Franchising is Under Attack

The SEIU is organizing people around the theme of  “income inequality,” which the union is using to help build its numbers, increase political power and justify getting involved in minimum wage increases throughout communities, cities and states across the country. These proposed state and city measures, and the definitions within them, would undermine the very manner in which franchises operate.

State Attacks In Connecticut, franchisors, franchisees and other business groups worked closely with the International Franchise Association to defeat House Bill 5069. The bill, which would have required franchisees to pay their employees more than the state’s minimum wage, would have also assessed franchisors a surcharge of 30 percent of that amount payable to their franchisees’ employees. In essence, the Connecticut bill would have established a twotier system that unfairly penalized the most successful businesses by holding them to a higher minimum wage requirement than their competitors.   The bill’s sponsor clearly understood that franchisors don’t control the hiring decisions of franchisees, but he was undeterred. Fortunately, reason prevailed and the Joint Committee on Finance, Revenue and Bonding rejected the bill by a vote of 27-16.   New York Senate Bill 6455, and its companion, Assembly Bill 9386, are currently before the state legislature, but unlikely to move forward this year due to the strong advocacy and education effort underway by IFA and coalition members. If enacted, this legislation would require franchisees to pay a minimum wage of $15 an hour, solely due to their affiliation with a franchisor brand. Furthermore, franchisees’ employees would be considered employees of franchisors as well, and the measure would hold both franchisees and franchisors jointly and severally liable for the payment of the franchisees’ employees.   City Attacks   Seattle On May 16, Seattle Mayor Ed Murray formally released his proposal to raise the minimum wage to $15 dollars per hour and classify franchisees as “large businesses.” On May 19, IFA sent a letter of opposition to Mayor Murray and the Seattle City Council, clearly laying out the reasons why it would hurt local franchise businesses. In addition, IFA and our allies met with local leaders and staff to help them understand the franchising business model, and educate them on how steep minimum wage increases result in lower job growth. IFA took the lead in this educational campaign, coordinating grassroots activities and advocating against the ordinance.   IFA and a host of independent businesses in Seattle have long been on record in opposition to this type of measure, but the political climate in the city is unfavorable and it promises to be a tough battle. So on May 29, it wasn’t surprising when the committee members unanimously passed an ordinance to increase the minimum wage to $15 dollars per hour. A week later, the Seattle City Council as a whole voted unanimously in favor of passing Seattle Mayor Ed Murray’s minimum wage ordinance. The measure, which will be implemented over several years, based on the size of the employer and the benefits offered, will begin taking effect on April 1, 2015.   The ordinance inaccurately defines franchise employees as franchisor employees. The measure would force the approximately 600 franchisees in Seattle, which own 1,700 franchise locations employing 19,000 workers, to adopt the full $15 minimum wage in three years. Other small-business owners would have seven years to adopt the higher rate, creating a two-tiered system in the interim.   Prior to the vote, IFA commissioned a public opinion survey and messagetested the unequal and discriminatory definition of the Seattle ordinance. IFA also retained a local lobbying firm, Carney, Badley and Spellman, and a public relations firm, Pacific Public Affairs to aid in the effort   The research was useful and shows that IFA’s position has broad public support. Seattle voters overwhelmingly support a minimum wage increase. However, they oppose a faster wage increase, or higher wage for franchise businesses than that of non-franchised competitors, once they understand that local independent businesses own the stores, and not the chains, therefore supporting IFA’s position.  This reinforces our initial thought and the actual message, as opposed to the SEIU and how they routinely portray these wage battles as being all about income inequality, and neglect the most important facts.   IFA developed an advertising, media and publiceducation campaign to combat passage of the ordinance and support the objectives of a lawsuit against it.   IFA also met with Seattle Mayor Ed Murray and the majority of council members and staff, assembled a coalition of members and like-minded business groups and had meetings with the Washington Retailers, Restaurant Association, Lodging Association and Seattle Chamber of Commerce.   IFA, and five franchisee co-plaintiffs, retained the law firm Bancroft LLC as counsel and formally filed suit against the City of Seattle on June 11. Paul Clement, the U.S. solicitor general under Pres. George W. Bush, serves as IFA’s lead counsel. Chris Bartolomucci is our main dayto-day legal counsel contact. The plaintiffs, along with IFA, include: Charles Stempler, owner and operator of two AlphaGraphics stores in Seattle and three elsewhere in Washington State; Katherine and Mark Lyons, owners and operators of BrightStar Care of North Seattle; Michael Park, general manager and owner of a Comfort Inn in Seattle and president of the Korean American Hotel Owners Association; and Ronald Oh, general manager and an owner of a Holiday Inn Express in Seattle. Chicago On May 28, the Chicago City Council introduced an ordinance, with 21 co-sponsors which would increase the minimum wage to $15 per hour.  It includes an accelerated timetable for implementing the minimum wage increase, which would apply to large businesses after a year and small businesses after four years.   While the Seattle ordinance defines all franchises as large employers, the Chicago ordinance only delineates “restaurant franchises” as large employers.  Aside from restaurant franchises, “large employer” is defined as a business with more than $50 million in gross annual revenue.   The Chicago ordinance would create a permanent discrepancy between large and small employer wage rates by indexing large employer wages to inflation three years before indexing those for small employers.   IFA has contacted and met with members of the Chicago City Council in addition to sending a letter to Mayor Rahm Emanuel and the council expressing our concerns with the proposed ordinance. IFA is also retaining a Chicago-based lobbyist for what promises to be a contentious issue.   More Threats Ahead IFA has received information that a total of 26 cities will be similarly targeted by the SEIU, which is committed to raising the minimum wage in a way that will destroy the franchise business model. The SEIU supports the creation of a “joint employer” scenario between franchisors and franchisees in order to develop opportunities to build its own membership. For the SEIU, it is all about getting new union members, and it is committed to discriminating against and undermining the fundamentals of the franchise business model in the process.   A number of mayors have announced that they plan to follow in Seattle’s footsteps and are expected to introduce similar ordinances that may unfairly discriminate against independent franchise businesses. IFA is continually monitoring these cities and has already begun speaking to affiliated groups to counter SEIU’s initiatives.   Dean A. Heyl is vice president of state government relations, public policy and tax counsel of the International Franchise Association.  Find him at fransocial.franchise.org.   Captions   9798: From left, BrightStar Care of North Seattle owner/operator Katherine Lyons, Subway of Seattle owner/operator Russell Hollek, IFA Pres. & CEO Steve Caldeira, Subway of Seattle owner/operator Matt Hollek, and AlphaGraphics owner/operator of two stores Charles Stempler during press conference.  Lyons and Stempler, along with IFA filed a lawsuit seeking equal treatment of franchises under Seattle’s law to increase the minimum wage.   9817:  AlphaGraphics owner/operator of two stores Charles Stempler hosted the IFA lawsuit press announcement.   9825:  BrightStar Care of North Seattle owner/operator Katherine Lyons.   9974:  Subway Seattle owner/operator David Jones.