Editor's note: Back in June, five Seattle franchisees, represented by the International Franchise Association, filed a lawsuit to stop the city from including franchise owners among "large businesses" (those with 500 or more employees) that will be subject to the city's $15 minimum wage sooner than small businesses. A McDonald's franchise owner, for example, would have to pay the $15 minimum within three years for employees who don't receive health care benefits, and within four years for employees who do.
The lawsuit claims the city law discriminates against franchise owners and seeks to overturn the law; additionally, the IFA has filed a motion seeking a preliminary injunction exempting franchisees from the new minimum-wage requirements while their main lawsuit makes its way through the courts.
This post is by Sejal Parikh of Working Washington, the coalition that backed the minimum-wage increase.
What do you get when you bring together corporate chains fighting the $15 minimum wage, Federal law, and a beautiful Seattle summer day? It’s a wedding!
At an intimate ceremony at the Denny Triangle McDonald's hosted by Working Washington last week and witnessed by workers, customers, and TV cameras, McDonald's Corporation and its franchisees joined together "for richer or for even richer, in sick-days and in health, in lawsuits and in lobbyists, for as long as we both are incorporated."
We made a ceremony out of the move by the General Counsel of the National Labor Relations Board last week to recognize McDonald's as a joint employer because it finally brought the intimate relationship between franchisors and franchisees into the open.
As the feds recognized, McDonald's and other corporate chains do not simply apply a licensed brand name to an otherwise independent storefront. While the operator of a smaller restaurant has to develop their own menu, set their own prices, source their own supplies, build their own marketing strategy, acquire their own real estate, and more, the McDonald's system handles all of that for each outlet. They inspect restaurants for compliance with franchise standards, provide everything from employee training to scheduling software, and even set standard labor cost percentages.
This arrangement doesn't benefit franchise owners or their employees; in fact, one California franchisee recently told the Washington Post that McDonald's corporate inspectors offered this simple advice on how to boost profits: "pay your employees less," which she didn't want to do.
Even more revealing: the International Franchise Association, the DC-based lobby group currently suing to block Seattle's $15 minimum wage law because it treats franchise systems like large employers, actually represents both franchisors and franchisees. That's right: the business and political interests of franchise systems are so intertwined that they even share a single lobbying outfit.
And they're not small-timers either: the head of the IFA also serves in a leadership role on the US Chamber of Commerce, the largest business-side political shop around.
This context is all worth knowing when these folks write vituperative press releases about how recognizing corporate responsibility for employment conditions at franchises will "threaten the sanctity of hundreds of thousands of contracts", put "millions of jobs" at risk, bring job growth "to a screeching halt," and "eviscerate the most successful business model in existence."
Their poverty-wage business model hasn't been all that successful for workers, who have repeatedly gone on strike at franchised fast food restaurants over the last year and a half. The big chains have tried to wash their hands of the matter, saying that while they make billions in profits, they don't have any power to raise wages because they're not the employers. And the franchisees have agreed, speaking out as more sympathetic small-timers who couldn’t possibly afford to pay higher wages.
In a business-school sense, there's a certain cleverness to this approach, but let's get real: If you control costs, training, staffing levels, and advertised prices, you're effectively controlling wages and working conditions too. That's the simple truth the federal government recognized last week, and it's the same truth the city recognized by treating franchise systems like other large corporations under our minimum wage law.
The clear reality is that franchisors and franchisees have a shared responsibility for wages, working conditions, and everything else that happens under the brand name they share—a reality that's intuitive for any consumer who knows that you get the same Big Mac & fries at every McDonald's, any worker who knows the operational systems are essentially identical from one outlet to the next, any franchisor that concentrates profits from numerous restaurants at their corporate headquarters, and any franchisee who buys into the business model because it’s so dependable.
It is true that holding franchisors and franchisees jointly responsible for labor conditions may in fact put pressure on the existing poverty-wage franchise model. How the chains relieve this pressure—through lower franchise fees, increased pricing flexibility, or different staffing models, for example — is a business decision that's up to each franchise system.
And it's already happening: Just a few weeks after Seattle passed $15, a growing new California sandwich chain, Togo's, announced plans to move into our market, and said they weren't worried about adjusting to the higher minimum wage. The business opportunities will only grow as consumer demand continues to increase here in the fastest-growing large city in the US—especially as we lift 100,000 workers out of poverty and ensure that everyone can support themselves, afford the basics, and contribute to the economy.
A footnote: back in 1991, a top-ranking Hardee's/Carl's Jr. executive said that if the minimum wage were to increase again above the $4.25 it reached that year, "we’d probably be out of business at some point."
Several dollars later, the Hardee's chain now numbers just under 2000 stores.