Something is brewing in Seattle and it’s not just coffee. There’s a brouhaha over the city’s new minimum wage hike that will top out at $15 per hour for all workers over the next six years. The fight is pitting workers against local franchise owners who don’t see themselves as corporate juggernauts flush with cash.
This week, a federal judge ruled that Seattle’s minimum wage law will go into effect, despite objections from business owners.
As we’ve reported, last year Seattle approved a plan to gradually raise the city’s minimum wage to $15 an hour among large employers by 2017 and among small and midsized employers (those with fewer than 500 employees) by 2021. The first increase on April 1, 2015 will hike the minimum wage to $10 an hour for some businesses and $11 an hour for others. This is far above the current $7.25 federal minimum wage rate which president Obama has proposed pushing to $10.10.
Some cities treat franchisees like small businesses but not Seattle. Even if a neighborhood McDonald’s employs just 30 employees, it would still be considered the size of McDonald’s worldwide and would have to comply by the wage hike by 2017.
Franchisees consider this unfair and the industry has assembled to oppose Seattle’s wage hike. The International Franchise Association jumped into the fray enlisting a former U.S. solicitor general to build a case for why franchises should not be treated like large businesses and asking for an injunction on the new rules.
The federal judge didn’t buy the argument, saying franchisors provide franchisees enough support to require them to pay the higher wage. This clears the way for the wage hike to continue as planned in less than two weeks.
CNN Money reports:
The ruling by U.S. District Judge Richard A. Jones is a victory for minimum wage workers, who will see their pay increase on April 1 to $11 from $9.47 an hour.
The judge rejected the argument that franchise owners, who are required to raise wages at a faster pace than small businesses, are at risk of going out of business.
"There is no actual evidence of the alleged negative impacts that plaintiffs fear will occur as a result of the faster phase-in schedule," the 43-page order states.
The International Franchise Association called the decision a "disappointment" and pledged to continue fighting for Seattle franchisees.
"The ordinance is clearly discriminatory and would harm hard-working small business owners who happen to be franchisees," said the franchise group's president Steve Caldeira. "It was never about Seattle raising the minimum wage to $15 wage, but rather the increase applied in a discriminatory way."
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Franchise owners argue that they operate more like small businesses even though they may be technically part of a large national chain.
Labor activists say franchises are highly-profitable corporations that do not deserve to be considered small businesses.
Even Starbucks’ CEO thinks $15 per hour is too high for small businesses, arguing there will be unintended consequences for them. Starbucks is raising minimum wages across the country this year, but has chosen as a company to do that which is why he's against a mandated federal minimum wage increase.
Those who think the wage hike is good idea are lawmakers and activists who will likely use the wage hike for bragging fights. They ignore the unintended harm that stems from raising the costs of labor. Economic principle and studies explain that isome of the very people who stand to benefit from hire wages get pink slips instead following mandated wage increases.
It’s too early to know how much pain will be inflected on small businesses, but we have seen early signs that fees and costs to consumers rise. Unless, consumers are not price conscious, they will shop where they can keep costs low. Less demand hurts business. So whether it's immediate or over time forcing employers to raise wage rates will carry negative consequences including job loss.
Though this battle was won, the war over wages is far from over.