The $15 minimum wage ordinance recently enacted in Seattle has a lot of people talking about franchising. The ordinance allows small employers to phase-in the $15 minimum wage over seven years and large employers in three years. In its ordinance, the City of Seattle has defined a large employer as one with 500 or more employees wherever located in the United States. In determining whether an employer qualifies as a large employer, the ordinance requires franchisees located in Seattle to include in their employee count all of the employees of their franchisor and their fellow franchisees across the United States, even though the franchisor and other franchisees are all different companies.
Franchising is a very common, but rarely recognized, form of business expansion. Fast food restaurants are quick reference points, but the reality is that franchising goes well beyond fast food and includes coffee shops, yogurt shops, tire stores, mail centers, hair salons, in-home care services, tax preparation services, exercise studios, and much more.
So what is a franchise? It is simply a business owned by a local entrepreneur who has the benefit (for a price) of using a well-known brand to help attract customers. Unlike independent business owners, a franchisee is typically required to pay an initial fee and periodic royalties based on a percentage of sales. Franchisees often have to contribute to an advertising fund as well. Non-franchise businesses do not incur these same expenses.
Franchisees are not employees of the franchisor. The franchisor has no authority to hire or fire the franchisee’s employees nor is it responsible for paying their wages, benefits or employment-related taxes. The franchisor does exert some control over the franchisee’s business operations, but that is done to maintain brand quality and to protect the franchisor’s trademark.
Whether a business owner is a franchisee of a national chain or independent, both are local entrepreneurs working hard in their community to grow their businesses.