Approved by the Seattle city council on June 2, 2014, Seattle’s new minimum wage ordinance, ordinance number 124490, became the first in the country to raise the minimum wage to $15 per hour. Seattle is not only the first city in the country to raise the minimum to $15 per hour, it also the first city to treat large employers differently than small employers. More notably, Seattle also treats small franchise businesses differently from all other small businesses.

Seattle has recognized that small businesses will face particular challenges in implementing a higher minimum wage and thus has extended the phase in period for such employers. Under the ordinance, the $15 per hour minimum wage will be phased in over three years for large employers (more than 500 employees) and phased in over five years for small employers (500 or fewer employees). Beginning on April 1, 2015, large employers are required to increase wages to $11 per hour and will be required to increase wages by $2 per hour each year with a minimum wage of $15 per hour in 2017. Small business, however, are required to increase wages by one $1 per hour each year with a minimum wage of $15 per hour in 2019.

However, despite Seattle’s acknowledgment that this ordinance will significantly affect small employers, the city has singled out small franchise businesses for discretionary treatment. Under the ordinance, any franchise business, no matter how small, is deemed to be a large employer and subject to the accelerated phase in period if all of the separately owned businesses operating under the franchisor’s brand or trademark across the country collectively employ more than 500 employees. As such, if a small Seattle franchise business has just one employee, but the franchise network with which the business is associated with collectively employs more than 500 employees, that small Seattle franchise business is treated the same as a Seattle business that employees over 500 employees. The city of Seattle has asserted that small franchises can rely on their larger brand or trademark to provide support, however, as any franchise owner knows, franchise businesses are not arms of the larger corporation. Franchise businesses have their own tax ID numbers and payroll systems. They are independent businesses, wholly separate from the franchiser.

The International Franchise Association and a number of franchise owners have filed suit in the United States District Court (Case No. C14-848RAJ) against the city of Seattle to halt the city from subjecting small franchise businesses to the accelerated minimum wage phase in period.   Judge Richard Jones of the US District Court recently denied the franchise business owner’s motion for a preliminary injunction, which would have prevented the city from enforcing the accelerated phase in period to small franchise businesses, after finding that franchise owners hadn’t adequately shown that Seattle intended to discriminate against them and that there was no credible evidence that indicates franchises would shut down or reduce operations because of the law. The franchise owners have since filed an appeal of this order. IFA’s suit is still pending and to date, franchisees are still deemed to be large employers regardless of their actual size.

If you would like to discuss how Seattle’s new minimum wage ordinance may affect your business, please do not hesitate to contact MDK Law.