The U.S. Chamber of Commerce signed onto an amicus brief Tuesday in support of the International Franchise Association's (IFA) lawsuit against a “discriminatory” provision in Seattle’s recently passed minimum wage increase.
Under the law, signed by Seattle Mayor Ed Murray (D) in June, small businesses with fewer than 500 employees are granted up to seven years to implement a $15 hourly wage, while franchised food chains -- categorized as large employers -- receive only three to four years to execute the wage hike.
Accounting for every employee under the brand’s franchise, the law assumes all franchised restaurants employ more than 500 workers.
“By saddling franchisees with increased labor costs that non-franchised small businesses are not required to bear, the Ordinance will make it difficult -- if not impracticable -- for franchisees to compete,” the amicus brief states. “Not only does it impose the largest minimum-wage increase in the history of the United States, but it does so by targeting franchisees for disparate treatment because of their affiliation with out-of-state franchisors and fellow franchisees.”
According to a March report by the University of California, Berkeley, numerous studies evaluating the effects of minimum wage hikes on restaurants’ operating costs have found a roughly 1-2 percent increase in operating costs for every 10 percent increase in the minimum wage. However, the report also found that raising the minimum wage "does not automatically mean that employment will fall."
"Increased labor costs can be absorbed through a variety of other channels, including savings from reduced worker turnover and improved efficiency, higher prices, and lower profits," the report states.
In response to the initial complaint filed by the IFA in June, Murray defended the provision by arguing that unlike small businesses, franchises benefit from various forms of corporate assistance, including help with advertising and food supplies.
“They are not the same as a new restaurant that opens up in the city, so I think they are different,” Murray said in a statement in June. “I don’t think the strain is on a fairly slow phase in on the minimum wage, but on a business model that really does, in many cases, harm some of the franchise owners. I don't doubt at all that they are working under some pretty tight conditions, but I think it's a conversation to have with some of the people who have decided to spend oodles of money on lawyers.”
In a motion for a preliminary injunction, the IFA alleges that the “discriminatory” nature of the law violates the interstate commerce clause of the Constitution and the equal protection clause of the Fourteenth Amendment.
“The basis for treating these franchise businesses differently and less favorably is based on a franchised business’s joint marketing and joint advertising efforts,” attorney Paul Clement, the brief’s lead author, said in an interview with Fortune on Thursday. “And of course marketing and advertising is speech.”
The friend-of-the-court brief also includes the National Restaurant Association, the Home Care Association of America, the Asian American Hotel Owners Association and the Washington Retail Federation.
Currently, Seattle businesses must pay employees no less than the state’s hourly base pay of $9.32 -- the highest minimum wage in the country.
The wage hikes, unanimously passed by the Seattle City Council in June, will go into effect on April 1, 2015.
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