New York Sues Domino’s for Wage Theft

New York State Attorney General Eric T. Schneiderman on Tuesday announced a lawsuit against Domino’s Pizza Inc. (NYSE: DPZ) and certain affiliates and franchisees alleging that they had underpaid workers a total of $565,000 in 10 stores in the state. For the first time, the state is alleging that the corporation is liable as a joint employer for labor violations at its franchise stores.

The federal National Labor Relations Board (NLRB) last August in a case involving Browning-Ferris Industries found that both franchisor and franchisee may be treated as equally responsible in certain employment issues. The agency essentially dropped the prior distinctions between franchisor and franchisee. The NLRB also initiated a case against McDonald’s Corp. (NYSE: MCD) in March that eventually could wind up in front of the U.S. Supreme Court.

In the Domino’s case in New York, the attorney general’s investigation reportedly revealed that the corporation “allegedly urged franchisees to use payroll reports from the company’s computer system … even though Domino’s knew that [the system] under-calculated gross wages.” The press release noted:

Domino’s typically made multiple updates to [its computer program] each year, but decided not to fix the flaws that caused underpayments to workers, deeming it a “low priority.”

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The investigation also found that “rampant wage violations at Domino’s franchise stores” and allegedly discovered that “Domino’s headquarters was intensely involved in store operations, and even caused many of these violations.” Schneiderman concluded:

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 stock traded up about 0.4% in the noon hour on Tuesday, at $122.33 in a 52-week range of $99.00 to $140.80.