"We reject any proposal to carve out a McDonald’s loophole that allows multibillion-dollar global franchise systems to evade their responsibility for poverty-wage jobs"

Leaders of Working Washington and six other organizations sent the following letter to Tacoma Mayor Marilyn Strickland and the other members of the Tacoma City Council, urging them to ensure that fast food chains are categorized as large businesses in the city's minimum wage law.

Dear Mayor Strickland and Tacoma Councilmembers,

As you consider proposals to raise the minimum wage in Tacoma, it is critical for you to ensure that fast food chains that happen to be organized as franchises are categorized as large businesses, just like any other large national chain would be. 

Our organizations represent tens of thousands of workers and community members in Tacoma. Many of us participated in the mayor’s task force. We believe the majority recommendation which came out of the task force presents an opportunity for Tacoma to pass a minimum wage plan that raises up our city, boosts our economy, and gets every worker to $15/hour. 

However, we will not support any proposal from council that fails to recognize what a federal judge found – that franchises are in effect large, integrated enterprises which have more resources, higher profits, and numerous other advantages over independent businesses. 

Here are 6 key reasons why franchises should be treated like any other large chains:

1. Franchise systems are unlike independent businesses

Franchise systems function as integrated business operations. The franchising model involves a franchisor corporation at the top like McDonald’s or Burger King, which demands adherence to a highly detailed operating and supply system that determines the business models of franchisees. In fact, this highly standardized business model underlying a brand name is the core of the value franchisors provide to franchisees, and presents a significant advantage over independent operations.

2. Franchisors and franchisees are thoroughly intertwined

Franchise agreements are highly-detailed documents that can run hundreds of pages long, prescribing a comprehensive operating system including hours of business, menu prices, staffing levels and restaurant design. 

For example, the 500-page-long Subway franchise documents filed with state governments details a thoroughly intertwined relationship between Franchisor and Franchisee, including a continuous system of support for franchisees, a dedicated Subway Corporate representative, grand opening support, security/safety procedures, field operations/evaluations, lease negotiation assistance, point-of-sale software, restaurant management software, scheduling software, and more.  The result is a highly standardized arrangement, with no more variation from location to location than at any other type of corporate chain. 

3. Franchise systems create uniform employment regimes 

Franchisors set staffing policies, develop employee training, and supply scheduling software. They enforce uniformity of service standards through detailed operating manuals that designate cleaning and maintenance procedures, grooming and uniform standards, and various training requirements. For example, Burger King’s Manual of Operating Data details staffing procedures around opening and closing, lunch changeover, and even overall labor scheduling guidelines.  McDonald’s describes adherence to the entirety of their operating standards as “not merely a goal or target” but rather “a requirement of your McDonald’s franchise contract.”  And Domino’s employs proprietary software to track the hours, wages, and payroll record of franchise employees. 

4. Franchise systems effectively set workers’ wages

Franchisors control the cost of franchisee’s inputs and outputs by setting supply costs, specifying HR practices, controlling schedules, designating advertising budgets and demanding royalty fees and advertising fees. This tightly scripted model leaves franchisors effectively in control of wages; as NELP Policy Analyst Jack Temple notes, “The Corporations set wages by setting everything but wages.” 

5. Franchisors are being held jointly responsible for labor conditions

Corporate franchisors’ responsibility for labor conditions at franchisees is increasingly being recognized by the legal system

  • Domino’s delivery workers won $1.28 million in a back pay from Domino’s Corporate after a New York wage theft lawsuit found Domino’s Corporate liable as a joint employer, on  the basis that they controlled key functions including hiring, management policies, training, staff equipment, uniforms, supplies, delivery areas and methods and procedures for delivery. 
  • Subway Corporation agreed with the Department of Labor to collaborate to increase compliance with federal labor laws, after Department of Labor data from 2000 to 2013 showed that Subway franchisees were the most frequent violators of wage and hour rules in the nation’s fast food industry.  
  • The National Labor Relations Board found that McDonald’s functioned as a joint employer of franchise employees “through its franchise relationship and its use of tools, resources and technology, engages in sufficient control over its franchisees' operations, beyond protection of the brand, to make it a putative joint employer with its franchisees, sharing liability for violations” of labor law. 

6. A Federal Judge found rational basis for treating franchises as large businesses 

Federal District Court Judge Richard Jones recently rejected a motion to enjoin Seattle’s minimum wage law, finding that the city had a rational basis for treating franchise systems the same as corporate-owned chains. 

Judge Jones held that “being part of a larger network provides significant benefits”, including “brand recognition and customer loyalty, as well as access to, advertising, trade secrets, software, lower material costs, site selection assistance, financing, and extensive operational support and training.” He further found that “participation in this system also often affords franchisees more profit than they would earn as individual business owners” and that franchisees benefitted from “national advertising, extremely valuable and well-known trademarks, the market power of a large corporation when purchasing supplies and raw materials, and access to valuable and trustworthy information based on the experiences of other franchisees.” 

Finally, Judge Jones pointed out that “franchisors also have the ability to use their greater financial resources to support the franchise by aiding franchisees during time of business stress, including identifying and responding to changed business conditions.”

We urge you to seize the opportunity to raise up Tacoma and lift up our economy by raising the minimum wage to $15/hour without carving out any special loopholes for giant fast food chains. These chains obviously have the resources to pay workers a living wage. 

Fast food workers sparked the nationwide fight for $15, and there is absolutely no reason to consider any proposal that makes these workers wait a decade to be able to support themselves, afford the basics, and contribute to the economy. 

On behalf of our organizations’ tens of thousands of members in Tacoma, we reject any proposal to carve out a McDonald’s loophole that allows multibillion-dollar global franchise systems to evade their responsibility for poverty-wage jobs. We will not support any minimum wage policy coming out of council which fails to treat franchises as the large, integrated, and highly profitable business operations they truly are.

Sarah Cherin, UFCW 21, Director of Governmental Relations
Adam Glickman, SEIU 775NW, Secretary-Treasurer 
Teresa Mosqueda, Washington State Labor Council, Political & Strategic Campaign Director
Sejal Parikh, Working Washington, Executive Director
John Scearcy, Teamsters 117, Secretary-Treasurer
Diane Sosne, SEIU Healthcare 1199NW, President
Wayne Withrow, AFSCME Local 120, President