The New York attorney general's office on Tuesday filed a lawsuit claiming Domino's Pizza Inc is liable for alleged wage theft by franchisees because the company used a computer system that it knew under-calculated workers' pay.
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The lawsuit is the first by Attorney General Eric Schneiderman's office to claim a fast-food company is a "joint employer," meaning it is liable for the labor violations of its franchisees, but only the latest such case by U.S. regulators against other companies, including McDonald's Corp.
Domino's micromanaged employee relations at 10 stores owned by three franchisees in New York City and its suburbs, according to the lawsuit, including ordering the disciplining or firing of specific workers and discouraging union organizing. The company and the franchisees were each named as defendants.
Employees at the restaurants were underpaid by $565,000 because of a faulty computer program that Domino's required franchisees to use and refused to fix, the attorney general said.
"We've discovered that Domino's headquarters was intensely involved in store operations and even caused many of these violations," Schneiderman said in a statement.
Domino's spokesman Tim McIntyre said the company's franchisees are solely responsible for the hiring, firing and payment of their own employees. Nonetheless, he said, the company has worked with Schneiderman's office and franchisees to ensure employees are paid properly.
"The attorney general now wants the company to take steps that ... 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," he said.
Schneiderman's office in recent years has settled cases with 12 other Domino's franchisees who own 61 stores and had been accused of depriving workers of minimum wage and overtime pay.
Tuesday's lawsuit comes as McDonald's Corp is facing a high-profile trial at the National Labor Relations Board on similar claims that it is liable for various labor violations because of the degree of control the company exerts over franchises.
The NLRB last year issued a controversial decision that said companies may be considered joint employers of workers supplied by a contractor if they possess even the potential to control working conditions.
Business groups say that ruling, which is being challenged in a federal appeals court, could upend labor contracting and the franchise model. (Reporting by Daniel Wiessner in Albany, New York; Editing by Alexia Garamfalvi and Bill Trott)