In the summer of 2014, Seattle became the first city in the United States to pass a $15 minimum wage. Low-wage workers and their advocates rejoiced as the city set a new standard of possibility for minimum wage campaigns across the country. This week, a federal court broadened the scope of their victory even further.
Seattle's minimum wage law requires businesses to phase in a higher minimum wage based on their size. Large companies must raise their pay to $15 per hour incrementally over the course of three years, while smaller business — those with fewer than 500 employees — have been given seven years to make the adjustment. The logic behind having two timeframes for implementation is the assumption that big businesses typically have the resources to shift to higher wages faster without threatening profits.
The distinction between big and small businesses, however, is blurry when it comes to one massively influential player: the franchise industry.
The issue: A chain franchise in Seattle, for instance, might have qualities of both a large and small business. The store may be locally owned and operated and employ only a small number of people, but enjoy material benefits by being institutionally linked to a much larger corporation.
The franchise industry has argued that these franchisees should be considered small businesses, and therefore unable to withstand a sudden wage increase in Seattle. On Tuesday, a federal judge rejected their objections. The Washington Post reports:
Weighing expert evidence and franchise agreements submitted by the plaintiffs — owners of a Holiday Inn, a Brightstar Care and an AlphaGraphics — [the judge] found that there was a reasonable basis for the determination that franchisees receive enough help from their relationships with franchisers to allow them to pay the higher wage.
That is to say, even though those businesses employ fewer than 500 people in Seattle, they're officially considered a big business in the eyes of the law.
It's a sensible judgment, and predicated on the reality that franchise operators receive enormous benefits that place them in a different class of enterprise than a small business started from scratch.
The judge describes these critical advantages in his ruling:
Plaintiff Ronald Oh, a partial owner of a Holiday Inn Express franchise, testified that through his franchise network he receives the use of a large online reservation system which provides at least 20% of his hotel's guests; he receives the benefit of a loyalty reward system that has 74 million members worldwide; he is able to consult with others in his franchise network and receive assistance on a host of issues. ... Mr. Oh's franchise agreement identifies other benefits, including use of Holiday Inn's trademarks, training, and certain marketing benefits.
The federal judge's decision sets a significant precedent and adds more weight to other recent legal developments that are striking against the idea that franchisees can be separated from their powerful franchisers.
For example, the National Labor Relations Board recently determined that McDonald's Corp. is a "joint employer" of the workers at its stores, which are being scrutinized for scores of labor violations. The claim is based on the manner in which the corporation exercises tangible control over its local stores, including personnel policy, information systems, scheduling practices and performance monitoring.
The sum effect of all this is that large corporations are being held responsible for things they don't want to be. They're having more trouble shrugging off egregious misconduct in their local stores. And now they're having trouble claiming that their franchises are exempt from badly needed wage increases for their workers.