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Pay Up

You’ve heard of minimum wage fights—this one’s on steroids


Beth Ewen

What does the $9 million salary of McDonald’s CEO have to do with the 9 bucks an hour earned by the guy flipping the burgers? A fiery legislator in Connecticut, Frank Tercyak, is trying to make the connection, appearing at rallies with union members to decry “McWalmart” wages, as he likes to call them. 

He cites McDonald’s, Walmart and Dunkin’ Donuts as the three companies in Connecticut with the highest number of employees on state assistance programs, a claim we did not seek to verify. “Each Walmart supercenter costs taxpayers $1 million in social programs,” claimed a speaker at one of Tercyak’s recent rallies—whether that’s fact or rhetorical flourish is unknown.

‘Poverty level’ wages

Efforts to raise the minimum wage are the rage right now, as everyone in the restaurant business knows, especially. Tercyak’s effort ups the ante. His bill would impose a fee on companies with more than 500 employees, $1 per worker per hour, that are paying their workers “poverty-level” wages, as he calls them. Companies could avoid this fee by paying a minimum of $11.31 an hour.

There’s more: He makes no distinction between a McDonald’s franchisee, for example, running stores in Connecticut with several dozen employees, and the big corporate franchisor based in Illinois. And he scoffs at testimony to explain the franchise model—that the independent owner of the store is the employer, not Golden Arches Central (and, incidentally, that the franchisee makes nowhere near $9 million.)

The minimum wage in Connecticut is $9 an hour right now. If a franchisee pays $9, under Tercyak’s bill it would be the franchisor’s responsibility to make up the $2.31 to meet his threshold. While that might at first glance make a franchisee smile—wages out of someone else’s pocket!—the rest of the business model and the owner’s independent status would be torpedoed as well.

Never before

It’s enough to give Dean Heyl hives. He’s the point man lobbying on state issues for the International Franchise Association. “I have never seen anything like this before,” he says in an interview.  “Never before have we seen where they completely ignore the difference between a franchisor and a franchisee and treat both as one unified entity.

“When I speak with franchise attorneys and other experts, they go, ‘Dean, you have to be kidding me. This is unconstitutional.’ It’s really taken us aback,” Heyl continues. “We’re obviously viewing this as a very serious threat to the whole franchise model.”

Heyl had just finished the unenviable task of sitting through seven-and-a-half hours of testimony on the Connecticut bill, waiting for his turn to speak. “My testimony starts around 5:56,” he had emailed when he sent it over. 

On the tape, he patiently explains to legislators how franchises work, points he bolstered with a letter. “Franchisees are not the employees of franchisors,” he writes. “Although franchisors act to set standard operating procedures, ultimately it is the owner of the individual franchise who is responsible for hiring and wage decisions at his or her location.”

Not convinced

But then it’s Tercyak’s turn, and he isn’t buying it. “It sounds like you’re claiming that the person working the cash register or the fry station at McDonald’s for whatever their wage is has no relationship with the CEO of McDonald’s and his $9 million a year,” Tercyak says.

“That is correct,” Heyl replies. (For the record,  CEO Don Thompson’s 2013 compensation was $9.5 million, down $4 million from the year before.)

“That man with his $9 million a year,” Tercyak says, repeating his favorite talking point, “it’s just coincidence that a Big Mac across this country costs $3.99,” no matter what the minimum wage is in New York or Connecticut or California or any other state.

Heyl gamely replies: “I don’t see the connection between the compensation paid to a CEO, to a front line manager, to a person starting out working for a franchisee.”

Tercyak’s voice rises: “I understand you don’t see that connection but I do. I think there’s a pool of money and the question is who gets how much of it. I think it’s a pretty permeable barrier,” between franchisor and franchisee, “and not impenetrable.”

In other words, Heyl’s work goes on, and not only in Connecticut. Bills that seek to change the relationship between franchisors and franchisees are on the front burner in Maine, New Hampshire, Hawaii and Pennsylvania, to name just a few of the hot spots. Supporters of those bills want to give franchisees more power in a relationship they say has tilted far too heavily in the franchisors’ favor.

‘Bad ideas can spread’

Heyl and the IFA, of course, oppose any such efforts to “insert the government into the contract between the franchisor and franchisee,” as they put it, and they’re recruiting franchisors and franchisees alike in their cause to knock the bills down. While other bills in other states have enthusiastic backing from feisty and vocal groups of franchisees, Tercyak’s isn’t drawing support from either side.

“We haven’t seen anybody anywhere before this try to erode the franchise model,” Heyl says, but he’s wary. “To be charitable, it is currently a one-off situation in Connecticut. But bad ideas can spread, and that’s something we are very mindful of.” 

Beth Ewen is managing editor of Franchise Times. Send interesting legal and public policy cases to her at bewen@franchisetimes.com.

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