Businesses seek to block portion of new Seattle minimum wage law

SEATTLE – A federal judge is considering whether he should block part of Seattle’s new minimum wage law before it takes effect next month, on the grounds that it discriminates against franchises that are part of large national chains.

The law, which raises the city’s minimum wage to $15 an hour, is phased in more quickly for big companies than small ones. Among those determined to be big companies under the law are franchises — from fast-food joints to hotel chains — that are connected to networks that in all have more than 500 workers.

Paul Clement, a former U.S. solicitor general who is representing the International Franchise Association and five franchises in Seattle, told Judge Richard A. Jones during arguments Tuesday that’s unfair. They’re essentially small businesses, he said, but by 2017 they’ll have to pay their workers a minimum wage $4 higher than their purely local competitors.

That punishes those companies for their involvement in interstate commerce, he said — a violation of the Constitution’s Commerce Clause, which reserves the regulation of interstate commerce to the federal government.

“‘Buy Local’ as a city policy is 100 per cent prohibited by the Commerce Clause,” he said.

Assistant city attorney Greg Narver responded that the law’s intent was simply to raise the pay of Seattle’s low-wage workers, and that the City Council wanted to draw the line somewhere as far as which businesses could afford to pay the higher wage when. Because franchises receive benefits from their association with their chains — national marketing, training, product development — it was perfectly reasonable for the city to treat them differently, he said.

Seattle’s law gives businesses with more than 500 employees nationally three years to phase in the increase — four if they provide health insurance. Smaller employers get seven years.

On April 1, the large businesses and national chains must raise their pay to at least $11; smaller ones to at least $10. Some franchise owners, including David Jones, who owns two Subway sandwich shops in town, say they’ll need to raise prices to cover it.

They note that they pay for the benefits they receive from their chains, such as through franchise, marketing or training fees.

The city has stressed that the law is not discriminatory on its face: It applies to any business that is part of a network of at least 500 employees, whether that chain is an interstate behemoth or one located entirely in Washington state. But Clement argued that it is discriminatory in its effect, because 96 per cent of the franchises subject to the quicker $15-an-hour phase-in are part of national chains.

He also pointed to emails from Nick Hanauer, a prominent Seattle entrepreneur who served on an advisory committee looking at the minimum wage proposal, as evidence of the city’s intent to discriminate against interstate franchises. Hanauer referred to “extractive national chains” as “civically corrosive,” and suggested they should be considered large businesses for purposes of the law.

The judge noted that Hanauer was just one of 24 members of the committee and questioned whether there was any evidence the city adopted his views about big chains. He also grilled Clement about whether the city’s intent would matter in the absence of a discriminatory effect, asking whether he had case law to support his position or whether it was just so much “creative spin.”

Clement acknowledged he didn’t have case law that was exactly on point, but said he shouldn’t be expected to because the city’s approach is so novel.

“We said from day one this is not about trying to destroy the minimum wage law,” said Matthew Haller, a spokesman for the franchise association. “It’s about equal treatment.”

Working Washington helped organize walkouts by fast-food workers that sparked the $15-an-hour law. Sage Wilson, a spokesman, said franchises can handle the accelerated pay schedule.

“These workers have been waiting and fighting to make ends meet for years now,” he said.

The franchises are seeking a preliminary injunction that would block the relevant part of the law from taking effect April 1, pending a ruling from Jones expected later this year on the full merits of the case. Jones said he would do his best to decide by next Tuesday whether to grant the injunction.


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