Franchisees Are Not “Large Employers”

Seattle Wage Laws

The City of Seattle, Washington, approved a $15 minimum wage law June 2, 2014, the highest minimum wage law in the U.S.  Hourly workers deserve reasonable pay.  And if there is no movement on a change in the federal rate, then I understand the desire of workers and unions to push for higher wages at the local level.

But Seattle did go too far in one disturbing respect. The new law views franchisees as large employers simply because they are part of a franchise system. This means that an individual franchisee with a small number of employees may be required to pay its employees $15 an hour by 2017. This is the deadline for companies that employ more than 500 workers. Smaller businesses need not comply until 2019. The law fails to recognize the fact that an individual franchisee is a small business. The employer is the franchisee, not the franchisor.

Seattle franchisees and the International Franchise Association have initiated litigation seeking to invalidate this discriminatory treatment of franchisees under the Seattle law. We will follow these cases and report on them as they develop.

The effort to blur the distinction between franchisors and franchisees vis-à-vis the franchisee employees is visible on several fronts this year. In addition to the Seattle minimum wage law and the recent NLRB complaint against McDonald’s, legislation was introduced in Connecticut and New York that would blur the distinction. The International Franchise Association successfully worked with franchisors and franchisees to stop both of these bills from becoming law.

In Connecticut, House Bill 5069 would have required businesses with more than 500 employees to pay their employees more than the state’s minimum wage and would have assessed a fee on companies that failed to meet this requirement. The bill included franchisees of a single franchise system in this calculation so that a single small franchisee would be required to pay the same higher wages that large employer would be required to pay, and the bill would have required the franchisor to pay the state a fee if its franchisees did not meet this standard.

New York Senate Bill 6455 and a companion bill in the Assembly called for a $15 an hour state minimum wage for large employers. The large employer would include an entire franchise system, including all its franchisees. Franchisors and franchisees would be jointly responsible for violations by individual franchisees. Fortunately, this bill did not come to a vote in 2014 in either the Senate or the Assembly.

These bills put small franchisee businesses at a disadvantage against other small business competitors. By doing so, they make franchising itself less appealing as a business model. I support the effort to increase minimum wages. I do not support blurring the distinction between the franchisor and the franchisee.

Tom Pitegoff

About: Tom Pitegoff

Tom Pitegoff is co-chair of the LeClairRyan franchise industry team. He is an internationally recognized leader in the franchise field. He drafts franchise agreements and disclosure documents, obtains state franchise registrations and provides ongoing franchise compliance counseling services. He represents foreign franchisors in their U.S. business and U.S. franchisors expanding abroad. View all posts by Tom Pitegoff
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