Chipotle Mexican Grill Inc. (NYSE: CMG) has had more than its share of problems in recent years, this week the Denver-based company faced another. A lawsuit filed against the restaurant chain claims a federal rule that expanded the pool of those who get overtime pay is in effect, even though an injunction last year prevented the U.S. Department of Labor from enforcing it.
The lawsuit, which seeks class-action status, was filed in district court in New Jersey and claims Chipotle should be paying time and a half to employees who work more than 40 hours a week and earn less than $47,476 a year, as would be required by the rule.
Lawyers representing Chipotle employees say the overtime rule still took effect as scheduled on December 1 because the court that ordered the injunction has not issued a final decision or repealed the regulation.
Shares of Chipotle slid $8.25, or 1.7%, to $462.23, in intraday trading Wednesday. So far this year, the company’s stock has gained about 22%.
At issue is a Labor Department rule written during the Obama administration that would more than double the income threshold to $47,476 a year from $23,660 under which workers must be eligible for overtime pay. The change would made 4.2 million American workers eligible for overtime pay.
The outcome of the case could have significant impact on scheduling and back pay for Chipotle employees and could have implications for millions of other workers who would become eligible for overtime pay under the federal regulation.
“Chipotle is denying overtime pay to thousands of workers that live paycheck to paycheck and rely on their weekly income to make ends meet,” said Joseph M. Sellers, Partner at Cohen Milstein Sellers & Toll, which represents the lead plaintiff in the suit, in a statement. “This case could benefit millions of hard-working Americans who are being denied money that they’ve earned.”
Before the rule was applied, some employers raised workers’ salaries, adjusted employees’ schedules and made other changes to comply with the regulation.
Chipotle has been slowly recovering from an incident involving an outbreak of E. coli that sickened customers in 2015. The company swung to a profit of $46.1 million in the first quarter this year, after posting a loss of $26.4 million in the same period a year ago. Same-store sales climbed 17.8% from first quarter of 2016. The company’s net income plunged 95% to $22.9 million last year from $475.6 million the previous year.
Chipotle was hammered again in April when the company disclosed that it had recently detected “unauthorized activity” on the payment-processing network that supports its restaurants. The company said it has reported the issue to the authorities and payment card processors.
Attempts to reach Chipotle were not successful.
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