Dunkin’ sues franchisees over employment verification

The franchisor has filed at least three recent lawsuits accusing operators of not properly vetting worker eligibility.
Photograph courtesy of Dunkin’ Brands

Dunkin’ sued several franchisees in federal court this week, seeking to get them to stop running their restaurants after their agreements were terminated over failure to properly determine their employees’ eligibility to work in the U.S.

The lawsuit, against operators of nine locations in Delaware and Pennsylvania, comes amid what appears to be a crackdown on franchisees employment verification practices.

The Canton, Mass.-based coffee and doughnut franchise has filed at least three lawsuits in federal court against numerous franchisees in recent months, arguing in each case that the operators failed to properly vet workers’ employment eligibility.

The franchisees operate more than two-dozen restaurants, representing a significant uptick in terminations by a franchise system that had enjoyed generally good relationships between the franchisor and its operators in recent years.

A Dunkin’ Brands spokesman said the company does not comment on pending litigation.

Each of the lawsuits is similar. They each said that Dunkin’ reviewed employment verification documents and practices, found violations at the subject franchisee companies, terminated the operators’ franchise agreements and then swiftly moved to remove the franchisees from the restaurants.

The company sued franchisees of five locations in Delaware in September 2018, for instance, alleging violations of employment law following the review. Dunkin’ in that lawsuit said its review followed a “customer complaint.”

The franchisees in that case filed a counterclaim against the franchisor, arguing that Dunkin’ terminated the locations “without compensation, and without affording any opportunity” to correct the violations.  

The counterclaim accuses Dunkin’ of trying to take over stores and then resell them at a profit without providing the operator with compensation. Dunkin’ has denied the allegations in its response.

Dunkin’ Brands also sued several Dunkin’ and Baskin-Robbins operators in Virginia and New Jersey in April.

Franchisors will frequently file lawsuits against franchisees to get them to stop operating stores following terminations over violations of their franchise agreements. Dunkin’ Brands in previous years had been no exception.

But more recently, it has not actually terminated many franchisees—only eight stores have been terminated in each of the past two years, based on information from Dunkin’s most recent franchise disclosure document.

The company has over the years periodically taken a hard line against operators that allegedly hire people who do not have the right to work in the U.S. That hard line dates back to at least 2006 and featured lawsuits against franchisees in 2007.

According to Dunkin’s complaint this week, it reviewed franchisees’ employment and tax records between January 2017 and October 2018.

The lawsuit accuses the franchisees of the Delaware and Pennsylvania locations of “pervasive noncompliance” with federal employment law.

The company said there was “no employment documentation or incomplete documentation for a substantial portion of the employees’ files.” The company said franchisees frequently failed to use E-Verify to determine employees’ eligibility to work in the U.S., or only did so after being notified of the franchisor’s investigation.

Dunkin’ also accuses the franchisees of keeping accurate business records and providing misleading or inaccurate information to investigators.

The company said that it terminated the restaurants’ franchise agreements last week, based on the results of the investigation. It sued the franchisees four days later, saying that the franchisees continue to operate their stores.

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