Seattle Judge Rejects Franchise Bias in New Minimum Wage

On March 17, U.S. District Court Judge Richard A. Jones rejected an appeal from the International Franchise Association (IFA) and five Seattle franchise business owners on the city’s new minimum wage law. The judge dismissed the notion that the law discriminates against franchisees and will present an uneven playing field for them to conduct business.

The IFA had filed a preliminary injunction against the city claiming that Seattle’s ordinance violates the U.S. Constitution’s Commerce Clause and unfairly categorizes small, independently owned franchises as big businesses—those who have at least 500 employees—simply because they’re part of a national franchise network. Under the new law, so-defined large businesses will be required to increase their minimum wage to $15 within three years, whereas small businesses have seven years to comply and can credit tips and other benefits toward that $15.

Seattle has approximately 600 franchisees—including hotel owners—who operate 1,700 franchise locations and employ roughly 19,000 workers. Last week, Judge Jones heard oral arguments from the IFA, its counsel, and its allies on the matter. On Tuesday, the Judge ruled that there was no convincing evidence to redirect the ordinance’s course. The law goes into effect on April 1, unabated.

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Although the IFA and the law’s other skeptics asserted they would suffer economic stress and competitive injury, Jones dismissed these allegations, saying there was no evidence to support their allegations. “There is certainly a reasonably conceivable state of facts that provides a rational basis for the classification of franchises as large business,” his written order reads. It goes on to conclude that franchises indeed benefit economically from the national brand relationship: “Those benefits include, among other things, national advertising, extremely valuable and well-known trademarks, the market power of a large corporation when purchasing supplies and raw materials, and access to valuable and trustworthy information based on the experiences of other franchises.”

Mayor Ed Murray, who championed the law, said, “It is time for these large businesses to begin investing in a higher minimum wage for their employers.”

Despite the ruling, the IFA will continue to challenge the law. “Yesterday’s decision is clearly a disappointment, but it is not the end of the fight,” said IFA President and CEO Steve Caldeira in a statement. “The ordinance is clearly discriminatory and would harm hard-working small business owners who happen to be franchisees. Those who have set out to destroy the long-accepted, time-tested, and proven franchise model must be stopped. IFA will continue to fight against discrimination of small business owners in Seattle and elsewhere. It was never about Seattle raising the minimum wage to $15 an hour but rather the increase applied in a discriminatory way.”

The American Hotel & Lodging Association (AH&LA), which supports the IFA’s injunction, also voiced its disappointment. “Yesterday’s decision to allow this unfair targeting of small businesses is part of a troubling pattern where the franchise model is under attack,” stated AH&LA President and CEO Katherine Lugar. “Under this law, the mom-and-pop hotels that make up a vast majority of our industry are considered large employers simply because of their affiliation with national brands. Despite this setback, we continue to support the IFA’s challenge to overturn the franchise provision in the city’s minimum wage ordinance and urge the court to consider small businesses that will inevitably be harmed by this measure as this case proceeds.”

Seattle’s small franchisees, now on the fast track to early compliance, must figure out ways to project a wage increase over three years as opposed to seven—a much taller order. The shift could alter a hotel’s workforce. In theory, entry-level positions that will now be earning $15 an hour may be asked to do more than mere menial tasks, which may deny opportunities for some under-qualified candidates. Other questions that arise for owners and consumers include how much the cost of goods and services will be raised inside city limits to offset the wage increase, whether “living wage/city surcharges” will be tacked on to customers’ bills, and whether customers will opt to frequent out-of-town business instead.

Seattle is the first major city to impose an “extreme” minimum wage ordinance. Whatever triumph or fallout happens in the Emerald City will set precedent wherever such a measure is being considered, including in Los Angeles, San Diego, San Francisco, Boston, Philadelphia, and Chicago.