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Minimum Wage…Who’s the Real Target?

11.16.05
2014 may end up being the year of the minimum wage! Since the second half of 2012, we have seen nationally organized protests demanding an increase in minimum wage, increased union activity, and national, state and local initiatives to increase the minimum wage.
 

Federal Minimum Wage
On the federal level, President Obama has publicly supported the Minimum Wage Fairness Act (S. 1737; 113th Congress), which would increase the federal minimum wage to $10.10/hour. The current federal minimum wage is $7.25/hour and was last re-set in 2009.

State Minimum Wage
So far in 2014, minimum wage bills have been introduced in 38 states, 34 of which considered increases to the state minimum wage. Of those, 10 states (Connecticut, Delaware, Hawaii, Maryland, Massachusetts, Michigan, Minnesota, Rhode Island, Vermont and West Virginia) and the District of Columbia enacted increases. Currently, 23 states and the District of Columbia have minimum wages in excess of the federal minimum wage. Five states (Alabama, Louisiana, Mississippi, South Carolina and Tennessee) do not have a state minimum wage. Activity in Michigan provides a sample of state initiatives being witnessed nationwide. Ahead of a ballot initiative in Michigan, which would have asked Michigan voters to amend the state minimum wage law and increase the minimum wage to $10.10/hour, the State of Michigan enacted a new law raising the state minimum wage from $7.40/hour to $8.15/hour effective September 1, 2014, with an eventual increase to $9.25/hour by 2018 and annual increases thereafter tied to inflation. The new law repealed the prior law that the ballot initiative sought to amend, effectively undermining the initiative entirely.

Municipal Minimum Wage
On the city and county level, nine municipalities have enacted minimum wage laws during 2014, including: Albuquerque, NM; Bernalillo County, NM; Montgomery County, MD; Prince George’s County, MD; San Francisco, CA; San Jose, CA; Santa Fe, NM; Santa Fe County, NM; and most recently, Seattle, WA.

On June 2, 2014, Seattle passed Seattle City Ordinance No. 124490 (Ordinance) which increases the minimum wage of employees within city limits to at least $4.00 greater than the minimum wage in other parts of Washington. The Ordinance differentiates large employers from small employers. Large employers, defined as “Schedule 1 Employers”, are those that employ more than 500 employees anywhere within the US. The Ordinance then singles out the franchise business model by legislating that all franchisees associated with a franchisor or a network of franchises with franchisees that employ an aggregate of 500 or more employees anywhere in the US are deemed to be Schedule 1 Employers.

For Schedule 1 Employers, the Ordinance increases the minimum wage to $15.00/hour over three years.
 
 Date  Hourly Minimum Wage
 April 1, 2015  $11.00
 January 1, 2016  $13.00
 January 1, 2017  $15.00
 January 1, 2018 and each
 year thereafter		  Annual increases based upon
 CPI-W annual percentage change

 

Small Employers, defined as “Schedule 2 Employers”, are those that employ 500 or fewer employees anywhere within the US. Schedule 2 Employers are subject to a more gradual phase in which increases the minimum wage to $15.00/hour over seven years.
 
 Date  Hourly Minimum Wage
 April 1, 2015 $10.00
 January 1, 2016 $10.50
 January 1, 2017 $11.00
 January 1, 2018 $11.50
 January 1, 2019 $12.00
 January 1, 2020 $13.50
 January 1, 2021 $15.00
 January 1, 2022 $15.75
 January 1, 2023 $16.50
 January 1, 2024 $17.25
 January 1, 2025 and each
 year thereafter
 		 Equal to minimum wage for
Schedule 1 Employers

The singling out of the franchise business model in Seattle is now making headlines. On June 11, 2014, the International Franchise Association (IFA) joined with five franchisees to file a lawsuit alleging the Ordinance discriminates against franchisees. On August 5, 2014, a Motion for Limited Preliminary Injunction was also filed asking the Court to immediately block portions of the Ordinance. The IFA position is based upon the claim that the “discriminatory treatment of a business model typified by involvement in interstate commerce, use of federally-protected trademarks and particular forms of protected speech and association” is unconstitutional. The Ordinance singles out the franchise business model by legislating that all franchisees associated with a franchisor or a network of franchises with franchisees that employ an aggregate of 500 or more employees anywhere in the US are deemed to be large employers. The IFA contends that this treatment of two employers that are substantially identical (with the exception of being part of a franchise system) is a violation of the Commerce Clause, the Equal Protection Clause of the Fourteenth Amendment, the Supremacy Clause, First Amendment and the Washington State Constitution.

We will be closely watching this lawsuit and other issues impacting the franchise industry as we join other franchise business leaders in Washington D.C. on September 16th-17th for the IFA Public Affairs Conference.