McDonald's Lawsuit in Seattle Could Have Huge Consequences for Workers

March 24th 2015

Will McDonald's be able to avoid new municipal minimum wage increases? That's the question right now in Seattle. 

Last year, the city passed an ordinance that will gradually increase the minimum wage to $15 an hour within the next few years, putting it on par with San Francisco in having the highest minimum wage in the United States when both are fully implemented. One of the main targets of minimum wage ordinances is the fast food industry -- activists and labor organizations have been making a push to get fast food giants to pay a living wage, and these municipal minimum wage ordinances have been one of the tools in their arsenal. 

But the fast food industry is fighting back: McDonald’s is suing Seattle, claiming the minimum wage ordinance is unconstitutional because it unfairly discriminates against franchisees.

Wait…what are franchisees and why is this relevant?

McDonald's in Iowa

Seattle’s minimum wage ordinance gives small employers more time to raise their wages to $15 an hour than it does larger ones. McDonald’s, at first glance, would appear to be in the “larger employer” category. After all, the company says it employs more than 1.9 million people worldwide in 30,000 locations. But that’s what the fight is about. McDonald’s, like some other major chains such as Subway and Dunkin’ Donuts, uses the franchise model for store operations. Under this model, most locations are not owned by McDonald’s the parent corporation; rather, they are owned by individual proprietors who pay the parent corporation substantial fees for the right to sell the franchisor’s products and use its brand. Like every franchisor, McDonald’s imposes strict uniformity on their franchisees; upon walking into any random McDonald’s, one would be very hard-pressed to tell if it were a company-owned store or one operated by a technically independent franchisee. McDonald’s also imposes economic burdens on their franchisees that are not typical in the industry.

A recent ruling from the National Labor Relations Board (NLRB) may have significantly changed this business model. Last year, the NLRB concluded that McDonald’s the parent corporation is a “joint employer” of employees who work at franchisee-owned locations. 

That interpretation could make Seattle’s job of defending the minimum wage law in court much easier. Why? Because the fast food giant’s case is dependent on the notion that its franchisees are small employers not subject to the stricter, minimum wage standards imposed on large employers. If the logic of the NLRB ruling extends to this ordinance, though, the franchisees are not the only employers here. Instead, McDonald's -- the global corporation -- is also an employer. If that's true, then it's likely that McDonald's would have to more quickly pay the higher minimum wage.

What are the consequences?

McDonalds rally

If Seattle emerges victorious, it will be much easier for other cities and states to pass similar minimum wage laws without fear of legal challenges.

If McDonald’s wins, things might get a bit trickier for other governments that want to pass phased minimum wage increases with different timelines for franchisees and small employers. A slower timeline for meeting new requirements could still be given to smaller employers, but fast food restaurants that follow the franchise model might be able to take advantage of them—which would seem like a slap in the face to the actual mom-and-pop small businesses that such distinctions were designed to help. The other possibility would be for future increases to offer no breaks or distinctions in timelines for smaller employers in order to avoid court challenges. This would perhaps make any future increases more legally sound, but would hurt actual small employers in the process.

McDonald’s and their franchisees in Seattle will eventually have to pay $15 an hour to their employers. It’s just a question of how long their lawyers can drag it out.

For more on the Fight for 15, the movement to increase the minimum wage to $15 an house, check out this video:


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