On June 2 the Seattle City Council voted unanimously basis to increase the city's minimum wage to $15 an hour. This means Seattle will have the highest minimum wage among the largest cities in the United States. The $15 wage increase will be phased in over three to seven years with businesses with fewer than 500 employees given seven years to reach the $15 wage and larger businesses and franchisees three years. Those that provide health insurance to employees will have four years to comply.
The legislation failed to recognize individual franchisees as small businesses and revealed an anti-franchise bias from at least one member, Socialist City Councilwoman Kshama Sawant. Her post on Twitter said: “Enough with the blame game! Organize, go to corporate headquarters and renegotiate your rents.” “Subways (franchises) are not your corner mom and pop deli. Furthermore, even if it was, the reality is corporations are calling the shots. Why should we feed that model?” asked Sawant.
In response to the inclusion of franchisees as small businesses the International Franchise Association has stated that they intend to file a Federal lawsuit against the Seattle City Council. Attorneys feel the ordinance violates the commerce and equal protection clauses of the U.S. Constitution. “The fundamental legal problems with the Seattle ordinance are the fact of discrimination and the refusal to treat all small businesses the same,” said attorney Paul Clement.
Dana Rebik of Q13 FOX News reported that Chuck Stempler, who owns an Alpha Graphics store in Queen Anne, is one of 600 franchisees planning to file a federal lawsuit, through the International Franchise Association. Matt Hollek a Subway franchisee has eight employees and his franchise is considered a large business under Seattle’s new minimum wage law. “He has only three years to phase in $15 an hour versus seven years for ‘small’ businesses with fewer than 500 employees. He added that he’ll have to raise prices up to $1 per sandwich and scale back health care benefits for his workers.”
The Franchise King, Joel Libava wrote an open letter to Seattle Mayor Murray that brought the Seattle franchisee issue into focus. Joel did a good job in capturing the essence of why individual franchisees should not be classified as large businesses. In speaking to several representatives of franchisee associations there is unanimity regarding the Seattle City Council’s action regarding the classification of individual franchisees as large businesses.
Related to the minimum wage issue in Seattle is the justification used to group franchisees and franchisors into a single entity. Namely, those franchisors exert such strong control over their franchisees that this is akin to an employer employee relationship. In an article by franchise attorney James Mulcahy “Franchisors Wince as Some Courts Re-Label Franchisees as Employees Franchisors Look to State Legislatures” Mulcahy reports on some recent rulings regarding this issue and how franchising may best combat anticipated challenges to the employer employee distinction between franchisors and their franchisees.
As the franchise industry continues to come under pressure from unions and politicians regarding the wage issue these groups will look for additional weapons to use in their fight. We can expect the franchise industry to unite in order to avoid a repeat of what has taken place in Seattle.
© 2015 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow.com and Chief Operating
Officer, FranchiseGrade.com. He is a former
franchise executive and franchisee. He can be contacted at 631-246-5782 or