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Seattle's Minimum Wage and Franchise Discrimination

Last week, the Seattle City Council passed an ordinance that would raise the minimum wage to $15 an hour over the next several years.  While many businesses will struggle to adjust to the new minimum, the ordinance will be particularly devastating to Seattle franchisees because, under the terms of the ordinance, most franchisees will be considered “Schedule I Employers” and will be required to pay all of their employees $11 an hour by April 2015, $13 dollars an hour by 2016 and $15 an hour by 2017.

The Seattle ordinance distinguishes between small and big businesses by defining businesses as either Schedule I employers who must phase in a $15 an hour minimum wage by 2017 or Schedule II employers who have until 2021.  The reason for the distinction was to allow small business owners more time to adjust their business model to the new minimum wage.  However, the ordinance defines all “franchisees associated with a franchisor or network of franchises that employ more than 500 employees in aggregate in the United States” as Schedule I employers just like Amazon, Starbucks and Boeing.  According to the Seattle City Council, all franchisees are big business owners and have the same ability to implement cost saving measures and other economies of scale as major corporations.  Council members have argued that because franchisees who purchase well known franchises such as McDonalds must show that they have significant financial resources and pay a substantial franchise fees, all franchisees must be similarly situated—and be able to adapt quickly to the higher minimum wage.   Of course anyone with a basic knowledge of franchising knows that it not the case.

 

The minimum wage ordinance isn’t just a massive challenge to Seattle franchisees it also poses a significant threat to franchisees in other cities which are considering increasing the minimum wage and will likely look to Seattle’s ordinance for guidance.  The Seattle City Council’s failure to understand the basic facts of franchising illustrates how vital it is that franchisees and franchisors work together to educate elected officials on the nature of franchising and how legislation will affect franchisees, who represent a significant percentage of small business owners.   The concept of a $15 an hour minimum wage has its roots in the protests of fast food employees for a living wage.   In Seattle, the fast food workers and the labor unions that support them have been to control the narrative.  The voices of the Seattle franchisees that will be forced to lay off employees or close their business have been drowned out. It is essential that franchisees, franchisors and franchise associations speak with one voice in speaking out against a special standard for franchisee owned small businesses.  It does not make sense, legally or financially and ultimately it will be franchisees and their employees who will pay the price. 

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About Caroline B. Fichter

Caroline B. Fichter's picture

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Caroline is an associate with the Bundy Law Firm in Kirkland, Washington. She represents franchisors, franchisees and other small business owners in "cradle to grave" business matters, including franchising, real estate, business entity , and litigation. Prior to joining the Bundy Law Firm, Caroline worked for several years as a prosecutor.

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