One minute franchisees are being called employees, the next they’re being accused of being cogs in the wheels of large corporations. “Will lawmakers around the world please make up their minds!” is the catchcry of more and more franchisors, some of which – through the IFA – have taken the radical step of suing a city.

The New Zealand Government got confused. They thought that the employees of franchised commercial cleaning businesses, most of which were quite small, were really employees of the businesses’ franchisors. And they proposed to treat them the same way as the employees of large non-franchised cleaning companies.

It took the efforts of an outraged and very determined franchisor, Grant McLaughlan of Crest Clean commercial  cleaning, to stir up the Franchise Association of New Zealand – normally a conservative organisation which likes to keep on side with the government – to fight the issue.

And they eventually won.

Whether FANZ’s big brother, the International Franchise Association, will win on a similar issue in Seattle remains to be seen.

The IFA has taken the unusual and somewhat radical step of suing the city of Seattle. Not for ignoring the protests of franchises and other low-income employers across the United States and bumping up the minimum wage to $15, which is what this liberal-minded city has done, but for confusing franchise systems with large corporations.

Franchisees lumped in with the large corporations

In this case, the Seattle authorities have given small businesses the grace of allowing them to comply with the new law within seven years, while corporations with more than 500 employees have only three years – four if they provide health insurance – to comply.

Trouble is, franchisees of large franchise systems have been lumped in with the large corporations.

Unfair discrimination against the franchise model

The ordinance “unfairly and irrationally discriminates against interstate commerce generally, and small businesses that operate under the franchise business model specifically,” said the IFA in the lawsuit it filed in the US District Court in Seattle.

For example, an independently owned Holiday Inn Express in Seattle with 28 workers is considered a “large” business under the law, because Holiday Inn franchises nationally have more than 500 workers, claimed the lawsuit, quoted in the US Today newspaper. Meanwhile, other Seattle companies with up to 500 workers are considered “small” and given extra time to adopt the wage.

The mayor says no

But the mayor of Seattle, Ed Murray, rejected the claim, saying that the franchises have advantages unavailable to other local businesses – menus, a supply chain, training and advertising provided by national corporate entities.

That’s fine, but will franchisors save their Seattle franchisees from bankruptcy if the minimum wage rise makes them uncompetitive against their non-franchised counterparts?

Don’t bet on it.

Of course, you could argue that franchisors have brought this on themselves through the common practice of selling franchises on the basis that franchisees may be independent business owners, but they will have all the advantages of a big business.

Nobody mentions the disadvantages.

The question is: Can franchises have it both ways?

You could also argue that increases in minimum wages don’t necessarily impact on franchisee profitability, as we pointed out in another article. The Seattle increase will be a test case for the rest of the United States, which will also get an increase if Barack Obama has his way, although it is looking increasingly as though it will be nowhere near the Seattle increase.

We welcome your thoughts on this issue. Follow us on LinkedIn or Twitter and let us know what you think.

Article by Robin La Pere, No Ordinary Business and Franchise Consultants

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Robin La Pere of No Ordinary Consultants has been working with disruptive new business models since Apple burst into the market with its unique personal computers. He was at the forefront of major new movements in the retail, financial and construction industries and has consulted to established businesses as well as start-ups on creating and renewing business models.  





"Robin had a significant and positive
impact ... on Signature Homes as a whole, as evidenced by the fact that our business became one of the fastest growing businesses in New Zealand, winning a Deloittes Fast 50 Business Award in 2003, seeing total sales soar by more than 500%."


          Gavin Hunt, Signature Homes