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Seattle Minimum Wage Hike Continues as Franchise Group Loses Suit

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By Casey C. Sullivan, Esq. on September 29, 2015 1:54 PM

Seattle can continue with its minimum wage hike after the International Franchise Association lost its lawsuit challenging the ordinance. The IFA had sought to halt the wage increase, which went into effect this April, but the Ninth Circuit denied their request for a preliminary injunction last Friday.

The court rejected the IFA's claims that the wage increase "illegally discriminates against franchises." The law raises Seattle's minimum wage incrementally from $10 an hour to $15 over a period of years. Small businesses are given more time to meet the new requirements; franchises, like McDonald's and Pizza Hut, are not.

A Tale of Two Wage Hikes

In May of 2014, Seattle agreed on a minimum wage increase meant to counter growing income inequality. The city would raise its minimum wage by 50 percent, giving it one of the highest minimum wages in the nation. (Los Angeles, New York and Washington, D.C., later followed suit.) In a compromise with businesses, however, the city agreed to stagger the increases. Businesses with more than 500 employees would have to start paying workers at least $15 an hour in two to three years; smaller businesses would have up to six years.

Franchises were excluded from the slower schedule. When determining whether a business was small or not, Seattle looked at the employees in the franchise "network," not in a single shop. So, an independent coffee shop employing 15 people would get the slower, small business schedule. A single Starbucks would not.

IFA's Unconvincing Objections

The IFA declared beating the wage increase one of their "top policy fights" and sued to stop it from going into effect. They argued that the "discriminatory" ordinance violated the dormant Commerce Clause, the Equal Protection Clause, and the First Amendment, among others. To read their complaint, you'd imagine that a McDonald's owner paying $15 an hour in 2019, rather than 2020, was one of the wretched of the earth.

But the Ninth Circuit wasn't very sympathetic. When it came to the dormant Commerce Clause, the court found that the IFA couldn't show how the minimum wage increase burdened interstate commerce. There's no evidence that "interstate firms will be excluded from the market, earn less revenue or profit, lose customers, or close or reduce stores." The IFA could not even show that someone might be less likely to open a new franchise in Seattle because of the minimum wage.

The group's Equal Protection Clause and First Amendment claims were equally unpersuasive. As for the First Amendment, the ordinance is "plainly an economic regulation that does not target speech," Judge Hawkins wrote for the panel. Under the Equal Protection Clause, all the city needed was a rational basis for classifying franchises apart from independent small businesses. The fact that franchisees were better suited to handle a faster wage hike was rational enough.

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