The Franchise Fight: Workers Look to Hold Fast-Food Corporations Accountable

December 2012 rally in NYC (photo via United NY)

Organized fast-food workers recently celebrated a tentative victory in New York. Deliverymen at four Manhattan Domino’s locations were granted leave to amend a complaint in an ongoing class-action lawsuit—a mundane but necessary step in what labor organizing has become in the heavily franchised American service sector. The motion names the Domino’s Pizza corporation as a defendant in a wage-theft lawsuit brought by seventy-four employees. It also accuses the franchise owner, store managers, and now the franchisor (Domino’s) of paying wages below the legal minimum, unlawful retaliation against worker organizing, and some eight other violations of state and federal labor law.

The lawsuit was initiated two years before a New York City fast-food worker walkout that took place in November 2012, but it showcases the many difficulties facing the current push to organize the fast-food industry, where employer-employee relationships are unclear and applications of labor law are hotly contested.

“We worked for more than seventy-six hours a week, at $4.40 per hour,” explained (in Spanish) Carlos Rodriguez Herrera, one of the workers suing Domino’s. I met him in an organizing office, a sparsely furnished, repurposed commercial space. Above the door a plank of plywood bore the handwritten words, “Lower East Side Workers’ Center.” Chinese and Mexican workers and organizers discussed lunch around us as he explained to me how he was fired in 2009 for complaining to management. “I spoke to the manager—that I had too many hours, that I was tired and needed less hours, that he should pay for bicycle repairs, that he should pay overtime. For this I was fired.”

Herrera went to the Department of Labor and was promptly dismissed. “I told them that I was fired for talking about my rights,” he said. “They did not give vacation days, sick days, we worked holidays, and they didn’t pay us double.” Domino’s employees at the four stores also had to purchase their uniforms, were not paid overtime despite working egregiously excessive hours, were paid tipped wages for untipped labor, and were not given legally mandated breaks. The department told him it would call when a lawyer picked up his case but never did. When he called back he was told that his case wasn’t strong enough. “They say they help immigrants,” he said, “but they didn’t help me at all.”

Instead Herrera found solidarity in New York’s Upper West Side. While looking for work in the neighborhood he saw a picket line outside Saigon Grill, an employer notorious for taking tips and charging delivery workers grossly punitive fines on the job. After two years of delivery workers’ protest in the neighborhood the restaurant had been ordered to pay $4.6 million in lost wages to its employees. That was before Herrera was fired, but those wages remained unpaid by the time Herrera found himself walking through the neighborhood. “I saw the protest outside Saigon Grill,” he said. “The restaurant didn’t give them their tips, they didn’t pay for bicycle maintenance, they didn’t give them the necessary equipment to work. I said, oh! this is what happened to me. So those of us that were fired from Domino’s began going to the Saigon Grill pickets.” Soon the picketing workers took up the Domino’s deliverymen’s cause as their own.

“After Dave Melton [the owner of the Domino’s where Herrera worked] saw that we were organizing with other compañeros,” Herrera said, using a word that literally means companion but also translates as comrade, “he took reprisals…. He did not fire them, but changed their hours, sent them on long deliveries, and to those that were not participating he gave shorter deliveries, so they could earn more money and would not meet with us.” In the fall of 2010 Herrera and nine other workers filed a class-action lawsuit with the help of several workers’ associations—the Lower East Side Workers’ Center, the Chinese Staff and Workers’ Association, the National Mobilization Against Sweatshops, and the 318 Restaurant Workers Union—and after a brief opt-in period they were joined by some sixty-four Domino’s workers from Melton’s four stores.

Herrera is one of many delivery workers who have agitated for better working conditions in the past half decade. His case sits at the intersection of two workers’ movements currently underway in the city: organizing at national fast-food franchises and a campaign in the immigrant community against abusive local employers. Since New York Communities for Change and United NY, two New York City-based nonprofits, began their push in late November to organize New York’s fast-food restaurants, the two movements have proceeded independently, but there is great potential for cross-shop and cross-trade solidarity in the city’s $10 billion restaurant industry.

The new campaigns face a tremendous adversary in the fast-food companies. In the past three decades a number of disgruntled employees have sued franchising companies as employers under the 1938 Fair Labor Standards Act, but the courts usually absolve franchisors of any liability for the conditions of employment in their licensed stores. In at least five of the eleven federal appeals circuits, charges of labor law violations have been dismissed by courts that found a franchisor not to be an employer.

If the franchise corporation is not considered the employer, workers seeking to recover stolen wages or to protect organizing activity in places like Domino’s have no grounds to sue the company whose name is on their uniforms, and can hold only the owner of their store accountable—leaving employers many methods with which to deprive their workers. Franchisees can transfer assets, declare bankruptcy, and leave workers without any remuneration if sued for violations of labor law (practices not unheard of in the Latin American and Southeast Asian garment industries when subcontracted factories have successfully unionized). David Melton’s company, DPNY, declared bankruptcy in March of 2012, leaving the seventy-four workers without an employer to target, so they filed their amended complaint naming the Domino’s corporation as a joint-employer.

Labor historian Nelson Lichtenstein calls the franchisors lack of legal liability “a scam.” “But the law has allowed that,” he said, “and so you sort of have to put this pressure on in extrajudicial ways,” possibly alluding to the recent wildcat strikes in the service sector. “The whole point of franchising is to transfer the risk of the company to somebody else, to the workers really.” The problems of employer harassment and illegal reprisals are only compounded when employer culpability for the workplace is transferred from national and international managers to individual store owners, who often share profits with the franchise corporation and whose money is mobile enough to evade labor law. It’s a way of fencing in reform, isolating labor disputes so they don’t spread to all the franchisors’ locations, and eschewing responsibility for working conditions.

The problems of employer harassment and illegal reprisals are only compounded when employer culpability for the workplace is transferred from national and international managers to individual store owners.

The Fair Labor Standards Act defines an employer as “any person acting directly or indirectly in the interest of an employer in relation to an employee,” and states that to employ “includes to suffer or permit to work.” The definition is intentionally broad, with language borrowed from child labor legislation of late nineteenth and earlier twentieth centuries—legislation that sought to create a reliable instrument for holding businesses accountable for their workplaces. According to a 1999 UCLA Law Review paper co-authored by Cathy Ruckleshaus, “The FLSA’s broad definition of ‘employ’ was intended to deny a competitive advantage to employers who maintained substandard labor conditions through such devices as abusive subcontractors.”

The statute “is meant to cut through any labels or structures that employers might impose to evade liability,” said Ruckelshaus, now at the National Employment Law Project. “That’s in theory, but a lot of courts are reluctant to go broader than just the direct employers.”

Herrera’s case remains unresolved after three years in court, but it has gone further than many companies like. A federal judge has allowed Domino’s to be named a defendant in the wage-theft suit, but the decision is only a procedural step for franchise workers and holds no guarantee of improved working conditions. Still, Ruckelshaus said, “It sends an important message to corporations that run franchises, that they’re not going to be able to hide behind their structures and disclaim any responsibility for what the working conditions could be in their franchises.” If the class wins, damages from Domino’s will go only to the seventy-four workers named in the suit; it will not prevent future abuses, but it might set a precedent.

When pressed about the strategy, Jei Fong, an organizer behind the case, explained the chilling effect immigration law has had on undocumented workers. “We see it is very difficult to talk about unionization, since the very people who are speaking out are being retaliated against,” she said. “If that’s not addressed first how are you going to organize?” A 1986 immigration law that sanctions employers that hire undocumented workers has paradoxically given the employers undue leverage. They now operate through a two-tiered labor market—a nominally regulated pool of protected workers and a black market of immigrant labor. “What that does is put pressure not only on undocumented workers, but documented workers, to compete for similarly bad conditions,” explained Fong. “The goal for us is to improve working conditions, whether that means a union or not. Unionizing is just one tool—its not the only tool.”

Having worked with low-wage workers for some two decades, the strategy of organizers from the various workers’ organizations behind the case is much more pragmatic than the unionization drive currently underway in the fast food industry. “You’re really hitting your head up against the wall if you try to organize every individual franchisee,” said Lichtenstein.

But there is a reason the new unionists infiltrating the fast-food sector today want more than law-abiding employers: it’s the inadequacy of legal protections, best exemplified by the paltry minimum wage and the meager proposed increase to it. Indeed, Albany’s recent proposal to raise the state’s minimum wage to $8.50 likely has something to do with recent labor agitation, and if they are hoping to dampen the workers’ movement with such palliatives they’ll have to try harder. As Colin Gordon and John Schmitt have shown in these pages, a living wage for a family of three in New York City is $32.30; even with both parents and the child working, Albany’s proposal is way below the mark.

Noel Scott is a forty-two-year-old bicycle deliveryman for a Domino’s pizzeria in lower Manhattan. His store isn’t one of the four named in the ongoing class-action suit. He lives in Kensington, Brooklyn, and has been working at a Domino’s pizzeria for three years at $5.50 an hour. “I never focus on the pay,” he explained, “I focus on the tips.” Scott says he’ll deliver twenty pizzas during an eight-hour shift. “There’s fifteen of us. I’m the slowest of the group, and I’ll bring them in $600, my tip comes separate, all that is Domino’s.” I asked him what he thought about the wage-theft lawsuit underway with the Melton stores, and he said that “it makes sense because its a multi-billion dollar corporation.” Domino’s market capitalization at the time of this writing is $2.81 billion.

Earlier that day I had asked Carlos Herrera what he was going to do now that his case was in the hands of the court. “The next step is to reach more compañeros trabajadores of different industries, and also of other Domino’s franchises, and get them to see the whole city. We need to hold the corporation responsible.” Whether or not that means winning a union for restaurant workers is unclear. Adolfo Lopez, a deliveryman whose $1.55 hourly wage turned him to labor agitation, seems representative of many workers when he says that a union is ultimately the goal. But the many volunteer organizers, lawyers, and scholars who are active in the workers’ movement today are much more doubtful. When asked about how the non-union organizing strategy would protect laborer’s livelihoods, rather than just punish abuses, Fong brought up Sweatshop Free Upper West Side, a group of “employers who want to do the right thing.” After years of protests some employers in the neighborhood have made a commitment to paying the minimum wage, lowering hours to the legal maximum, and paying overtime, something Fong says “has actually had a bigger impact than organizing shop by shop.”

It is obvious that employer altruism won’t sustain higher living standards, but the impotence of traditional organizing strategies leaves seasoned organizers in a serious bind.

It is obvious that employer altruism won’t sustain higher living standards, but the impotence of traditional organizing strategies leaves seasoned organizers in a serious bind. A neighborhood as affluent as the Upper West Side may not be a model for the rest of the city, but it has yet to be shown whether the ambitious campaign underway at McDonald’s, Wendy’s, Burger King, and Domino’s will meet anymore success. As it stands, lawsuits have won back pay, while strikes and protests have lost jobs. Fong, conveying the intractability of a litigation-based approach, told me that if it takes “filing dozens of other class-action lawsuits, you know, so be it.”

Rather than directly confronting goliath, Lichtenstein proposes enlisting the aid of government. “You need regulation, make it so it’s economically not viable to do all this subcontracting and franchising,” he told me. The subcontracting model, he explained, relies on contractors’ ability to chisel away at wages to compete for business with the company, and the franchising model works much the same way: all labor costs come directly out of what would otherwise be profit for licensed franchise owners. Agitating for intervention in this model could recapture a place for labor in politics. “Minimum wage is a political wedge issue against the Right, and it’s very popular in the country,” he explained, “and it can be used to defeat Republicans.”

We have yet to see a convincing model of how workers, unions, and nonprofit groups should apportion their time and money between the shop and voting booth. With city council elections coming up in New York City, and paid sick leave and fair hour legislation proposals making the papers, we could be witnessing the creation of such a strategy.

Legal counsel for the defendants, the Meltons, store managers, and the Domino’s corporation would not give a comment for this story.

Andrew Elrod is a senior at New York University and an intern at Dissent.