Demonstrators prepare signs supporting the raising of the federal minimum wage during May Day demonstrations in New York May 1, 2014.
Photo by Lucas Jackson/Reuters

Franchise trade group still opposes minimum wage boost

Updated

If you thought the business community was starting to get behind proposals to raise the minimum wage, think again.

The International Franchise Association (IFA), which represents roughly 12,500 franchise operators and 1,275 franchisors globally, has made clear that it still considers defeating proposed wage hikes to be a top priority.

On Friday, IFA President Steve Caldeira reiterated the trade group’s opposition to minimum wage increases and said he believes the recent wave of strikes in the fast food industry “is being generated by the Service Employees International Union to drive its declining membership.”

“I have not heard from any of our members a groundswell where actual employees of the franchisees are congregating and picketing the stores for higher wages,” he told msnbc.

In a recent email to other media outlets, IFA reportedly described its “top policy fight” as ”an effort to prevent cities from enacting minimum wage increases that discriminate against franchisees.” Other recent statements from the trade group have denounced an executive order to lift wages for federally contracted workers and claimed that a $15 minimum wage in Seattle “would unfairly and unjustifiably destroy the established franchise model.” Earlier this month the IFA even brought a lawsuit against the city of Seattle in order to block the proposed wage increase.

In doing so, the group found itself taking a considerably more hard line stance on proposed minimum wage increases than McDonald’s CEO Don Thompson, who recently said his company would be able to “manage through whatever the additional cost implications are.”

“You know, our franchisees look at me when I say this and they start to worry: ‘Don, don’t you say it. Don’t you say we support $10.10,’” said Thompson in a recent speech at Northwestern University. “I will tell you we will support legislation that moves forward.” 

McDonald’s corporate headquarters surely can manage the cost implications of a higher minimum wage, because the company does not directly pay the labor costs for the vast majority of its restaurants. Over 80% of the company’s worldwide locations are owned and operated by franchisees, often small business owners, who pay the McDonald’s corporation in exchange for the use of its brand and restaurant model.

“The CEO of McDonald’s has the right to make his own judgment on whether or not his operators can afford a minimum wage increase,” said Caldeira. “At the end of the day though, it’s not the franchisor or CEO of McDonald’s who has to absorb the minimum wage increase.”

The bulk of IFA’s membership is made up of franchisees, not franchisors like the McDonald’s corporation, which helps to explain its vociferous opposition to minimum wage increases. If the minimum wage goes up, corporations like McDonald’s might try to maintain their profit margins by skimming more out of franchisee revenues. According to David Weil, the head of the Labor Department’s Wage and Hour Division and the author of a recent book on business models like franchising, the pressure to keep sending money back to corporate headquarters can drive franchisees to keep wages low—and even to violate labor laws.

“The further out you get [from corporate headquarters], the more business entities have to have a margin to do their business, which means the ability of those outer orbit industries to provide wages is diminished,” Weil told msnbc earlier this month. “It can have a downward pressure on wages and increase incentives, unfortunately, to not comply with the law.”

The fast food workers’ movement has countered that pressure by confronting franchisors directly in an attempt to make them responsible for increasing wages across the industry. The franchising system is too diffuse to make attacking individual franchisees a winning strategy for the movement. Yet it’s the franchisees, through their trade group the IFA, who are now fighting against minimum wage hikes the hardest.

“Let the markets work,” said Caldeira. “It’s all about free enterprise. You understand that.”

Labor, Minimum Wage, Seattle and Washington

Franchise trade group still opposes minimum wage boost

Updated