New Study: Franchise Businesses Suffer Most Under $15 Minimum Wage Increases

Increasing the minimum wage has long been a popular tactic for liberals in the political sphere seeking “fairness” for workers.  To the casual observer, the idea that someone should earn a so-called “fair wage” appeals to their moral conscience without immediately conjuring up the economic impact of such actions on a large scale.

While there has recently been a national debate about raising the current federal minimum wage from $7.25, Congress has rebuffed those efforts, based largely on evidence from the nonpartisan Congressional Budget Office that 500,000 workers would lose their jobs, wiping out any improvement in wage levels for those entry-level workers who remain in the workforce. In response, an increasing number of states and cities are being pressured by liberal activists to raise their own minimum wage.

Most localities have passed new wages based on economic and cost of living conditions. However, in some places, a unique and potentially damaging characteristic of some wage proposals has a trend to include a provision requiring families in local communities who own franchises to pay wages higher and faster than those paid by non-franchise businesses.

Take the city of Seattle or the state of New York for instance. Each passed an increase in the minimum wage to $15 per hour, both discriminatory in their own way.  In Seattle, the legislation considers independently operated franchisees as ‘large employers’ because they contract with a brand, and subsequently forces them to implement the increase faster than local, non-franchise businesses. Meanwhile, in New York, Gov. Cuomo unilaterally targeted quick service restaurants through a “Fast Food Wage Board” which consisted of no small business owner representation. This wage increase required those families who operate a local restaurant with 30 or more locations nationally to pay a $15 minimum wage, and leaving other businesses at the more modest $9 state-wide minimum wage.

Perhaps the most perplexing notion in both cases is that wages were raised under the auspices of fairness.  What could possibly be fair about requiring one family who owns a small business to implement a wage at a faster pace than another, or leaving those employees who DON’T work for these businesses at a lower rate.

To address the impact of this new trend in policymaking, new research from the Employment Policies Institute (EPI) overwhelming disproves the notion that franchise businesses could absorb an increase in the minimum wage easier than non-franchise businesses.  According to the study, franchise businesses would be impacted more, with over two-thirds of franchise small business owners saying that they would be forced to reduce staff or reduce hours to compensate, compared to roughly half of non-franchise businesses.  Additionally, 54 percent of franchisees said they would likely use more automation, compared to just 37 percent of non-franchise businesses.

“This study confirms that local franchise businesses, who form the fabric of their communities, should not be unfairly targeted for higher labor costs than non-franchise businesses,” said IFA Director of State Government Relations and Public Policy Jeff Hanscom. “Arbitrarily forcing higher labor costs on franchise small businesses will reduce employment for those who need it most, while stripping neighbors of their ability to own a small business.”

As policymakers around the country continue to face pressure from local activists seeking to raise the minimum wage to exorbitant levels, it is clear they should avoid choosing winners and losers.

At Kemp Forum, Opportunity Agenda Thrives

All too often, when Americans look to politicians in Washington, D.C. for solutions to America’s numerous domestic issues, a convoluted package of policy proposals and regulations overwhelm the menu. Rather than addressing the root causes of economic distress or poverty, politicians provide patch-work solutions that often cost tax payers, while failing those in need.

This past weekend, however, some of the most powerful thought leaders and politicians in America gathered at the Kemp Forum on Expanding Opportunity in South Carolina to buck the trend, and prescribe an avenue for alleviating poverty that focuses on people, rather than stale policy. Organized by the Jack Kemp Foundation, the namesake organization for the late Congressman and “bleeding heart” conservative Jack Kemp, the Expanding Opportunity event sought to examine why the so-called “war on poverty” has failed so many of our fellow citizens, and what we as a nation can do to enable prosperity.

Moderated by Speaker of the House Paul Ryan (R-WI) and Sen. Tim Scott (R-SC), the event included panels with six Republican presidential hopefuls and American Enterprise Institute President Author Brooks, with a focus on reforming areas from education to spurring job growth. The participants rightly noted that America was founded on the principle that everyone would have the same opportunity to succeed in life, not the same guaranteed outcome. As part of this narrative, the moderators drove the dialogue that our country is at its best when innovators and entrepreneurs thrive, not when the government continues to implement workplace regulations and social assistance programs that entrench the cycle of poverty and big government.

While everyone on stage agreed that small businesses are driving the economy, it was obvious that a litany of failed policies continue to plague the opportunity agenda.  Sen. Scott noted that in a time when young people need to develop professional skills and learn the responsibility that comes with work ethic, inane policies such as $15 minimum wage proposals will force youth unemployment rates to skyrocket, leaving yet another generation at a gaping disadvantage to compete in the labor force. As business owners reconcile with increasing costs, some will be forced to shutter their dream. Several candidates made the plea that power return to the states, arguing that bureaucrats in Washington, D.C., who are out of touch with small communities, are generating burdensome rules that make entrepreneurship nearly impossible.

Presidential politics always brings with it a plethora of idealistic proposals and rhetorically pleasing soundbites. But, at the Kemp Forum on Expanding Opportunity, audience members were treated to solutions that could start a wave of growth for the next generation. Poverty is not eradicated by simply instituting equality with social programs and regulations.  In order to solve poverty, it must be tackled at its root cause: replenishing a lack of opportunity that will enable hard-working Americans the chance to make their own American Dream.  Franchising is a clear path to giving Americans that chance. The IFA looks forward to engaging the candidates and working with campaigns to ensure that America continues to be a land of opportunity. Guided by the new messaging and leadership of Speaker Ryan, our Country and its entrepreneurs can grasp greatness and ensure that everyone has the freedom to pursue their goals, irrespective of politics.

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 Survey Finds Optimism About the Economy, but Concern Over Regulation and Joint Employer Issues

Last week’s blogpost helped point out data you could use from the Franchise Business Economic Outlook: 2015 with meetings with your elected officials and policymakers to make the case for franchising. Turning to IFA’s recent Franchise Business Leader Survey, you might find these results useful in discussing some overall issues affecting today’s franchise business leaders.

opt

Outlook for U.S. Economy

IFA members are more optimistic about the U.S. economy in 2015 compared to their survey responses last year.  More than one-half of the franchisors and franchisees and two-thirds of the suppliers believe the economy will be “better” in 2015, compared to only 40 percent of franchisors, 15 percent of franchisees and 35 percent of suppliers who had a positive outlook last year.

However, the survey shows that 97 percent of respondents believe that the joint-employer ruling, were it to take effect, would have a negative impact on their business, with 82 percent saying the impact would be “significant.”

The Franchise Business Leader Survey also reveals concern about the enactment of discriminatory increases in the minimum wage. More than 85 percent of franchisor and franchisee members believe that recent efforts by some cities and states to increase the minimum wage will negatively impact their business. In addition, more than two-thirds of franchisors and 85 percent of franchisees reported that their businesses have already been “negatively impacted” by the Affordable Care Act. Below you’ll find how franchisees and franchisors prioritize issues affecting them:

Concerns

Visit IFA’s Franchise Labor & Workforce Hub, a new website for franchisees to provide key guidance on labor and workforce issues and join IFA’s Franchise Action Network to learn how to have a direct, positive impact on the future of the franchise industry.

 

New Year, New Challenges, New Resources

The franchise industry, a principal job and business generator, experienced a variety of challenges in 2014 and some of them are likely to carry over into 2015. Among the issues were the redefinition of the franchisor-franchisee relationship as joint employers and assaults on the industry in the form of minimum wage increases.

You’ll soon learn what our 2015 board of directors have to say about these and other issues affecting the industry in a feature article that is part of the January issue of Franchising World magazine.  And as is the association’s practice, it will meet these challenges head on.  Educating its members, as well as lawmakers and policymakers is a primary activity.

IFA launched a new website for franchisees that provides key guidance on labor and workforce issues. The Franchise Labor & Workforce Hub serves as a resource for franchise business owners looking to learn more about current labor and workforce challenges facing employers, as well as best practices for compliance.  Members can get involved to protect the business and the franchise model by joining the Franchise Action Network.

Another important area for the association is increasing the focus on franchisee engagement. One way to foster engagement is through the introduction of a new communications tool.

The Franchisee Rundown,” a new monthly franchisee-focused IFA newsletter that was recently launched, was created to ensure that franchisees will receive a steady flow of accurate information about the industry they’re helping to build and expand.

Working together, franchisees, franchisors and suppliers can remind our audiences of the value and numerous contributions made by the franchise industry to local communities nationwide.