WJR’s Michael Rosenthal Comments on International Franchise Association Suit Against City of Seattle

This past week, the IFA filed suit against the City of Seattle, seeking to have struck down the City’s recently enacted minimum wage ordinance.   The City, which has been referred to by some as the “People’s Republic of Seattle,” recently raised its minimum wage from $9.32 to $15.00 per hour.   This puts Seattle’s minimum wage as the highest of any U.S. jurisdiction.

The ordinance establishes two different minimum wage schedules, one for large and one for small employers.   Franchisees are suing because they are classified under the ordinance as large employers, even if they only employ a modest number of people, based on the overall size of the franchise system.   The claim, among others, is that this denies equal protection to franchisees, that are treated differently than other small business owners.

Personally, the issue that I see in this is more practical than legal.   Small business owners, particularly those buying and operating franchises, rely heavily on predictions regarding their underlying operational expenses.   When franchisees, especially those who are labor dependent such as quick service restaurants, have their base labor costs increase by 62%, their business model gets a blow to the head.   This lack of predictability is a strong turn-off to future franchise owners.   Well-intended legislation can have long-term impacts on the business climate, particularly where it makes business owners question their ability to predict their cost structure.   Franchisees typically enter into long-term franchise agreements and real estate leases.   Cost stability is critical to them given the long-term commitments they make in buying a franchise.   This legislation fails to recognize that most franchisees are small business owners, not big companies.

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