Why it matters

New York Attorney General Eric T. Schneiderman continued his hard line against wage theft, seeking to hold the corporate entity of Domino's Pizza liable for the computer system used by franchise locations that allegedly systemically undercounted the hours worked by employees. The result of a multi-year investigation, the lawsuit asserts that Domino's is responsible for the underpaid wages because of its "micromanagement" of franchise locations across the state.

"At some point, a company has to take responsibility for its actions and for its workers' well-being," Attorney General Schneiderman said in a press release about the case. "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." Domino's released a statement in response to the action. "We were disappointed to learn that the attorney general chose to file a lawsuit that disregards the nature of franchising and demeans the role of small business owners instead of focusing on solutions that could have actually helped the individuals those small businesses employ," the company said.

Detailed discussion

Wage theft has been at the top of the agenda for New York Attorney General Eric T. Schneiderman for several years. Since he took office in 2011, Schneiderman has secured more than $26 million for almost 20,000 workers, and has previously targeted the fast food industry, even achieving a criminal conviction against a Papa John's franchise owner for wage theft.

But in a new case, AG Schneiderman seeks to hold the franchisor liable for the wage and hour infractions of the store locations. According to the complaint filed by the AG's Office against Domino's Pizza, Inc., Domino's Pizza LLC, and Domino's Pizza Franchising, workers at ten outlets in New York were underpaid by at least $565,000.

The suit is the first time the AG has tried to hold a fast food corporation liable as a joint employer for labor violations at franchise locations.

Domino's urged franchises to use payroll reports from the company's PULSE computer system despite having knowledge that the program under-calculated employees' gross wages, the AG said. Although the corporate franchisor typically made updates to the PULSE system each year, Domino's elected not to fix the flaws that resulted in underpayments to workers, calling it a "low priority," Schneiderman alleged.

Further demonstrating that Domino's is a joint employer: the company "micromanaged" employee relations at franchisee stores, the AG said. The corporate franchisor directed franchisees to discipline and/or fire specific employees, dictated staffing and scheduling requirements as well as store hours, and imposed "exacting" requirements for attire, appearance, grooming, and conduct of franchisee-owned store employees, the lawsuit alleged. For example, Domino's exerted its control by placing restrictions on the color of undershirts, permissible tattoos, and the diameter of earrings, the regulator asserted, and enforced the standards in inspections.

The Attorney General's complaint also alleged that Domino's pushed an anti-union policy upon its franchisees and placed conditions upon the purchase of a franchisee store.

Multiple wage and hour violations are cited in the complaint, including the failure to pay overtime, abuse of the tip credit, failure to reimburse employees for all expenses related to the use of their cars or bicycles for deliveries, and subminimum wages. The AG said internal documents discovered during the investigation demonstrated that over a two-year period, 78 percent of New York Domino's franchisees listed rates for at least some employees below the required minimum wage and 86 percent listed rates below the required overtime rate.

The suit named three franchisees along with the corporate franchisor. In addition to seeking a determination that Domino's is a joint employer of the workers at the 10 stores named in the lawsuit, the AG requested an accounting to determine the full amount of restitution owed to workers and the imposition of a monitor to ensure future compliance.

The multi-year investigation into the world's second largest pizza restaurant chain has already yielded multiple actions. Schneiderman's office has settled 12 cases with franchisees for a total of $1.5 million to date.

To read the complaint in New York v. Domino's Pizza, click here.