The Washington DC based International Franchise Association has filed its promised lawsuit challenging Seattle’s $15 minimum wage ordinance, and while I’m not a lawyer, I have to say that in my expert opinion, much of the 34-page complaint (pdf) is downright laughable.
For example, Count IV, which preposterously alleges that the ordinance is preempted by the Lanham Act, the primary federal statute protecting trademarks, because it interferes with a trademark holder’s “right to control the quality of the goods or the services sold under its trademark.” Or Count I, which clearly contradicts the plaintiffs’ primary claim—that franchises should be treated like any other small, locally owned business—by arguing that to do otherwise would discriminate against interstate commerce. Or perhaps most hilariously, Count VIII, which alleges that the ordinance violates the First Amendment, because its higher labor costs would reduce the money available to spend on the franchisees’ constitutionally protected commercial speech:
[T]he Ordinance will curtail franchisee commercial speech in at least three important respects. First, by increasing the labor costs of franchisees, the Ordinance will reduce the ability of franchisees to dedicate funding to the promotion of their businesses and brands. Second, the increased labor costs the Ordinance mandates may cause some franchisees to shut their doors, reducing the amount of relevant commercial speech they engage in to zero. Third, and relatedly, the Ordinance will likely cause potential franchisees to forgo purchasing a franchise because of the associated higher operation costs, again eliminating all associated speech.
“That’s crazy talk,” says attorney Dmitri Iglitzin, a labor and employment lawyer who represents groups defending SeaTac’s $15 minimum wage ordinance. Iglitzin says that the First Amendment claim actually surprised him. Indeed, it’s so blatantly frivolous, he suggests, that it could even end up pissing off the court. “I don’t just throw everything I can imagine into a claim and hope that it sticks,” says Iglitzin about his own legal strategy.
Iglitzin doesn’t think much of the complaint’s other seven counts either, which include vague appeals to the Commerce Clause, the Equal Protection Clause, and the state constitutional prohibition on granting “rights and immunities” to specific corporations. Iglitzin characterizes the remarkably nonspecific alleged violation of Washington State corporation law as “equally nonsensical.” When asked if there was anything in the complaint that gave him pause, Iglitzin said: “There’s really not.”
Iglitzin did say he would take a deeper look at Count V, which claims that the ordinance’s separate schedules for employees receiving health benefits is preempted by the federal Employee Retirement Income Security Act (ERISA). He doesn’t believe the claim has merit, but “ERISA is a complicated area of the law,” he concedes.
“If I saw a lawsuit that was just ERISA, I might have thought that maybe they saw something that I didn’t see,” says Iglitzin. But overall, “it seems like a pretty frivolous lawsuit to me.”
I’m not an attorney, but I’ve seen enough of these things to fashion an informed opinion. And I have to agree. It’s frivolous. I mean, how can anyone take seriously a legal document that authoritatively cites a Seattle Times editorial?
In fact, much of the complaint reads more like it was drafted by PR consultants than lawyers, with nearly a quarter of its pages devoted to detailing the alleged woes of the named plaintiffs, and how the Seattle ordinance unfairly discriminates against their franchise businesses. But unfortunately for the plaintiffs, there’s nothing illegal, preempted, or unconstitutional about these sorts of distinctions.
Under Seattle’s ordinance, “small” businesses—those with 500 or fewer employees—phase in to $15 slower than larger businesses: 7 to 10 years versus 3 to 4. The bone of legal contention in this lawsuit is the provision that counts the number of employees based on the entire franchise network, rather than the number employed at single franchise store. But whether or not this is unfair or disadvantageous to franchise owners, it is not illegal.
Government regulations discriminate between different businesses all the time—based on size, industry, location, and whatever. In fact Washington State already has an entire chapter of the RCW devoted specifically to regulating franchises! There’s nothing novel about these sorts of regulatory distinctions. The only possible legal question, Iglitzin insists, is whether these distinctions are rational.
“There is a reason why you open a Burger King franchise rather than a Goldy’s Hamburgers,” explains Iglitzin, “and that is because there is value in being part of a larger network.” The franchiser provides branding and advertising, legal and administrative support, even payroll and human resource guidelines. Franchisees benefit from preexisting good will, and franchisers have both the incentive and the ability to assist franchisees in adapting to higher labor costs.
The legal test for both the “equal protection” and the “rights and immunities” claims is “is there a rational argument for treating franchisees differently?” says Iglitzin. And his answer is an emphatic yes.
“It is self-evident that franchisees are different from other employers,” says Iglitizin. And so it is perfectly legal to write regulations that treat franchisees differently.
The Franchise Association’s complaint was filed in the US District Court of Western Washington. And FYI, there is not a single word in its 34 pages challenging the minimum wage itself, only the regulatory distinction between franchisees and other businesses. So yes, the fast food industry has capitulated on $15.
UPDATE: No, I’m not an attorney. But David Ziff is. And he also thinks that there’s “not much merit” in the complaint, and for a lot of the same reasons.