Subscribe to Entrepreneur for $5

Franchises Lose Bid to Block Part of Seattle's Minimum Wage Rollout


A judge finally released a decision on how the minimum wage rollout will affect franchises in Seattle – and it's not looking good for franchisees.

On Tuesday, a federal judge rejected a request from the International Franchise Association (IFA) and five local franchisees to suspend a portion of Seattle's law that put franchise owners on the fast track to a $15 minimum wage. As a result, Seattle franchisees will still be grouped with companies that have 500-plus employees, and therefore expected to hike employee pay within the next three years.

Franchisees argued that, as local businesses, they ought to be grouped with small businesses and given at least seven years to raise wages to at least $15 per hour. However, U.S. District Judge Richard A. Jones determined that there was no evidence that the minimum wage law discriminated against franchisees, and therefore no grounds for a preliminary injunction.

Franchisors "have the ability to use their greater financial resources to support the franchise by aiding franchisees during time of business stress, including identifying and responding to changed business conditions," Jones wrote in the ruling. As a result, he determined that Seattle lawmakers could have "reasonably conceived" that franchisees would be in a greater position than other small businesses to accommodate the faster phase-in schedule.

Related: Franchise Industry Not Without Hurdles in 2015

The IFA and franchisees argued that the minimum wage hike purposefully targeted franchised companies, pointing to minimum wage committee member's derogatory comments on franchised companies and the Service Employees International Union's efforts to take down franchises. However, Jones determined that such comments were isolated and represented the viewpoints of independent citizens – not lawmakers.

"Yesterday's decision is clearly a disappointment but it is not the end of this fight," IFA president Steve Caldeira said in a statement. "The ordinance is clearly discriminatory and would harm hard-working small business owners who happen to be franchisees.

The minimum wage law, passed in June 2014, will take effect on April 1. The IFA and local franchisees had requested a preliminary injunction hoping to suspend the law prior to April. However, now it looks like the franchise industry is going to have to continue the battle after the law goes into effect. The IFA says it plans to pursue legal channels to win a permanent injunction against portions of the law that apply to small business franchises.

Related: Why the International Franchise Association Is Suing Seattle

Entrepreneur Editors' Picks