Ground Zero

Matthew Patinkin, owner of five Auntie Anne’s stores in Chicago and 58 elsewhere, played a bit part in June when he testified before a task force about a proposal to raise the city’s minimum wage to $15 from $8.25. 

He’s against language in the proposal that treats him, as a franchisee of small restaurants, the same as his large corporate franchisor, and would require him to increase wages by 82 percent in just one year rather than the four-year phase-in for small businesses. "That’s pretty harsh," he says. "We want to be treated as any other small business, and to be treated fairly."

His appearance was brief, but the drama surrounding the issue is enormous—stretching from a freshly filed and rare lawsuit by the International Franchise Association in Seattle, to class-action lawsuits and protests at McDonald’s, to a new chief at the U.S. Department of Labor who is the IFA’s latest bogeyman. 

The stakes are high, according to Matt Haller of the IFA, threatening to tear down the entire business model of franchising. "It’s a sophisticated, coordinated attack," Haller says about the wide range of events, which he believes are backed by the Service Employees International Union. "It’s all an orchestrated effort by the SEIU to destroy the franchise model so they can unionize in hotels and fast-food franchises. You can’t unionize one by one.

"Franchising has become ground zero for this debate. It’s scary times for franchising," he adds.

Political movements

To be sure, Haller’s job at the IFA is to sound the alarm as loudly as possible. But he’s not the only one doing so. Erik Wulff, an attorney and partner at DLA Piper, outlined the multiple branches of the issue when he spoke at the IFA’s Legal Symposium in Chicago this spring. 

"There are a lot of political and social movements afoot related to growing income disparity," he said, such as minimum wage protests and immigration battles. "A number of industries that franchise have been identified as having vulnerable employees."

In the last few months six class-action lawsuits have been filed against McDonald’s, Wulff points out, holding the corporation responsible for wage and hour practices even at stores it doesn’t own based on corporate’s "alleged high degree of control" over its franchisees. 

In one of those lawsuits, a New York McDonald’s franchisee recently settled for $500,000 for unpaid laundry allowances, uncompensated work time and unlawful wage deductions. McDonald’s issued a statement about the lawsuits: "McDonald’s and our independent owner-operators share a concern and commitment to the well-being and fair treatment of all people who work in McDonald’s restaurants."

At the same time, Wulff says, the economic theory of "fissured employment" is rising, and one of the theory’s most prolific writers, Dr. David Weil, was confirmed April 28 as the wage and hour administrator at the Department of Labor. Under the theory, independent contractors, subcontractors, franchises and the like—anyone who has something less than a direct employee-employer relationship—deserve special support because such people are considered vulnerable to labor law abuse.

"We are expecting a strategic enforcement action by the Department of Labor centered on fissured employment theory," Wulff said.

Lawsuit in Seattle

Steve Caldeira, president and CEO of the IFA, wrote a letter urging senators to vote no on Weil’s confirmation. "Dr. Weil has consistently targeted the franchise industry in his writing, accusing franchise companies of being a ‘fissured industry’ that intentionally separates operations and responsibilities between franchisees and franchisors in order to neglect their obligations to workers," he wrote. 

"On the contrary, the franchise model has created tens of thousands of American small business owners and allowed brands to grow by leaps and bounds, creating millions of opportunities for American workers."

The IFA blasted harder in June, filing with five franchisees a lawsuit in U.S. District Court in Seattle seeking to block the city’s new law to increase the minimum wage to $15 per hour. Similar to the Chicago proposal, Seattle’s law treats franchisees the same as their much-larger corporate peers, which the IFA says is unfair discrimination.

On the other side of these issues, of course, are the thousands of protesters in dozens of cities across the country, who began last year to protest for higher wages in targeted strikes, especially aiming at fast-food restaurants. Seattle Mayor Ed Murray lashed back at the industry in a statement posted the day after the IFA lawsuit hit. 

"The movement around wage equality in our nation began with fast food workers walking off the job. That was the straw that broke wage disparity’s back in this nation. There is a problem in the franchise business model and I believe this is a discussion franchise owners should be having with their corporate parents," he wrote.

"I don’t doubt at all that franchise workers are operating under tight conditions, but I think it’s a conversation to have with the people who have decided to spend oodles of money on lawyers to fight a higher minimum wage," Murray said. (He neglected to mention the buckets of cash politicians receive from the SEIU. In Chicago, according to Haller, the SEIU gave its Chicago branch $1.5 million in the last quarter to support the minimum wage effort there.)

Shrill rhetoric

More compelling to the public, no doubt, are the low-wage workers themselves, who use fiery slogans and rich-vs.-poor chants like "Fight for 15" to energize the crowds. At a rally in Chicago recently, Ryne Poker with the Uptown Uprising community coalition fired up the crowd, according to a story posted on the SEIU Illinois Council’s website.

"I’m sorry to say that the Walton family might have to take their hard-earned money out of their trust funds to pay people a decent wage," he said, referring to the owners of Walmart and then to a tony Chicago neighborhood. "I’m so sorry that Lakeview business owners might not be able to live in the lakefront condos if they want to." 

The shrill rhetoric on both sides might seem a bit much for someone like Patinkin, the Auntie Anne’s franchisee. "I think it’s an unfortunate attack on the franchise model," he says. "I believe in the franchise model, but I’m afraid that this will move into other areas, which changes the fundamental nature of franchising. It makes me very nervous." 

 Beth Ewen is managing editor of Franchise Times. Send interesting legal and public policy cases to [email protected].