Is Domino’s Responsible for Wage Theft by its Franchisees?

Is Domino’s Responsible for Wage Theft by its Franchisees?

New York Attorney General Eric Schneiderman believes so, and is suing the pizza chain, the Wall Street Journal reports, alleging that the company “mandated that [franchisees] use a payroll software system that under-calculated gross wages and failed to fix it when problems were brought to their attention”:

Mr. Schneiderman claims the company is liable for the alleged underpayment because it’s a joint employer with its franchisees, an argument at the heart of a broader industry fight over who’s responsible for the worker-related actions of franchisees. … The lawsuit against Domino’s and three of its franchisees, filed in state Supreme Court in Manhattan on Monday, claims that the company’s faulty payroll system led to workers being underpaid a total of at least $565,000 for 10 of its stores. Mr. Schneiderman says he is seeking that amount for employees but wants a full accounting of any wages owed.

Domino’s spokesman Tim McIntyre said Tuesday that the pizza chain’s franchisees, not the company, are solely responsible for the hiring, firing, and payment of their own employees but that the company had been working for more than three years to help its franchisees understand wage and hour laws. Regulators say they’re trying to keep up with labor market changes that are resulting in more fractured work arrangements that can leave employees and the government unsure about who’s responsible when a grievance arises.

The New York Times explains how this case is different than previous lawsuits against Domino’s franchisees:

In 2014, the New York State attorney general lodged a victory against 23 Domino’s Pizza outlets in New York for wage theft, securing $448,000 in restitution for workers. That year, Domino’s also settled a class-action lawsuit brought by employees for $1.3 million for wage violations in New York. That lawsuit accused a Domino’s franchisee, DPNY Inc., of a variety of unfair labor practices, including not giving a legally required lunch break, not paying for uniforms and paying a subminimum tip wage even when the workers did untipped work, like cleaning ovens and floors or distributing fliers.

But the new case being brought by Mr. Schneiderman seeks to hold the corporate franchiser, Domino’s Pizza L.L.C., responsible. It accuses the company of forcing franchisees to use a computer accounting system even though it was aware it was flawed.

At stake in this case is not only the money allegedly owed to the Domino’s employees, but also a legal question of how far franchisors’ legal responsibilities extend when it comes to the rights of employees. The US Labor Department has recently taken a hard line on the obligations of “joint employers,” and as NPR notes, this case brings further pressure to bear on that issue:

A similar lawsuit against McDonald’s went to trial earlier this year. And last year, the National Labor Relations Board broadened its standards for determining who is a joint employer. Peter Cappelli, a professor at the University of Pennsylvania’s Wharton School, says taken together, these cases could force big companies to rethink the franchisee model altogether.

“They think it’s cheaper and easier to have people who are close to the local markets run things,” Cappelli says. “So if they become effectively much more on the hook for what the franchisees do, then maybe you’re asking yourself, why do we bother with the franchise.”