On March 10, a U.S. District Court Judge heard oral arguments in Seattle concerning an injunction filed by the International Franchise Association last June against the city’s minimum wage law, set to go into effect April 1. The law requires large businesses with more than 500 employees to raise their minimum wage to $15 within three years. However, small businesses have seven years to comply and can also receive credits for tips and benefits toward the $15 benchmark. At issue is the fate of the city’s some 600 franchisees, including hotel owners, who must comply with the three-year window—regardless of number of employees—simply because they fly the flag of a national brand. The IFA’s lawsuit contends that franchisees shouldn’t be considered big businesses just because of their brand affiliation, and that Seattle’s law arbitrarily discriminates against small, independent franchise owners.
For three hours, Judge Richard A. Jones listened to both sides of the argument, including those of IFA Counsel Paul D. Clement of the firm Bancroft PLLC. At the close, Judge Jones stated he would weigh opinions and issue a ruling on March 17, leaving the matter twisting in the wind a mere three weeks before the law is set to go into effect.
“We don’t know if Judge Jones has already made up his mind or if he’ll come back with a favorable ruling next week,” said Matt Haller, the IFA’s SVP of communications and public affairs, in an interview with Lodging. “Paul Clement was absolutely clear in his arguments, demonstrating the discriminatory effect the law has on our membership and cited precedent as a reason for the lawsuit.”
The IFA posits that the ordinance violates the Commerce Clause of the U.S. Constitution because it categorizes small, independently owned franchises as big, out-of-state businesses. The IFA also contends that the law violates legal precedent that defines a franchisee as an independent local business owner who operates separately from the franchisor.
Proponents of the law—including Mayor Edward Murray, who ran for office on this platform—claim that since franchisees benefit from brand awareness and have access to marketing materials and robust supply chains, there exists a distinction between them and local, independent business owners who don’t have these resources. The IFA counters that franchisees are required to pay franchise fees and royalties for the privilege of using brand trademarks. To ask franchisees to comply with the $15 mandate under the current provisions will put their membership under significant financial stress, the IFA claims.
“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,” said IFA CEO Steve Caldiera in a statement on March 10. “We are not looking for special treatment for our hard-working franchisees with under 500 employees but equal treatment with the non-franchised businesses that also have under 500 employees.” If the law remains as written, the IFA plans to continue with their suit after April 1.
Meanwhile, city franchise owners and advocates are left to build contingency plans should April 1 arrive with no change to the law or ongoing suit. Since small businesses operate on such small margins, most agree that the cost of services—restaurant food and hotel rooms—will go up to offset the wage increase. Business owners have floated the idea of a Seattle surcharge, where a couple percentage points would be added to the customer’s bill. The surcharge raises other concerns, however, such as the impact it would have on businesses just outside the city limits and whether customers would go elsewhere to avoid increases.
Some believe minimum wage should be a state issue instead of a city issue, because that would create a level playing field. “I’m not sure our membership is ready for the change,” the IFA’s Haller said. “They’ve been immersed in the conversation for about a year now, but there’s still a lot of trepidation about having to increase their payroll by 10 percent in the first year and by 40 percent in year three. There could be irreparable harm from this.”
Seattle is the first major city to raise the minimum wage to $15, but the idea is gaining traction across the country. What happens here will impact businesses and economies in other municipalities as they weigh this very issue. “Other cities need to be taking a hard look at what’s going on in Seattle,” Haller said. “If you keep putting hurdles in front of businesses to do business, you’re going to end up denying opportunities to people who you’re intending to help, like minorities, women, and veterans.” For hoteliers and their employees, this remains on the radar as well.