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Does Minneapolis' minimum wage law treat franchise businesses unfairly?

REUTERS/Stefano Rellandini
Franchisees are commonly local small-business owners; they pay a franchise fee to operate under the name of larger national brands.

Amid the long-simmering debate about a $15-per-hour minimum wage at Minneapolis City Hall, the fate of franchise businesses was largely off the radar. But when the dust settled, the ordinance defined franchises as a “large business” if the franchisor has more than 10 locations nationally. So they will have to boost wages faster.

Franchise industry experts say that automatically declaring franchises large businesses suggests that city leaders don’t understand franchise business basics. Franchisees are commonly local small-business owners; they pay a franchise fee to operate under the name of larger national brands.

“Simply because they operate under a national banner does not mean they’re large businesses,” says Jeff Hanscom, senior director of state government relations for the Washington D.C.-based International Franchise Association.

Under the tiered phase-in schedules to reach the $15 wage, small businesses have seven years to implement the increases and large businesses have five years. Not counting franchises, Minneapolis defines a “large business” as any with 100 or more employees.

The IFA sued Seattle in 2014 after the city’s minimum wage law defined franchises as large businesses. Lower courts sided with the city, and the U.S. Supreme Court declined to hear the case in 2016. Hanscom says that does not necessarily preclude other challenges. In Minneapolis, Hanscom says that the IFA is weighing all of its options, “up to and including litigation.”

Council Member Jacob Frey, who is running for mayor, authored the amendment which lengthened the phase-in time for local businesses, but also addressed franchises. “This was a two-part amendment. It provided extra lenience and a longer phase-in for locally-owned restaurants,” says Frey. “And a faster phase-in for franchises.”

Why? “To make McDonald’s and Wendy’s large businesses,” says Frey. The IFA’s Hanscom notes that national franchisors don’t pay wages for a local franchisee. IFA statistics indicate that 80 percent of franchisees operate a single unit, and many are not high-profile businesses.

Twin Cities BusinessFrey does not dispute that many franchises are locally owned. Council Member Blong Yang—the only council member to vote against the minimum wage ordinance—says there was little discussion about the franchise issue.

Taco John’s franchisee Tamra Kennedy operates eight suburban metro locations. “None are in Minneapolis,” she says, “because of regulations like this.”

Kennedy says it’s not the city’s role to dictate wages. While she says that many of her jobs are entry-level, she notes that amid current competition for workers, she has to pay more than the state’s minimum wage—$9.50 per hour—to attract employees. She adds that some of her managers can make more than $50,000.

Says Kennedy: “I risk losing employees if I don’t pay them enough.”

This article is reprinted in partnership with Twin Cities Business.

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Comments (7)

Oh, boo-hoo. Franchises of

Oh, boo-hoo. Franchises of large national companies (fast food, mostly) have only five years to implement a Minneapolis minimum-wage ordinance versus seven years for local companies, and we're supposed to gag?

What's at issue here is obviously the franchisees' desire to be totally without local regulation. Wild west, and the devil take the low-wage workers!

Oof.

There's a case to be made

There's a case to be made that keeping Taco John's out of Minneapolis is an unexpected benefit, not a harm. No shortage of fantastic places for tacos in the city.

Rationalle not clear

So two restaurants, of similar size, say 50 employees mostly part time, one is a local mom and pop, the other is a locally owned single restaurant franchise.

The first one has 7 years to meet the wage scale, the second has to do it in 5. Also, the second will have less control over their prices because I believe they have rules they need to follow, promotions to participate in, etc....

So to your question, yes it would appear the franchise is treated unfairly vs a comparable restaurant in the city without a franchise brand.

It's not clear why the city decided that these small business owners who buy a national brand for their operation should pay more/faster than someone who stays with their local one-off offering.

Will this unfairness be material to anyone's business? Who knows? Low unemployment is already pushing wages up the way market forces would predict, this may be a moot point 5 years from now.

Not unfair at all.

The reason to buy a franchise is the speed at which it can grow to being a very profitable business. Far less risk, so they can afford to pay more in local wages. That is part of the analysis by the franchisor and the people looking to buy/run a franchise. The public accepts the image of the established franchise. Non-franchise independent businesses lack the acceptance of the general public. They have to earn it.

Businesses, pay your workers

Here is the scenario. Employees pay a wage so low that even working full time they are earning "entry into poverty" wages. This means that workers need government to cover housing support, healthcare and other expenses.

The result first cheap food, in part a government subsidy for those who dine out. The second - profit.

With a franchise part of the profit leaves to community to huge profitable out of town companies like McDonalds, and into the pockets of its highly paid executives and wealthy stock holders. The franchises take the risk - the out of town company gets paid regardless. Compare this to a local business, where the money stays home.

Fast food is cheap boring food, subsidized by low wage workers and government. Local ownership means the profits stay here, and the food and value has to to be good, or you don't survive. Now do you think that local government should treat them exactly the same?

To buy a franchise, one needs money or good credit - knowledge of food is more optional. Local restaurants that survive - they are community assets in a way that franchises can never be.

In fact, it treats all

In fact, it treats all businesses unfairly…

Criteria for large vs. small business

Although minimum wage applies to employees, perhaps a different criteria (than number of employees) should be used to define large vs. small business. Most franchise operations require the franchisee to have a certain net worth - and that might be a better way to distinguish which businesses to cover by minimum wage. Easy enough to look up what it costs to apply for a franchise for numerous businesses.