Morning Fizz

Judge Rejects $15 Injunction for Franchisees

Caffeinated news featuring the $15 minimum wage, payday loans, and rain

By Josh Feit March 18, 2015

Caffeinated News

1. Yesterday, I interviewed a bunch of local restaurateurs who shot down the idea (being floated on a Fox News website and other conservative sites) that recent decisions to close locations were connected to the coming $15 minimum wage law.

A little more on that: Another person I contacted for the story was Nicole Vallestero Keenan, who served on mayor Ed Murray's minimum wage task force last year and who emerged as the go-to numbers geek according to members on both the labor and business side. Keenan is a policy staffer at the progressive advocacy group Puget Sound Sage.

I had asked her to respond to the Washington Restaurant Association claim that the new wage law was going to bump labor costs from 36 percent to 42 (or even 47) percent of total costs. Keenan is without a doubt a numbers nerd and sent me a lengthy email that contained passages (you can skip over) like...

It’s easiest if I draw the comparison in hard numbers. Let’s assume we are talking about a $1 million business. Using his percentages, labor accounts for $360,000 of their total operating costs. Assuming all workers earn minimum wage (which is being generous in the estimation as the median wage for cooks in Washington state is over $11 an hour, and therefore, they are not obligated to see an increase in wages starting April 1) their labor costs should increase between $380,160 (if all workers are tipped) and 417,600 (if no workers are tipped). It’s safe to say that the total labor costs will be somewhere between those two numbers. I chose the midpoint, (assuming 50 percent of work hours are tipped and 50 percent are nontipped). This is $398,880—representing a 10.8 percent increase in labor costs. However, what is that increase compared to total operating costs? With a 10.8 percent increase in labor costs, total operating is no longer $1m, but $1,038,880—a 3.8 percent increase in total operating costs. This actually falls within their profit margins; that being said, they could conceivably raise prices by 3.8 percent to make up the difference. For a $10 meal, that is a 38 cent increase.

But, using WRA numbers, here's her succinct breakdown: “Earning $11 starting on April 1, 2015, represents roughly a 1.6 percent increase in total operating costs for a typical restaurant. If a restaurant should choose to pass those increased costs to customers, a $10 meal should cost $10.16.”

Another outtake from my reporting: After making it clear that the $15 was not a factor, Wiley Frank, the co-owner at Little Uncle restaurant—whose decision to close a Pioneer Square location made the conservative blogosphere's doomsday case against the minimum wage increase—added, "In fact, we have recently given raises to our staff and we hired on another person to fill out our well-trained and paid crew at the Madison location." (Little Uncle's owners also told me they are about to sign a deal for a new location.)

Shortly after I published yesterday's Jolt, The Seattle Times published one of its Truth Needle columns shooting down the Fox News interpretation as well.

2. In related news: A federal judge issued a ruling yesterday afternoon against a group of franchisees who are arguing that their shops should not count as large employers when it comes to the $15 minimum wage law. (Large employers—over 500 employees—have to pay $15 by 2017, while smaller employers are on a longer timeline, 2021, that factors in tips and benefits along the way of incremental wage increases.)

"As an initial matter, comparing franchisees and independent small businesses is somewhat difficult; they are not 'similarly situated' in all relevant respects." —Federal district judge Richard Jones

Seattle's United States District Court judge Richard A. Jones wrote a scathing rebuke of franchisees' appeal for an injunction; The franchisees, including Subway and McDonald's, argued that they were being discriminated against and should be considered small employers. 

Judge Jones not only rejected the idea that franchisees weren't big businesses, but flipped the burden on them (bold mine):

"As an initial matter, comparing franchisees and independent small businesses is somewhat difficult; they are not 'similarly situated' in all relevant respects. It is true that they compete in the same markets and it is also true that a franchisee who owns only one outlet may share some similarities with an independent small business. That said, franchisees and independent small businesses have different business structures.... The franchisee has, through his contract with the franchisor, made a business decision—i.e., to pay royalties and fees in exchange for use of a brand name, training, advertising, established customer base, and other benefits—presumably because he deemed this arrangement profitable. The city, however, has had no part in creating or defining this structure and has no duty to promote it or protect it."

The franchisees' case is moving forward, but the judge's ruling means for now they have to pay the new wage starting April 1.

3. A funny outtake from the suit, though. While the judge said the city isn't discriminating against fast food chains, Mayor Murray's policy chief, Robert Feldstein, evidently doesn't like them very much.

Here's email evidence submitted by the franchisee plaintiffs between lefty $15 backer (and wealthy investor) Nick Hanauer and Feldstein: 

Hanaeur: [F]ranchises like Subway and McDonald's really are not very good for our local economy.… A city dominated by independent, locally owned, unique sandwich and hamburger restaurants will be more economically, civically, and culturally rich than one dominated by extractive national chains.

Feldstein: If we lose franchises in Seattle, I won’t be sad—for the reasons you say.

After the ruling last night, Murray himself said:

This is a great day for Seattle's fast food franchise workers. This ruling ensures that on April 1st, the minimum wage will go up for everyone in our city.

We must remember that the ongoing movement for wage equality in our nation was led by fast food workers from large franchise restaurants. Their actions sparked a national conversation about growing wage gaps. Our actions in Seattle have set the bar high for developing a process to raise wages in a way that works for workers and business. Rather than investing in lawyers to prevent workers from earning higher wages, it is time for these large businesses to begin investing in a higher minimum wage for their employees.

4. In non-$15 news.

Legislation with Democratic support (and sponsors) to undo regulations on payday lending has split the Democratic party. The legislation—which would give borrowers longer payback periods, but increase payments and penalties and fees—passed the senate with five Democrats on board and is cued up in the house with several Democratic cosponsors.

Senate minority leader Sharon Nelson (D-34, West Seattle), who strongly opposes the legislation, passed landmark 2010 legislation reining in the controversial industry, including mandating no-fee off-ramps for borrowers when they realize they can't meet the terms.

Given the Democratic split (Southeast Seattle Democratic representatives Eric Pettigrew and Sharon Tomiko Santos support the bill while Southeast Seattle state senator Pramila Jayapal does not, for example), I asked governor Jay Inslee if he would veto the bill.

His spokeswoman Jaime Smith tells me simply: "The governor remains concerned with this bill. We’re monitoring it closely, for now. I don't want to speculate."

5. Seattle's reputation as a rain city is overstated.



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