Legal Challenge Against Part of Seattle Minimum Wage Law Moves Forward

The legal challenge against the discriminatory provisions of Seattle’s new minimum wage law is taking an important step forward. The International Franchise Association and Seattle franchisees last June filed a lawsuit in U.S. District Court to challenge the provisions of the new law that discriminated against small franchise businesses. Then in August, the IFA requested a preliminary injunction to stop the discriminatory provisions of the minimum wage law from taking effect.

U.S. District Court Judge Richard A. Jones has now set oral arguments on that request for a preliminary injunction for 9 a.m. PST on Tuesday, March 10.  This will be the first time that arguments will be made on the legal challenge to the new law in person.  The hearing will be before Judge Jones at the U.S. District Courthouse in downtown Seattle.

Paul D. Clement, a partner at the law firm Bancroft PLLC and a former U.S. Solicitor General, is expected to represent the IFA and the Seattle franchisees at the March hearing.  IFA and five Seattle franchisees sued Seattle in June seeking to stop the city from treating franchisees as large, national companies rather than the small, locally-owned businesses that they are.

Seattle’s ordinance 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 starting April 1, 2015. Smaller businesses get seven years to phase in the wage increase. But at the request of the Service Employees International Union (SEIU), the law treats a single hotel, print center, restaurant or in-home health care provider as if it employs more than 500 people due to its affiliation with a national chain, even if it only employs five people, thereby creating an uneven playing field.

The city’s ordinance willfully categorizes small, independently-owned franchise owners as big, out-of-state businesses, a violation of the Commerce Clause of the U.S. Constitution. 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 its franchisors that provide brand and marketing materials, based on the payment of an initial franchise fee and ongoing royalty payments to use the brand’s trademark.

Judge Jones is likely to decide on the preliminary injunction before the law takes effect on April 1. Regardless of the ruling on the injunction, the lawsuit against the franchisee provisions of the new law will continue.  

The injunction – and the lawsuit – seek to stop only the provisions of the new law that discriminate against franchise businesses. If the injunction is granted, the new minimum wage law still takes effect. Small franchise businesses, however, would adopt the $15 minimum wage on the same 7-year timetable as other small businesses, instead of the 3-year schedule currently required in the ordinance.     

To learn more about the preliminary injunction, read IFA’s motion for the injunction here, and the IFA’s further briefs on the injunction here and here.

IFA Board Member Urges Return to 40 Hour Work Week

 

Today, the Senate Committee on Health, Education, Labor, and Pensions (HELP) held a hearing titled Examining Job-Based Health Insurance and Defining Full-Time Work. Among the witnesses testifying at the hearing was IFA Board Member Andy Puzder, CEO of CKE Restaurants Holdings, which owns the Carl’s Jr. and Hardee’s restaurant brands. In his testimony, Puzder explained to the Committee members that the Affordable Care Act’s redefinition of full time employment from the industry standard 40 hours per week to 30 hours was leading to a dramatic reduction in hours and take-home pay for part time workers.

“The logic for businesses is simple,” Puzder testified. “If you have three employees working 40 hours per week they will produce 120 labor hours. Five employees working 24 hours per week also produce 120 labor hours. Employers must offer the three full-time employees health insurance or pay a penalty. They have no obligation to the five part-time employees, making part time employment less costly. I believe this has resulted in employers reducing hundreds of thousands of jobs to under 30 hours a week.”

Bipartisan legislation to correct this negative impact of the Affordable Care Act’s employer mandate, the Save American Workers Act, cleared the House earlier this year by a  vote of 252-172. IFA has made passage of this critical reform one of its priorities for 2015. The More Time for Full Time Initiative, a coalition of leading business groups started by IFA, played an instrumental role in lobbying Congress to support this legislation. Companion legislation, the Forty Hours is Full Time Act has already been introduced in the Senate with bipartisan support. A letter from the More Time for Full Time Initiative encouraging passage of the legislation was introduced into the record during today’s hearing by HELP Committee Chairman Lamar Alexander (R-TN).

A complete video of the hearing, along with written testimony from the witnesses, can be found here.

New NLRB Member’s Past Statements on Joint Employer Raise More Questions than Answers

Earlier this week, Lauren McFerran was confirmed by the Senate Committee on Health, Employment, Labor, and Pensions to the National Labor Relations Board in a party-line vote. The Board, which is expected to decide the Browning-Ferris Industries of California, Inc., et al case before the end of the year, is in the position to reinterpret labor law in a way that could undermine the franchise model. Despite nearly 40 years of legal precedent has established franchisors and franchisees as independent businesses, McFerran’s response to several Questions for the Record reveal a more activist slant in her views on the Board’s ability to establish joint employment.

The central questions of the Browning-Ferris case is whether the Board should adopt a new joint employer standard. Though the previous standard for joint employment has been control over another business’ hiring, firing, and scheduling practices, NLRB General Counsel Richard Griffin recently recommended that franchisors be considered joint employers of franchisees even if they had no control over these areas.

If applied on a broader scale, this policy could fundamentally alter the franchise relationship as franchisors would be forced to either limit franchisee autonomy to reduce legal liability or provide less support franchisees in order to avoid falling under the new standard. The franchise relationship is so effective because it leverages the strengths of two independent businesses. Franchisees provide on-the-ground management of a location and franchisors protect and enhance brand standards through research and marketing, making neither outcome desirable.

Although Congress is responsible for writing legislation, McFerran’s answers to questions submitted to her following her confirmation hearing indicate that she believes the NLRB has broad authority to reinterpret the law, effectively changing it.  When asked if she was concerned by the potential uncertainty created by upending long-standing precedent, McFerran responded “I believe that reversal of precedent does not necessarily create uncertainty, if such reversal is explicit and carefully considered and the Board’s interpretation of the law going forward is clearly articulated.”

Michael Lotito, Co-Chair of Littler Mendelson’s Workforce Policy Institute, argued that such an attitude could have a disastrous effect on American businesses:

“Franchisors and franchisees have contracts that last for decades in some instances. They are based on the fact that both are independent businesses.  As such, their employees are separate.  For many years, the NLRB has so held.  If the Board changes the law, the Board is inserting itself into the very structure of the franchise industry.  The Board is essentially amending the franchise agreement to say:  SURPRISE the employees of the franchisee and franchisor are one and the same, so forget the fact you are independent businesses.  No governmental agency should have that kind of power to arbitrarily disrupt established business relationships that account for 8.2 million jobs.   Therefore, Ms. McFerran’s answer is at best, incomplete, and at worse just plain wrong.”

The Board’s aggressive actions have attracted a great deal of Congressional scrutiny. In September of 2013, Senate Majority Leader Mitch McConnell (R-KY) and Senator Lamar Alexander (R-TN), Chairman of the Senate Committee on Health, Education, Labor, and Pensions, introduced the NLRB Reform Act. The bill would transform the Board from a politicized advocate for union interests to an impartial arbiter of labor disputes, adding an additional seat to the 5-person Board and ensuring a permanent even split of Republican and Democratic Members. The legislation would also reduce the ability of the General Counsel to reinterpret established law, as well as set firm standards for timely decision making and responses to inquiries.

Fast Food Workers Plan Another Round of Coordinated Protests this Week

 

 

Employers at fast food chains around the nation should brace themselves for a series of protests and acts of civil disobedience that will occur this Thursday, September 4.  The strikes, organized by members of the “Fight for 15″ movement, are part of the nationwide crusade to raise the minimum wage. The Fight for 15 organization carried out a similar campaign to raise wages last spring. There are few details on the nature of the protests that will reportedly occur in as many as 150 cities across the country.

Such organized and concerted efforts are part of a broader trend to effectuate changes to wages and working conditions outside of the traditional labor union construct. For example, so-called “worker centers”– otherwise known as union front organizations (UFOs) – are increasing in number, and working in conjunction with unions to achieve typical labor organization goals.  UFOs are generally non-profit organizations offering a variety of services to their members, including worker advocacy, lobbying, employment services, and legal advice.  The Fight for 15 movement has union support, particularly from the Service Employees International Union (SEIU).  Last year, the AFL-CIO vowed to work with such labor offshoots.

Employers must be careful not to interfere with employees’ lawful Fight for 15 activities.  Under Section 7 of the National Labor Relations Act (“NLRA”), employees have the protected right to engage in concerted activity for the purpose of mutual aid and protection.  These rights apply to both union and non-union employees.   Concerted activity includes individual employees seeking to initiate group action, or a group of employees trying to bring group complaints to management, regarding employment related concerns.  Any adverse employment action taken in response to an employee’s participation in Fight for 15 could be an unfair labor practice if it interferes with, coerces, or restrains the employee’s rights guaranteed by Section 7 of the NLRA. Remedies for unfair labor practices include reinstatement with full back pay and interest.  Employers also are required to post a notice to all employees outlining the NLRA violation and the remedy.

Meanwhile, in a round of Labor Day speeches, President Obama and Labor Secretary Perez reiterated their support to increase the federal minimum wage to $10.10 per hour. At least 13 states and the District of Columbia have increased their minimum wages in recent months, and a handful of states and localities have placed the question of whether to raise the minimum wage on the November ballot.  It is expected that issues such as income inequality and wage theft will be key talking points for many Democrats going into the November elections.

The Philippines Takes Center Stage with Franchise Asia 2014 and U.S. Franchise Trade Mission

 

Franchise Asia

A panel including William Edwards, Edwards Global Services CEO and IFA Director of International Affairs Josh Merin take turns speaking to the general session of Franchise Asia about international growth.

FAPHL2014 INTERNATIONAL EXPO  (26)

Mission participants enjoy a VIP tour of Franchise Asia’s Expo.

The Philippines became an increasing center of the franchising world’s attention when it hosted one of the franchising’s biggest events in Southeast Asia, Franchise Asia 2014 and a U.S. franchise trade mission. The show was originally scheduled to take place July 16-20 at the SMX Convention Center in Manila, Philippines but took place July 17-20 because of the typhoon that hit the Philippines on the 16th.  Recognized as the biggest franchise show in the Philippines each year, Franchise Asia continued not to disappoint, welcoming over 500 exhibitors, including IFA member and trade mission participant Tutor Doctor, and an estimated 50,000 attendees.

Due to the typhoon, the first day of Franchise Asia was cancelled. However, the Philippine Franchise Association’s staff worked diligently through the night to reconfigure the program. Their hard work paid off when Franchise Asia opened its doors on the morning of the 17th and soon saw its convention hall filled with hundreds of attendees from the Philippine franchise community. These attendees demonstrated the remarkable resilience of the Filipino people, by leaving their homes (many without power) and traveling through a city just hit by a typhoon to fill the hall.

The Filipino franchise market is highly mall focused due to weather and pollution. Jan Paul Custodio, Senior Director CB Richard Ellis Philippines told trade mission participants that the Philippines’ has 1/10th the real estate costs of Hong Kong or first-tier Chinese cities.  It also has the lowest mall real estate prices in Asia, 20 times lower than Beijing.  Market challenges include public infrastructure and high energy costs.  According to a US Embassy briefing, the number one drag on growth is corruption, especially outside of Manila.

Bill Edwards, Vice Chair of the IFA’s International Committee and CEO Edwards Global Services and IFA’s Josh Merin addressed the general session of Franchise Asia on July 17. In “Conquering the Global Market with Your Brand” they presented IFA and its experience with international franchising including strategy and tactics for franchising internationally.  The presentation included international development models, what to look for in an international licensee and considerations before going international.   The event included Certified Franchise Executive (CFE) classes and this year’s CFE graduation.

Trade Mission attendees were able to tour Franchise Asia on Saturday, July 19th.