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Domino's Accused Of Fraud And 'Systemic Wage Theft' By New York State

In a rare move, Eric Schneiderman is suing a major fast-food chain -- not just its franchisees.

The attorney general of New York filed a lawsuit against Domino's on Tuesday, accusing the pizza giant of systematically shorting workers' pay.

Fast-food restaurants are sued all the time for alleged wage theft. What makes this suit different is who's included among the defendants: Domino's itself, as opposed to just the franchisees who run Domino's shops.

"At some point, a company has to take responsibility for its actions and for its workers’ well-being," Eric Schneiderman, New York's attorney general, said in a statement.

The lawsuit claims workers at 10 Domino's shops in New York were underpaid by a total of at least $565,000. Schneiderman said that his office's investigation revealed "intensive involvement by Domino’s headquarters" in the alleged labor violations, and that Domino's should therefore be considered a joint employer alongside the franchisees.

“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 pizzas, and it is incumbent upon Domino’s to fix the problems," Schneiderman said.

The fast-food industry is predicated on a franchise system, with the owners of individual outlets -- franchisees -- paying fees to the company in exchange for an established name and business model. The franchisees sign workers' paychecks and are typically considered the employers in this equation. When workplace laws get broken, they're usually the ones on the hook for the violation.

But in this case, New York alleges that Domino's really controls the work inside the pizza shops, and therefore should be held accountable for any violations of the law. The lawsuit claims that Domino's headquarters directed franchisees to discipline certain employees, dictated staffing levels and hours at the shops, and even tried to scuttle a union campaign by workers.

In a statement, Domino's said the lawsuit "disregards the nature of franchising and demeans the role of small business owners." The company said it worked with Schneiderman's office for three years to help franchisees understand and comply with the different wage and hour laws. 

"It’s unfortunate that these steps were not enough, and that the 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," the company said.

According to its most recent annual report, Domino's has more than 4,800 franchised locations in the U.S., owned by 841 franchisees who each have an average of six locations. Domino's itself only owns 384 stores.

According to Schneiderman's office, Domino's required franchisees to purchase an online software system called PULSE, and encouraged them to use it for payroll reports. The lawsuit alleges that PULSE routinely miscalculated workers' gross wages, and that these mistakes led to workers being shorted on their paychecks. Domino's headquarters, the suit claims, was aware of the problems, but deemed the miscalculations a "low priority."

The sale of PULSE, Schneiderman contends, amounted to "fraud" perpetrated on the franchisees by Domino's.

Domino's isn't the first fast-food company to be sued alongside some of its franchisees. In 2014, workers in three different states filed lawsuits against McDonald's, saying the company violated minimum wage and overtime laws. As in the Domino's complaint, the plaintiffs in that suit argued that McDonald's steered in-store work policy and was therefore liable for the alleged violations. The cases are pending.

Schneiderman's office has aggressively pursued criminal cases against fast-food operators, and Domino's stores have been in the attorney general's crosshairs in the past. In 2014, a group of Domino's franchisees agreed to pay workers nearly a half-million dollars to settle wage theft claims brought by the attorney general.

This story has been updated with comment from Domino's.

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