For Franchisees, Seattle’s Minimum Wage Law Offers More Questions Than Answers

A line has been drawn in the sand. But for Seattle’s franchisees, including its flagged hotels, where that line exists depends on where the dust ultimately settles. The city’s new minimum wage ordinance, which, in June, the city council unanimously voted for and Mayor Ed Murray signed into law, will raise Seattle’s minimum wage to $15 an hour, up from the current $9.32, making it the highest minimum wage in the country. The law requires that businesses with fewer than 500 employees comply with the raise (tips and benefits can make up part of the $15) in seven years. But businesses with more than 500 have only three years to comply (four if they provide silver or better health plans) and for them, there’s no credit toward the $15 for tips and benefits. The city has grouped franchisees, regardless of the number of employees they have, in the category of those 500+ large businesses, since they’re part of a franchise network. This means that any independently-owned and operated hotel flying a branded flag and paying franchise licensing fees, will have to comply with a mandate directed at big businesses.

Many on the front lines are unsure of the law’s language and how it’ll be implemented, while others are vehemently crying foul. On June 11, a lawsuit was filed against the city in federal court by five Seattle franchisees and the International Franchise Association (IFA), challenging the verbiage that affects the city’s 600 franchisees, which own 1,700 locations and employ 19,000 workers. While the wage increase is an incendiary topic, the uncertainty of what the law currently means for franchisees and how it will ultimately impact them down the road has many hoteliers in Seattle wondering how to plan for the future.

AH&LA and the Washington Lodging Association (WLA) both support the lawsuit, calling the franchisee language absurd. “There’s so much room for loopholes,” says WLA’s President and CEO Jan Simon. “You could be a mom-and-pop business with 499 employees and be considered in the small business category but a 20-employee hotel that’s a franchisee is subject to the conditions of big business.” The WLA also expressed outrage at how the city has hired lawyers outside of Seattle to handle their side of the lawsuit since their fees will fall on local taxpayers. Additionally, Seattle business groups are collecting petition signatures to bring a citizen vote on the measure in November and there’s the underlying question of whether cities can legally usurp state minimum wage laws in the first place.


Hotel franchisees will have to adapt to whatever happens but for now, everyone’s playing the wait-and-see game. “Seattle tourism is doing well, so this was an opportune time to push the measure through,” says Chris Tudor, owner of Tudor Inns, which includes a Travelodge (88 rooms, 22 employees) in downtown Seattle as well as the stand-alone College Inn (27 rooms, 10 employees) near the University of Washington. As an independent owner as well as a franchisee, he’s wearing both hats. “We live in a cyclical business. Three years from now, we could be on the downswing, whereas seven years from now, things would predictably be better,” he says. “It’s much easier to project a wage increase over seven years than it is for three.” Tudor isn’t contesting the wage increase, just the timing of it. “I’m a progressive and I feel seven years is fair but three years is much too aggressive. Plus the city hasn’t indicated how it plans to enforce the wage or what defines a full-time employee versus a trainee, for example. It makes it extremely difficult to budget. We may need to increase room rates to offset labor costs. We’ll have to evaluate how to be more efficient with staffing levels.”

Employees at downtown hotels are already averaging over $14 per hour, and when you factor in tips and other benefits that don’t necessarily hit the W2, the mean hourly wage rises to over $22. Outside of the downtown core, the wage transition might be more challenging. A $15 minimum wage was instilled on Jan. 1 in nearby SeaTac, the town that encompasses the Seattle-Tacoma International Airport and businesses serving travelers, including hotels. As a result, people are feeling the pinch. The Masterpark company tacked on a 99 cent per-day “Living Wage Surcharge” to its parking lot fees. A Clarion Hotel closed its sit-down restaurant in favor of vending machines. Stories arose of hotel workers who no longer receive free food at work but must bring their own. Concerns of disappearing overtime, holiday and vacation days, health insurance and 401(k)s are surfacing. And there’s the very real idea of managers taking on more responsibility and doing menial tasks themselves instead of keeping or hiring minimum wage-earning employees. All this raises the stress level for everyone involved.

A June study by Penn State University’s School of Hospitality Management, offered by the AH&LA, prophesied these things would happen. It concludes that extreme wage initiatives would reduce hotel room and restaurant revenues as well as occupancy taxes, the effect of which would cascade down toward a reduction of money spent on supplies, losses of staff positions (most notably food and beverage and housekeeping), and, ultimately, significant losses in hotel values. “It’s very troubling that businesses can’t be trusted to pay appropriate wages and are mandated to pay an extreme minimum wage,” Jan Simon says. “Businesses are going to suffer, and if you don’t have thriving businesses, you ultimately are putting the entire tax burden on individuals.”

The franchise component of the Seattle measure came up late in the city council’s discussions, according to Doug Dreher, president and CEO of The Hotel Group, a third-party management company, with 30 properties nationally, including one in Seattle. “It represents a lack of understanding on their part of business operations,” he says. “We were in pre-development of a SpringHill Suites property in Ballard, Wash., but looking at our pro forma after incorporating the wage increase, we realized we couldn’t achieve financing. The minimum wage wasn’t the sole reason the project fell through but it became a tipping point.” The unknown can be intimidating for any business owner. “A down cycle in the economy is a real concern and it remains to be seen what operating costs are three years from now,” he adds. “What will property insurance be then, real estate taxes, food costs? Construction costs are going up. The wage represents a 60 percent increase. I expect it’ll be expensive for the city to implement. It’s all about timing. When this hits, we could still be chugging along or there could be a perfect storm.”

As the IFA’s lawsuit takes center stage and the law continues to be challenged, the situation remains fluid. With a national discourse and municipalities like San Diego, Los Angeles, San Francisco, Boston, Philadelphia, and Chicago in various stages of process to hike their minimum wage levels, all eyes are on Seattle to see what transpires. “I believe there’s a strong legal case for the IFA lawsuit,” Dreher says. “But understand, we want to do right by our employees. Our industry is one of the great unsung employers of opportunity. I started out as a dishwasher. We want our employees to do well.” Chris Tudor agrees. “I believe that as the minimum wage increases, so too will the caliber of the employee,” he says. “I anticipate that a stronger talent pool will converge on Seattle to seek work that will put them on a career path as opposed to say a student just out looking for a summer job.”

But with that, there could be a catch. Minimum wage jobs often provide a gateway for people with limited experience or language skills to enter into a fulfilling career. “Once you have an extreme minimum wage, you run the risk of hurting the very people you claim you want to help because employers are going to expect more out of their employees to justify the wage. So they’re going to hire experienced people and you’ll be denying a new person entry and the chance to work their way up,” Jan Simon explains.

When asked how his employees feel about the measure, Tudor explains: “Our employees are dedicated, hard working, trustworthy people who’re excited about the increase but just as confused as I am about what’s going to happen.” He hopes that all this will be settled by next April, when the law is scheduled to go into effect. “Right now we’re at status quo, no changes are planned. I wouldn’t say that we’re worried but rather, cautiously optimistic about the future,” he says.

Photo credit: Reception Desk via Bigstock