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(Reuters) — The New York attorney general's office on Tuesday sued Domino's Pizza Inc., claiming it is liable for wage theft by franchisees because the company used a computer system that it knew under-calculated workers' pay.
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 labor violations by its franchisees. It is the latest such case by U.S. regulators against companies, including McDonald's Corp.
Domino's micromanaged workers at 10 stores owned by three franchisees in New York City and its suburbs, the lawsuit says, 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 Domino's 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," Mr. Schneiderman said in a statement.
Domino's spokesman Tim McIntyre said franchisees are solely responsible for hiring, firing and paying their employees. Nonetheless, he said, the company has worked with Mr. 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," he said.
Mr. Schneiderman's office since 2014 has settled cases with 12 other Domino's franchisees who had been accused of depriving workers of minimum wage and overtime pay.
Tuesday's lawsuit comes as McDonald's faces a high-profile trial at the National Labor Relations Board on 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 ruling that companies may be considered joint employers of contract workers 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.
Robert Cresanti, president of the International Franchise Association, a trade group, said in a statement that the Domino's lawsuit was the latest instance of government agencies furthering a political agenda on behalf of unions.
"This is a blatant attempt to pay back special interests who have spent tens of millions of dollars attacking franchising as they have unsuccessfully sought to organize employees," he said.
A National Labor Relations Board ruling redefining what constitutes a “joint employer” creates considerable uncertainty for companies that could take years to resolve.