Federal Complaint Alleges Discrimination Against Franchisees
SEATTLE – The International Franchise Association (IFA), a Washington, D.C.-based trade group, and five franchisees today filed a lawsuit in U.S. District Court in Seattle on June 11, 2014, seeking to block Seattle’s recently enacted law to increase the city’s minimum wage to $15 per-hour. The complaint alleges the new law illegally discriminates against franchisees and improperly treats them not as the small, locally-owned businesses they are, but as large, national companies.
Seattle Mayor Ed Murray last week signed the law, which requires large businesses, defined as those with more than 500 employees, to raise the minimum wage they pay their employees to $15-an-hour over three years beginning on April 1, 2015. Smaller businesses have an extra four years, or a total of seven years, to phase in the wage increase.
IFA’s lawsuit asserts that the Seattle statute unfairly requires Seattle’s 600 franchisees, who own 1,700 franchise locations and employ 19,000 workers, to meet the three year deadline for large businesses simply because they operate as part of a franchise network. The lawsuit argues that the Seattle ordinance defies years of legal precedent clearly defining a franchisee as an independent local business owner who operates separately from the corporation that provides brand and marketing materials.
“Hundreds of small, locally-owned businesses and thousands of their employees are unfairly threatened by Seattle’s new law. We are not seeking special treatment for franchisees, we are just seeking equal treatment. The city’s minimum wage statute arbitrarily and illegally discriminates against franchisees and significantly increases their labor costs in ways that will harm their businesses, employees, consumers and Seattle’s economy,” said Steve Caldeira, IFA president & CEO. “We hope the court will block the ordinance to save jobs and prevent Seattle from unfairly singling out one type of business – a franchise – for punitive treatment.”
“Seattle’s new minimum wage law unconstitutionally discriminates against franchisees by categorizing them as big businesses even when they are small and independently owned. A single hotel or restaurant can be treated as if it employs more than 500 people even when it actually employs only 15 people,” said Paul D. Clement, a partner at the law firm Bancroft PLLC and a former U.S. Solicitor General. “We’re asking the federal court to stop this unfair attack on small business owners who happen to be franchisees.”
The complaint names as defendants the City of Seattle and the Director of the Department of Finance and Administrative Services. It seeks an injunction to stop the law from going into effect as scheduled on April 1, 2015. The plaintiffs are IFA; 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 (KAHOA); and Ronald Oh, General Manager and an owner of a Holiday Inn Express in Seattle.
The lawsuit alleges that the ordinance violates the Equal Protection Clause of the U.S. Constitution by arbitrarily discriminating against small businesses simply because they are franchises. For example, a non-franchise company with 450 workers is categorized as a small employer and gets extra time to comply with the law. But a franchisee with just five employees is considered a large employer – and gets less time to raise its wage floor – if its franchise network employs more than 500 workers nationwide.
The lawsuit also contends that the ordinance violates the Commerce Clause of the U.S. Constitution because it imposes regulations based partly on business occurring in other states. For instance, if a Seattle franchisee has only a few workers in Seattle, but its franchisor’s network has more than 500 workers out of state, it is classed as a large employer and gets tougher treatment. Under the new law, a Seattle-based business that happens to be associated with a national franchise can be forced to pay a higher minimum wage than a non-franchise business of similar size.
The complaint also argues that discrimination between franchise and non-franchise businesses is prohibited under the Washington State Constitution and that the Seattle ordinance imposes health care changes that violate the federal labor statute called the Employee Retirement Income Security Act or ERISA.
Go to SeattleFranchiseFairness.com to learn more about the issue and the coalition of Seattle small business owners working together to oppose the franchisee provisions in the city’s minimum wage law. The site, which will be updated regularly, includes video, a petition and an outreach tool for supporters to contact the City Council. Read the full complaint here. Case number: 14-848