Article

Domino's wage theft suit could have big implications for chains

The suit claims that because of the under-calculated hours, employees at the franchises named were not compensated for more than $500,000.

May 25, 2016 by S.A. Whitehead — Food Editor, Net World Media Group

The chain restaurant industry is closely watching the evolution of a case filed Tuesday in New York against the nation's second-largest pizza chain, Domino's, as well as a three of its franchisees in New York state. In the 64-page suit, the corporation and the operators of seven of its outlets are accused of knowingly and systemically under-calculating employees hours through an automated system called, Pulse.

The suit claims that because of the under-calculated hours, employees at the franchises named were not compensated for more than $500,000.

Domino's has denied responsibility, stating in an email to Pizza Marketplace that although franchisees were solely responsible for the hiring, firing and payment of their own employees, the chain had been working with the Attorney General's office for more than three years to see what it could do to help franchisees understand and comply with the complex wage and hour laws that apply to their employment decisions.

"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," Tim McIntyre, EVP of Communication, Investor Relations & Legislative Affairs, said in the email. "We had even discussed funding a third-party system to make sure that franchisees did not inadvertently fail to pay their employees everything those employees are entitled to receive."

McIntyre said that it was unfortunate that these steps were not enough, and that they Attorney General now wants the company to take steps that "would not only deprive our independent business owners of the opportunity to make their own employment decisions but could impact the viability of the franchise model, the many opportunities it offers to those looking to start their own businesses, and the millions of jobs those franchised businesses create.

We will continue to take those steps which we are permitted to take to foster our franchisees' compliance with the wage and hour laws, not because we are obligated to do so, but because we think it's the right thing to do. We look forward to the opportunity to respond to the Attorney General."

In the suit filed Tuesday, New York Attorney General Eric Schneiderman alleged that Domino's strongly pushed its franchises to use the Pulse pay calculation system and has done so since 2007. The suit claimed that the company pushed for this process while executives knew that the Pulse system undercounted employees' hours and failed to take any remedial action to alleviate the problem.

"As a direct result of Domino's conduct, the franchisee respondents underpaid hundreds of workers by many thousands of dollars," the suit stated.

Domino's issued a statement that essentially throws the problem back into the hands of franchisees. In that release, the pizza chain said that franchisees were solely responsible for the hiring, firing and payment of their own employees.

The lawsuit countered Domino's claims that franchisees are solely responsible, saying that Domino's and the franchisees are joint employers, which means Domino's had a responsibility to account for how its' franchises conduct business. In fact, the suit implicated that Domino's may have been fraudulent with its franchise operators by concealing known information about what the suit said were flaws in the Pulse software.

The impact of the case

Some experts said the results of this suit could prompt huge shifts in the way fast food chains conduct business, especially as it relates to franchises. And although the New York suit named only seven franchisees, its result may well have big implications for all of the 10,000-plus Domino's outlets worldwide, and possibly even all franchise-type businesses in general.

This is the second time this year that this type of suit has hit the news. McDonald's went to trial earlier this year on similar allegations. As a result, the National Labor Relations Board broadened standards determining who qualifies as "joint employers."

In the Domino's suit, attorneys stated that over the last two years the New York Attorney General has also settled similar disputes with Domino's over alleged wage theft at 61 other stores in the state of New York, just under half of all the Domino's outlets in the state.

In the wake of Tuesday's filing, business and legal experts nationally said that the decisions made in those two cases alone could dramatically change the way chains conduct business in the U.S. — possibly even resulting in a reworking of the franchise system entirely.

Servant Systems Inc. -- one of the companies involved in creating the Pulse software -- responded this afternoon to an email requesting information about the system. According to the company's president, Don DeSmith, Servant Systems Inc. is a Microsoft Partner specializing in software applications for the franchising industry.

DeSmith said, he only first learned there were any issues involving the system when “we read it on the internet yesterday. I have not seen or heard anything beyond what I read in the AP (Associated Press) story.”

But DeSmith said they’ve had little to do with the system in the past decade.

“We were one of several consulting firms that helped the Domino’s World Resource Center build the initial version of the PULSE point of sale system (POS) for stores. We have not worked on PULSE POS in something like 10 years, so we are pretty out-of-date in terms of the features of PULSE,” he said. “PULSE is proprietary to Domino’s so no other clients of ours use it.”

About S.A. Whitehead

Pizza Marketplace and QSRweb editor Shelly Whitehead is a former newspaper and TV reporter with an affinity for telling stories about the people and innovative thinking behind great brands.