Franchise Operations

New York Minimum Franchise Wage Debate Heats Up

New York’s fast food franchise businesses are up in arms about a new minimum wage requirement that applies only to them. Supply and Demand Chain Executive quoted Queens franchisee Jack Bert as saying, “Singling out fast food restaurants while ignoring other industries that hire workers who are paid under $15 is unfair and discriminatory, harms New York workers, and puts some New York businesses – including mine and my fellow New York McDonald’s franchisees – at a competitive disadvantage.”

It’s no accident that fast food franchises are being singled out — it’s a strategic decision.

Fewer than 3% of Americans actually earn the federal minimum wage or less, and many of the jobs that usually pay such low wages are jobs like swimming pool life-guarding and taking theater tickets, which are a hard sell if you’re trying to mobilize people. Efforts to raise the minimum wage are made more difficult by the confusion around the possible results of raising the minimum wage, something economists definitely do not agree on.

At the same time, many states and cities already have minimum wage requirements that are higher than the federal minimum wage. A number of states have a minimum wage over $9.00 right now, and a number of cities have set theirs at $15.00. The nation’s largest retailer has committed to a $10.00 an hour minimum. All these changes lessen the sense of urgency around raising the minimum wage.

But there is a sizable group of Americans who work hard and earn low wages: fast food workers. Wages in restaurants in general are complicated by several factors. First, many restaurant jobs are exempt from minimum wage rules, either because the workers get tips or because they are small mom & pop businesses, or both. Second, overall profit margins for restaurants tend to run very low — 3 to 5% — and this makes it challenging for restaurant owners to pay higher wages. What’s more, since the connection between wage increases and price hikes in a restaurant are much more obvious than in, say, a movie theater, consumers may be more sympathetic to owners and less willing to support pay raises.

Franchise restaurants, on the other hand, are associated with large, wealthy corporations. If lobbyists can suggest that McDonald’s or Wendy’s can afford that extra expense and bypass the fact that it wouldn’t be McDonald’s or Wendy’s paying the costs, public sentiment can be on the side of the workers.

In fact, when franchisees pointed out that their profit margin is too small to allow them to double workers’ wages, the restaurant minimum wage activists started painting frachisees as downtrodden. If only they weren’t exploited by the franchisor, the story went, franchisees could easily double the wages of their staff.

This hasn’t been very persuasive. However, New York’s Governor Andrew Cuomo wants to set a $15 minimum wage for quick serve restaurants only in his state.

Problems with the plan extend beyond the low profit margin in the industry. “What about a Starbucks in a Target?” Melissa Fleischut, president and CEO of the New York State Restaurant Association is quoted as saying. “Are the employees working the Starbucks going to make $15 while the people in electronics make $9?”

It’s tough to insist on a $15.00 wage for one type of franchise business and not for the others, even if the other franchises don’t lend themselves to lobbying as easily. If the $15.00 for fast food workers succeeds, child care workers, elder care workers, landscapers, and the like may be next.

Whether a national $15.00 wage for fast food workers will ever be successful — or whether automation will beat the movement to the punch — the continuing saga bears watching if you’re thinking about investing in a restaurant franchise… and possibly in any franchise.

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