Yesterday, Washington federal judge Richard A Jones denied the International Franchise Association’s request for a preliminary injunction which would have stalled the implementation of Seattle’s wage hike to the $15-per-hour minimum wage for that city as it applies to franchisees. As we have blogged in the past, the schedule to implement the $15 minimum wage in Seattle is faster for large businesses with 500 employees or more (3 years) rather than the 7 years allowed for smaller businesses. Under the legislation, franchisees are classified as large businesses if they are part of a franchise system which employs 500 employees or more, despite the fact that a franchisee is a separate business which may, in reality, only employ a few employees.
Though Judge Jones acknowledged the “legal separateness” of franchisors, he went through an extensive analysis in denying the injunction which includes an emphasis on the benefits that franchisees derive from being part of a franchise system. He states: “Franchisees accede to the franchisor’s restrictions because being part of a larger network provides significant benefits…Participation in this system also often affords franchisees more profit than they would earn as individual business owners…franchisors also have the ability to use their greater financial resources to support the franchise by aiding franchisees during time of business stress.” The case is International Franchise Association Inc. et al.v. City of Seattle et al., case number 2:14-cv-00848 in the US District Court for the Western District of Washington.
Many of larger burger chains are used as examples of the financial strength of franchisees. The denial quotes the Seattle Mayor’s office as saying “Franchises have resources that small business in the Rainier Valley or a small sandwich shop on Capitol Hill do not have…”. The judge focuses on supposed “advantages” to say that the ordinance is consistent with its stated purpose of differentiating between large and small businesses and it therefore not discriminatory. He also states that the plaintiffs have not met the burden of demonstrating irreparable harm. But we know better: franchises ARE small businesses, with livelihoods and small business loans at risk. Despite window dressing respecting “legal separateness,” the ruling utterly fails to acknowledge the fundamental structure of franchising.
This is a significant defeat for the IFA and the franchisees that joined in the fight, but they have vowed to fight on. See, e.g., Judge rejects franchises’ bid to stop part of Seattle minimum-wage law and Federal Ruling Clears Seattle to Start Push for $15 Minimum Wage.
The danger is in the continued erosion of the franchise model, which is being attacked through legislation such as this, the recent actions by the NLRB regarding the “joint employer” doctrine and other court cases and regulations throughout the country. In our experience, when a franchisee invests in a franchise, they do look forward to the benefits of the support and wisdom of the franchisor (for which they pay the franchisor), but there is a strong reason that they are investing in a franchise. They want to have their own business. They do not want to manage another person’s business or be employed by a large company. These are separate business owners – true entrepreneurs investing and risking their own time and money on a new independent business venture. They are not all large, wealthy owners of multiple burger chain restaurants, but most are truly small business owners. Perhaps this sounds hokey – but these bloggers believe that that spirit of entrepreneurship should be encouraged in the US and is one of the building blocks of the greatness of our nation.