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Why Franchisees Should Care about the Minimum Wage Debate

 

On April 1, 2015, the new minimum wage law in Seattle, Washington took effect whereby the minimum wage will incrementally increase to $15 per hour.  The raise will occur gradually and large businesses, as defined by the state law, will reach the $15 mark in the next three to four years, while small businesses will make the transition over the next five to seven years.  Under the ordinance, individual franchise locations have been classified as large businesses since they are a part of a larger franchise system.  If you have been following this issue, it is no secret that the International Franchise Association (“IFA”) has been actively opposed to this classification of franchisees.  They argue that the ordinance discriminates against locally owned franchisees and that it could cause the locations to close or reduce their operations because of the increase in wages over the shorter time period.  In contrast, the city of Seattle argues that the franchisees were placed on the same time-frame as the large businesses because the city identified them as businesses that had the resources to pay the increased wages sooner.  Both parties presented these arguments, among others, in front of the Ninth Circuit Court of Appeals after the IFA appealed the U.S. District Court’s decision denying a Preliminary Injunction that would have prevented the law from going into effect for franchisees.  The Ninth Circuit affirmed the lower court’s decision, holding the IFA failed to provide evidence that the law discriminated against franchisees and that the implementation of the law would harm the franchisee’s business or force them to cease operations altogether.

Since this minimum wage law has been allowed to go forward, only time will tell how the increase, and the time-table for the increase, will truly affect locally owned and operated franchises.  What is a certainty, however, is the fact that the debate over minimum wage increases in the franchise industry across the country is far from over.  Regardless of how the debate ends, it is important that you are aware of your state’s wage and hour laws and ensure that you factor it into your estimated overall cost of owning and operating a franchise location.