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When Minimum Wage Laws Count Small Franchisees as Big Business

A McDonald's Corp. restaurant in New York, on Oct. 20, 2013
A McDonald's Corp. restaurant in New York, on Oct. 20, 2013Photograph by Michael Nagle/Bloomberg

The recent movement in Seattle and other cities to raise the minimum wage has franchise owners rankled. It’s not just that they’ll have to pay workers as much as $15 an hour. It’s that franchise business owners won’t get the same grace period to raise wages that other small businesses will.

Imagine a block with three stores: A corporate-owned Starbucks, a McDonald’s franchise, and a local pizza shop. The Seattle law treats the Starbucks and McDonald’s the same—they have to pay $15 an hour by 2017 (or 2018, if they provide health benefits)—but gives the pizzeria until 2021 to absorb the hike. Franchises, which license a brand and share revenue with their corporate headquarters but are owned independently, believe they’re more like the pizza shop than the Starbucks.