Small Business

How Seattle franchisees are fighting the $15 minimum wage

June 2014 file photo of Mayor Ed Murray signing a bill that raises Seattle's minimum wage to $15 an hour.
Getty Images

The contentious issue that is the minimum wage fight was never going to be a slam dunk. Now as the nation's biggest minimum wage hike ramps up in Seattle beginning next month, a top franchise lobby has been fighting back with a lawsuit that seeks to grant small businesses more time to comply with the law.

Seattle's City Council in June voted to raise the minimum wage in increments—to $11 by April 1 and to $15 an hour by 2017—for larger businesses with at least 500 staffers.

But the International Franchise Association argues Seattle's ordinance discriminates against its members by lumping smaller franchisees with big businesses. The franchise group wants its members to be recognized as smaller businesses in order to delay the rise to $11 until 2017 and the increase to $15 until 2021.

"Franchisees are often small and local, and face the same challenges that other small businesses face," said Matthew Haller, a spokesman for the franchise group. "The franchise system is still a network of small businesses that will face irreparable harm due to these extra costs."

Seattle's current minimum wage is $9.47 an hour. Now it's up to the local courts to decide. The national franchise group and five franchisees in the city filed the suit against the city last year. Oral arguments took place last week on a preliminary injunction motion, and a decision may come as early as Tuesday, potentially buying franchisees more time to implement the increase.

Businesses owners and other states, meanwhile, will be watching as the wage debate intensifies.

Axelrod: US needs higher wages
Axelrod: US needs higher wages
Viet Shelton
spokesman, Seattle Mayor Ed Murray's office

The reasoning behind the Seattle wage plan's timing is that franchisees have the backing of parent organizations unlike independent mom-and-pops.

"McDonald's, Subway, Burger King—the biggest of the big employers, as well as hospitals and nursing homes, they do tend to have the resources to run competitive businesses and absorb costs," said Christian Weller, senior fellow at the Center for American Progress, a nonpartisan policy institute. "There's a reason why franchisees take up [franchising] costs and are willing to engage as a part of a larger corporate entity."

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Seattle Mayor Ed Murray's office defended the city's wage hike, and phases of implementation for businesses.

The city had a rational basis for treating large businesses differently
Viet Shelton
spokesman, Seattle Mayor Ed Murray's office

"The city had a rational basis for treating large businesses differently. Under the ordinance, franchises are treated as large businesses because they receive the benefits of being associated with the larger franchisor network of many more than 500 employees," spokesman Viet Shelton said in an email to CNBC.

"As a result, franchises have distinct advantages over the typical independent small business—training, product development, and marketing support—to name just a few," he said.

In February, retail giant Wal-Mart announced it would boost the hourly pay for workers to $9 in the first half of the year. That number, which is $1.75 higher than the federal minimum wage of $7.25 an hour, will increase to at least $10 an hour by February 2016.

Beyond the retail giant, 29 states, territories and Washington, D.C., have minimum wages above the federal rate, according to the National Conference of State Legislatures.

I have to either raise my prices, or close
David Jones
Subway franchise owner in Seattle

In Seattle, the ruling will have a big impact on David Jones, who owns two Subway franchises in Emerald City, as well as six Blazing Onion restaurants in the greater Seattle area.

His two Subways will be subject to the city's large employer wage hike, while he employs just 18 workers in both restaurants. That's because Subway as a whole employs more than 500 people.

"It means I have to figure out my costs differently than my competing neighbor. I have to either raise my prices, or close," Jones said. "You can't raise the minimum wage by 50 percent and expect to still make money."

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