The Seattle minimum wage provision classifying franchise businesses as big businesses might be unconstitutional, but it certainly is unfair.
SEATTLE’S landmark $15 minimum-wage law helped seed a movement that is gradually moving across the country. But no other city or state has passed a wage lift with the troubling element in Seattle’s law that intentionally discriminates against franchise businesses.
The legality of Seattle’s franchise ordinance was on trial Tuesday, as the International Franchise Association asked U.S. District Court Judge Richard Jones to halt its April 1 start date. Jones said he planned to decide within a week.
At issue is how quickly the 1,700-some franchise businesses in Seattle must raise wages. Seattle’s new law treats franchises as big businesses, putting them on a three-year phase-in to the $15 wage level, rather than a seven-year phase-in for small businesses.
Without changes, some franchises will fail under this intentional competitive disadvantage, argued former U.S. Solicitor General Paul Clement on behalf of the franchises.
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It is easy to substitute McDonald’s corporate face for the word “franchise” and feel no pang of sympathy. But in reality, franchise owners are often small, family-owned businesses, which get the use of a copyright, advertising, training and group buying discounts. In exchange, franchises typically pay between 4 and 7 percent of gross profits.
Unions dislike this business model and the low wages usually paid by quick-serve retailers, and have worked with some success to unionize fast-food workers. In the political pressure cooker of the $15 Now movement last year, Seattle Mayor Ed Murray and the City Council sided with the unions, and against the small-business owners who are franchisees.
The political decision, Clement argued, means that Seattle’s new law violates the Commerce Clause of the U.S. Constitution because it intentionally interferes with the advantages of the franchise model, and therefore interstate trade.
“‘Buy local’ might be a fine philosophy for a consumer,” Clement said. “But when it gets adopted by a city, it violates the Commerce Clause.”
In siding with the union pressure, Seattle sided against not only fast food chains, but also against pet groomers, barbers, businesses providing in-home care to elders and people with disabilities, and others.
Ronald Oh, whose family owns a Holiday Inn Express hotel in North Seattle, said the law’s intent to “alienate franchises” actually “alienates my family business.”
Oh said his father fled North Korea, and after years of work, his family opened the hotel in 2001. It took years to become profitable, but still holds millions in debt.
“Someone could build a hotel in Shoreline, less than a mile away from me that was a franchise hotel, that wouldn’t be subject to the same … minimum-wage standards,” Oh said in a deposition. “That could dramatically affect my business instantly.”
Seattle’s new minimum-wage law means that all low-paid workers in the city will get a raise. But how they’re raised, and how quickly, could mean life or death to many small businesses.
Regardless of Jones’ ruling, the City Council should revisit this inequity.