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NY Attorney General sues Domino’s as joint employer with franchisees

New York Attorney General Eric T. Schneiderman has launched litigation against Domino’s Pizza, Inc., Domino’s Pizza LLC, and Domino’s Pizza Franchising LLC (collectively, Domino’s) and three Domino’s franchisees for purportedly underpaying workers at least $565,000 at 10 stores in New York. According to the petition. Domino’s is a joint employer of the workers at the 10 franchise locations and is thus responsible for underpaid wages to these workers. The Attorney General’s Office (AGO) said this is the first case it has filed alleging that a fast food franchisor corporation is liable as a joint employer for labor violations at its franchise stores.

The International Franchise Association was quick to criticize New York’s Attorney General: “Unfortunately, in furtherance of their own political agenda, government bureaucrats are purposefully attempting to confuse the public and employees about where liability for possible misdeeds rests,” the IFA said in a statement.

“According to settled law, franchisees, like all small businesses, are responsible for following federal and state laws regarding wages for the employees they directly hire—not brands such as Domino’s,” the IFA contends.

Payroll system under-calculated wages. The AGO’s multi-year investigation showed that Domino’s allegedly urged franchisees to use payroll reports from the company’s computer system, “PULSE,” even though Domino’s knew for years that PULSE under-calculated gross wages. Domino’s typically made multiple updates to PULSE each year, according to the AGO, but decided not to fix the flaws that caused underpayments to workers, deeming it a “low priority.”

Joint employer. Domino’s is a joint employer because the company micromanaged employee relations at its franchisee stores, according to the lawsuit and an accompanying memorandum. The AGO’s investigation found that the company played a role in the hiring, firing, and discipline of workers; pushed an antiunion position on franchisees; and closely monitored employee job performance through onsite and electronic reviews.

The AGO said it has already settled cases with 12 Domino’s franchisees (who collectively own 61 stores) who have agreed to pay approximately $1.5 million to date. Internal documents produced by Domino’s during the investigation showed that over a two-year period, 78 percent of New York franchisees listed rates for at least some employees below the required minimum wage, and 86 percent listed rates below the required overtime rate.

New York State law permits a finding that a company is a joint employer if it has control, or authority to control, employees in certain key ways, the AGO noted. The petition alleges that Domino’s exerts such control by:

  • Directing franchisees to discipline and/or fire specific employees;
  • Dictating staffing and scheduling requirements for franchisee stores, as well as store hours;
  • Imposing exacting requirements for attire, appearance, grooming, and conduct of franchisee-owned store employees, including restrictions on the diameter of earrings, color of undershirts, and permissible tattoos (military only);
  • Enforcing those standards through an intensive inspection regime, in which one Domino’s official told franchisee employees, “I’m the boss”;
  • Pushing an antiunion policy upon its franchisees, including sending Domino’s head of HR to thwart a union campaign at a franchisee store; and
  • Requiring a franchisee purchasing stores from Domino’s, as a condition of the sale, to largely keep the prior staff (previously Domino’s direct employees) intact.

Violations alleged. The wage and hour violations alleged at the stores vary, including subminimum wages; failure to pay all overtime required by law; abuse of the tip credit; and failure to fully reimburse employees for all expenses related to use of their cars or bicycles for deliveries. The petition also asserts fraud and franchise law claims, alleging the company knowingly sold PULSE, a flawed product, to franchisees and did not remedy its problems.

Relief sought. The lawsuit seeks, among other things, a finding that Domino’s is a joint employer of the workers at the 10 franchise stores named in the lawsuit; an accounting to determine the full amount of restitution owed to workers; a finding that Domino’s defrauded its franchisees and violated state franchise law; and imposition of a monitor to ensure future compliance.

Announcing the suit, Attorney General Schneiderman said: “At some point, a company has to take responsibility for its actions and for its workers’ well-being. We’ve found rampant wage violations at Domino’s franchise stores. And, as our suit alleges, we’ve discovered that Domino’s headquarters was intensely involved in store operations, and even caused many of these violations. Under these circumstances, New York law—as well as basic human decency—holds Domino’s responsible for the alleged mistreatment of the workers who make and deliver the company’s pizza. Domino’s can, and must, fix this problem.”