The New York State Attorney General has filed a lawsuit against Domino’s for underpaying wages to its workers. The nature of this lawsuit could change relations between corporations and their franchisees.
The lawsuit, filed by Attorney General Eric Schneiderman, alleges that three Domino’s franchisees underpaid workers at least $565,000 in New York. But what makes this lawsuit important is that Schneiderman is suing Domino’s itself in addition to the franchisees. Schneiderman stated that “Domino’s is a joint employer of the workers at the 10 franchise locations, and is therefore responsible for underpaid wages to these workers.”
According to the Attorney General, Domino’s underpaid its workers through a computer program called PULSE. PULSE is Domino’s proprietary point-of-order system which tracks everything from wages to inventory, but has a tendency to undercalculate wages. Domino’s knew about this issue, but several software updates failed to fix the problem and the company made that a “low priority.” In the meantime, it pressured the three sued franchisees to keep using the faulty PULSE system.
This is not the first time that Domino’s franchisees have been sued. In April 2015, four Domino’s franchisees that admitted to breaking minimum wage and other labor laws had to pay $970,000 in a settlement. Furthermore, the state of New York has aggressively pursued other businesses to refurbish lost wages, as can be shown by a state order for 143 nail salons to pay $2 million in lost wages and damages.
To franchise or not?
But as noted above, what makes this lawsuit different is that Schneiderman argues that Domino’s is a “joint employer.”
In a normal franchise-franchisee operation, a franchise can give the franchisees leeway in how they treat their workers, which makes them not liable if the franchisees misbehave as the April 2015 case shows. But the Attorney General alleges that Domino’s directed the franchisees to fire specific employees, initiated efforts to prevent unionization, and dictated staffing and scheduling requirements. This would make Domino’s a joint employer, as New York state law dictates that a company is a joint employer “if it has control, or authority to control, employees in certain key ways.”
Domino’s disputes these claims and argues that this lawsuit would negatively impact relations between a franchise and franchisees. In a statement released to Eater, Domino’s stressed that its “franchisees are solely responsible for the hiring, firing, and payment of their own employees.” The company also stated that it had been working with the Attorney General for the past three years to help franchisees understand the complexities of minimum wage and labor laws.
This lawsuit is not the only example of governments attempting to impose a new “joint employer” status between franchisees and the company. McDonald’s is currently fighting a legal battle against the National Labors Relation Board, which decided to hold McDonald’s liable as a “joint employer” with their franchisees.
If this lawsuit is successful, it could change relations between franchise and franchisees across the economy. On one hand, it is possible that franchises may choose to back off on franchisees in order to avoid liability for violating labor disputes. As a single franchisee owner will be less able to resist worker demands compared to a large corporation, it would reduce the rise of “permanent temps” – part-time workers who are not eligible for the benefits and bonuses that a full-time employee can receive.
On the other hand, this decision could hurt franchisees which are struggling to make a profit and would now have to pay said benefits. And if large corporations are liable for the actions of their franchisees anyways, this reduces the incentive to create franchisees. This would limit the ability of corporations to grow.
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