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Franchise Trade Group Sues to Block Seattle Minimum Wage Law

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By Mark Wilson, Esq. on March 11, 2015 3:44 PM

Apparently unfamiliar with The Streisand Effect, the International Franchise Association, along with four owners of various franchises, are suing the City of Seattle to enjoin enforcement of the city's new minimum wage ordinance. The ordinance would take effect April 1 and would raise the city's minimum wage from $9 to $15 an hour.

Despite what The Huffington Post is insinuating, McDonald's isn't suing the city, nor is any McDonald's franchisee. On the other hand, a ruling in favor of the plaintiffs would definitely benefit those franchisees. The real issue, though, is whether the ordinance unfairly discriminates against certain kinds of employers.

Irrational Discrimination

According to the plaintiffs, the ordinance "irrationally" discriminates against franchisees who are part of a "network" that employers more than 500 people and non-franchise entities that don't. The ordinance doesn't just count direct employees of a franchisee, but also counts all the employees of all franchisees of a particular franchisor.

So, for example, even though plaintiff Michael Park operates a Comfort Inn and employs only 19 people himself, because the larger Comfort Inn corporation does business with franchisees who, together, employ more than 500 people, any Comfort Inn in Seattle has to pay $15 an hour to employees.

The lawsuit doesn't appear to have a chance of succeeding on its federal constitutional claims of Equal Protection violations and the dormant commerce clause (rational basis review and the standard for facially nondiscriminatory statutes incidentally impinging on interstate commerce are quite deferential to the government). The claim based on a violation of a Washington state provision prohibiting regulations that "benefit[] certain businesses at the expense of others" seems like it could go somewhere.

What's the Right Amount of Control?

In the last year, governments, franchisees, and franchisors have been in the largest war ever over who, exactly, is in control of a franchise. The NLRB's general counsel issued an opinion that a franchisor could be jointly liable with a franchisee for labor law violations, prompting the NLRB to sue McDonald's the corporation for wage and hour violations at franchisee-owned McDonald's restaurants.

The complaint against the City of Seattle asserts, "The Ordinance aggregates employees of different franchisee companies as if they all worked for a single corporation -- contrary to state law recognizing that separate corporations are distinct legal entities and must be treated as such." What happens in practice, though, is the subject of the NLRB's lawsuits and other lawsuits around the country.

While franchisors like McDonald's claim they don't exert enough control over franchisees to make the parent corporation jointly liable for franchisee wrongdoing, governments point out that the franchisor sets business goals and parameters, along with employment guidelines, that effectively result in the franchisee making a Hobson's choice between following franchisor guidelines and not getting a license to operate the franchise. (It is somewhat difficult for the corporate parents to stress the advantages of uniformity while maintaining the notion that each franchise is a distinct entity.)

Whatever else the International Franchise Association, a trade group for franchise-model businesses, hoped to accomplish with this lawsuit, it's certainly getting a lot of attention, even if not always the right kind.

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