A lawsuit brought by the International Franchise Association could set precedent for how states regulate chains
A federal judge will rule early next week on whether to temporarily suspend a portion of Seattle, Washington’s $15 minimum-wage law, pending the outcome of a longer inquiry into whether the legislation is constitutional. The International Franchise Association (IFA), which requested the temporary injunction, is suing the city of Seattle on charges that the new law unfairly discriminates against franchisees. The outcome of that lawsuit could potentially influence wage laws and other labor regulations across the country.
Seattle’s minimum-wage law, which is scheduled to take effect on April 1, requires employers to raise wages at different rates depending on how many workers they employ nationwide. A business with 500 or fewer employees in the U.S. must pay its workers at least $10 per hour starting on April 1, and $15 per hour by the first day of 2021. Businesses with more than 500 employees must pay at least $11 starting on April 1, and are required to raise their wages to $15 an hour by 2019, two years ahead of schedule.
The IFA isn’t trying to block the entire law. It simply rejects the way its members are affected by the distinction drawn between small and large businesses. Seattle counts franchisees among the businesses that will have to raise wages at a faster rate.
In other words, the city is placing franchisees in a separate category from other small businesses due to their licensing agreements with large conglomerates such as McDonald’s Corporation, the world’s largest fast-food chain.
The IFA argues that this violates the commerce clause of the U.S. Constitution because Seattle is attempting to regulate an interstate relationship between a franchisee and the licensing franchisor. Additionally, IFA lawyers charge that the law breaches the First and Fourteenth Amendments by discriminating against franchisees.
The IFA’s argument, if upheld, would not just affect Seattle. When officials in Chicago, Illinois were developing a plan to raise the city’s minimum wage last year, they initially floated a proposal similar to Seattle’s, under which franchisees would have been again regarded as large employers and required to raised their wages to at least $15 per hour at a faster rate than other small businesses. They eventually backed down under pressure from business groups, including the IFA.
Paul Clement, the lead attorney representing the IFA in its lawsuit against Seattle, referenced the defunct Chicago proposal when asked by a journalist for Fortune magazine whether the suit would “have ramifications beyond the city of Seattle.”
“For other jurisdictions looking to increase the minimum wage in a non-discriminatory way, this lawsuit won’t have any impact,” said Clement. “But for jurisdictions — and I think Chicago is one — that are using Seattle’s legislation as a model for their own, that want to borrow not only the $15 wage but the discriminatory provisions as well, then this lawsuit would have direct implications for them.”
Clement, who served as solicitor general under President George W. Bush, has something of a reputation for getting involved in precedent-setting cases. He has argued before the U.S. Supreme Court more than 75 times, including as part of a crucial 2012 lawsuit concerning the constitutionality of the Affordable Care Act.
Asked over email if the IFA viewed the Seattle lawsuit as a potentially precedent-setting test case, association spokesman Matt Haller told Al Jazeera: “Franchises provide opportunities for minorities, immigrants, veterans and first-time business owners to own their own businesses — and they do so at a greater rate than non-franchised businesses. If policymakers in other cities or states create barriers to economic growth and franchise ownership by adopting radical policies like Seattle, they do so at their own peril.”
A much larger fight
The IFA’s lawsuit isn’t just over whether franchisees can be compelled to raise wages at a faster rate than other small businesses; it’s part of a much larger fight over the legal status of franchises, and whether they can be regulated differently because of their licensing relationships with multinational corporations.
While the IFA maintains that a franchise is just a small business, experts like David Weil, head of the Wage and Hour Division at the U.S. Labor Department, maintain that the franchising model is primarily a clever way for businesses like McDonald’s to shift operational costs and legal liability away from corporate headquarters. In his book, The Fissured Workplace, Weil argues that delegating the operation of fast-food restaurants and commercial outlets to smaller franchisees helps keep wages low and working conditions poor.
Franchisees operate on a thinner profit margin than multinational firms, putting them under greater pressure to control costs. Because they have less of a stake in their brand integrity, writes Weil, they “may be more willing to violate consumer, workplace, or environmental regulations in order to reduce labor costs than would be the case for company-controlled units.”
Additionally, labor organizations have charged that many franchisors exert enough control over their franchisees to be considered “joint employers.” Over the past year, former employees at various McDonald’s restaurants have sued both the franchisees and the McDonald’s Corporation itself for wage theft and discrimination, claiming that McDonald’s manages the day-to-day operations of its franchisees closely enough to be legally liable when one of those franchisees violates labor laws. The general counsel for the National Labor Relations Board (NLRB) has supported this reasoning.
The fight over whether to treat McDonald’s as a joint employer with its franchisees is “thematically related” to the IFA’s lawsuit against Seattle, said Seattle University law professor Charlotte Garden.
“Although there are different legal principles at work in the two cases, they are both about the advantages that franchises get from the franchise relationship, especially relating to HR policies,” she said.
Seattle Mayor Ed Murray has justified his city’s treatment of franchisees under the new minimum wage law by saying that franchises “have resources that a small business in the Rainier Valley or a small sandwich shop on Capitol Hill do not have.”
“Franchise restaurants have menus that are developed by a corporate national entity, a food supply and products that are provided by a corporate national entity, training provided by a corporate national entity, and advertising provided by a corporate national entity,” said Murray in a June 2014 statement responding to the IFA’s lawsuit. “They are not the same as a local sandwich shop that opens up or a new local restaurant that opens up in the city. Our process for reaching $15 an hour in Seattle recognizes that difference.”
But Garden said the growing political momentum on behalf of minimum-wage hikes just gives franchisees and franchisors all the more reason to ensure that difference can’t be legally recognized.
“Given the types of legislative compromises that are often necessary to enact a minimum wage increase, I think some within the business community would very much like to advance a vision of the Fourteenth Amendment that subjects classifications of different types of businesses to heightened scrutiny,” she said.