Seattle closed the franchise loophole in our $15 minimum law by ensuring that large franchise systems are treated the same as any other large standardized enterprise, with their classification based on the total number of people who work for the entire chain as a whole. Increasing numbers of governmental and judicial bodies have moved in this same direction in the two years since, and there is no reason to re-open the franchise loophole in the secure scheduling ordinance. 

Franchise systems function as highly-standardized operations.

Franchise systems effectively function the same as any other highly-standardized chain. They don’t simply “rent a brand”; franchise locations are required to adhere to formal and highly detailed franchise agreements and operations manuals which dictate a wide range of business practices, including such things as branding, decor, equipment, suppliers, advertising, store layout, menus, lease negotiations, point-of-sale software, pricing, promotions, employee training and staffing levels, and more. 

The result is a tightly standardized store experience for customers and employees, just like any other corporate chain with any other type of financial structure.

Franchise systems are enormously profitable. 

Fast food chains in particular are a highly profitable business; even in what investors described as a bad year, McDonald’s alone banked more than $5 billion. 

The scale and profitability of these global franchise systems provides them the same kind of advantages over independent businesses that other types of global chains enjoy — including enormous brand recognition; marketing scale; access to customized software solutions; purchasing power to negotiate prices on supplies; and access to reliable information on how best to run a store based on the experience of hundreds or thousands of other locations in the chain. 

Franchise systems have access to finely tuned scheduling software that monitors minute-by-minute point-of-sale data.

Franchise systems typically mandate the use of highly-customized software to manage and monitor point-of-sale systems, payroll, and labor utilization rates. This data can then be used to create just-in-time work schedules, either through software provided by the franchise system, or by a third-party vendor which plugs into the franchise system’s standardized POS system. 

Because of the scale of franchise systems, these software-based scheduling systems can be customized to the data and operational needs of chains in a way which is simply not possible for smaller independent outlets.

Franchise systems are being held responsible for labor conditions. 

More and more courts and governmental bodies have found that because franchise systems closely control operations at their locations, they effectively control labor conditions as well. Franchise systems have therefore been held responsible for employment issues including failure to pay overtime, altering time cards, and withholding pay from terminated employees. 

In 2014, the NLRB held that the McDonald’s Corporation was responsible for the illegal treatment of employees at franchised locations, and in 2015 they issued a more general ruling laying out how franchise systems can be classified as joint employers. The New York Attorney General has filed suit against Domino’s for labor violations at franchise locations. Subway recently reached an agreement with the Department of Labor to ensure its franchisees are in compliance with labor standards. And in a recent court decision granting McDonald’s franchise employees federal class action status, the judge said the corporation’s argument that they are not responsible for practices at franchised operations “bordered on the specious.” 

The issue has already been decided by the city and the courts.

When Seattle was debating the $15 minimum wage, the International Franchise Association (the national lobby group for the franchise industry) aggressively raised the issue of the franchise loophole before the public, even purchasing radio ads. Many of the very same store operators who fronted that effort are now raising the same issues again. They lost the debate before the public, and despite the sky-is-falling predictions, franchise outlets continue to open and prosper in Seattle.

The courts have also found it is appropriate to treat franchise systems the same as any other type of chain. In an opinion upholding Seattle’s $15 law, Federal District Court Judge Richard 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.” The International Franchise Association attempted to appeal this decision to the US Supreme Court, but they were rejected, and there is no franchise loophole in Seattle’s minimum wage law.