchise owners should be having with their corporate parents."
Franchised locations such as McDonald's and other fast-food chains have been major targets for minimum wage protesters. It would be unlikely that organizers such as the Service Employees International Union (SEIU) would support the law if franchised fast-food chains were treated as small businesses. In fact, last May, Mayor Murray told representatives from the IFA, McDonald's and Yum Brands that franchises were being considered large employers in order to secure approval from the SEIU.
The injunction claims that David Rolf, a co-chairman of the mayor's minimum wage committee and local SEIU head, told bar and restaurant owner David Meinert, another member of the committee, that the minimum wage hike was intended to "break the franchise model." Another member of the minimum wage committee, billionaire venture capitalist Nick Hanauer, wrote in an email, "The truth is that franchises like subway [sic] and McDonalds really are not very good for our local economy."
However, to be a franchise is not synonymous with being a fast-food location. When the minimum wage laws treats franchises as big businesses, all independent franchisees will be affected, from printing businesses to hotels.
At this point, even McDonald's is realizing it has to reconsider employee wages, for the sake of its reputation if nothing else. Its position as the face of the minimum wage debate has made both the chain and the franchise model more broadly a major target for protest. Fast-food chains' reputations as poor places for employees to work has, rightly or wrongly, helped create an environment where lawmakers can criticize – and allegedly discriminate against – any business operating under the franchise model.
Seattle's law may not be fair, but it is a reality check on how franchises are perceived.
Kate Taylor is a reporter at Business Insider. She was previously a reporter at Entrepreneur. Get in touch with tips and feedback on Twitter at @Kate_H_Taylor.