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Attorneys and labor experts say it’s a never-before-seen crackdown.

Issues Labor Policy

The coffee chain formerly known as Dunkin’ Donuts is suing franchisees that hire people who aren’t authorized to work in the United States. 

Since September 2018, the company has sought to close almost 30 East Coast restaurants, bringing their owners to court in a recognizable pattern. In at least three instances, Dunkin’ reviewed store records, found franchisees hadn’t verified the employment status of their workers, moved to terminate the franchise agreement, and then took the store owners to court to enforce it.

Fast-food chains like Dunkin’ can void contracts with franchisees for many reasons, often related to money and store quality. But labor experts and attorneys contacted by The New Food Economy were not aware of any other company targeting its franchisees specifically for hiring unauthorized workers. The lawsuits could be a sign of what’s to come, at a time when the Trump administration has made cracking down on undocumented immigrants a political priority, and the question of who’s responsible for authorizing workers is up in the air.

As first reported by Restaurant Business, the company officially named Dunkin’ Donuts Franchising LLC, a division of Dunkin’ Brands, most recently filed a complaint in Delaware federal court on June 24. In that instance, the company alleged that Thomas Sheehan and Kenneth Larson, who ran nine stores in Delaware, Pennsylvania, and Massachusetts, kept incomplete or outdated work records, and hadn’t verified a “substantial” portion of employees to work in the United States.

Dunkin’ relies more heavily on the franchise model than other fast-food chains—every one of its more than 9,400 American locations is a franchise.
According to a termination letter that Dunkin’ filed with the court, during a two-year review in 2017 and 2018, the company couldn’t find I-9 forms, which declare employees authorized to work in the United States, for dozens of hires at their stores. Nor had the franchisees used E-Verify, an online system that checks I-9s against a Department of Homeland Security database, on many occasions. Dunkin’ alleges that those actions violate federal immigration law, and are grounds to close Sheehan and Larson’s stores, because of an “obey all laws” provision in their franchise agreements.

The Delaware complaint follows two others alleging similar violations. In April, Dunkin’ sued a group of franchisees who failed to close 14 stores in New Jersey and Virginia, also after receiving termination letters. During a 10-month review in 2018, the company found hundreds of incomplete, unverified, or falsified I-9 forms, and no sign the franchisees had been using E-Verify. Similarly, in September 2018, Dunkin’ sued franchisees who hadn’t verified a “substantial” portion of employees at five Delaware stores. The company started that review after receiving a customer complaint, according to a court filing.

Like most fast-food chains, Dunkin’ relies on independent businesses, known as franchisees, to run its stores. For a start-up fee of $10,000, and an 11 percent cut of annual sales, the franchisees can open a store that uses the company’s “system,” a catch-all term for everything that makes a Dunkin’ Donuts a Dunkin’ Donuts, from the making and selling of food, to the design of the restaurants, including the right to use its logo.

Often, when companies sue franchisees, it may be part of a strategic decision to resell the store to a new owner at a profit.
Dunkin relies more heavily on franchisees than other fast-food chains. Every one of its over 9,400 American locations is a franchise, according to Entrepreneur. More than making money on coffee and donuts, it’s more accurate to say that the corporation Dunkin’ makes money on selling the right to its brand, as franchise fees and royalties are its primary revenue source, according to a recent earnings report.

But the right to use the Dunkin’ brand, and its trademarks, includes all kinds of stipulations and reviews. As part of the contract, the corporation compels the operators to hold stores to maintenance and sanitation standards, attend periodic trainings, and submit earnings and tax records. If a franchisee violates those terms, then the corporation can claim a breach of contract, and terminate the licensing agreement.

Dunkin’ has a reputation for taking franchisees to court who don’t comply. During an 18-month period in 2006 and 2007, for example, the company filed over 100 lawsuits, the vast majority of which were brought against store owners, seeking to strip them of their franchise. Mostly, the company alleged various financial problems, though in some instances, it also alleged that franchisees had hired unauthorized workers.

What makes its recent spate of lawsuits different, and unusual for the sector, is a specific, narrow focus on work status, says Vikrant Advani, a labor lawyer and Rutgers professor. For that reason, these lawsuits could be the first of their kind. Other attorneys contacted by The New Food Economy, some who have practiced franchise law for decades, similarly couldn’t recall franchisees having been targeted for that reason.

“It used to be sort of a throw-in: This person hasn’t done 15 other things, and they haven’t complied with the E-Verify system,” Advani says. “The only difference now is that Dunkin’ is going after these franchisees specifically, and probably only because they’ve failed to comply with employment verification laws.”

If a franchisee can’t afford to pay for a labor violation, the government could ask Dunkin’ to pay up.

Though the restaurant industry relies on unauthorized workers, Dunkin’ has for years staked a hard line on immigration. In 2006, it became the most prominent private sector company to register for E-Verify, a system that was then limited to checking hires in government agencies, according to Franchise Times. In court filings, the company says the system is “brand standard,” though it isn’t mentioned in any franchise agreements reviewed by The New Food Economy.

Dunkin’ also has an active political interest in immigration. Disclosures collected by ProPublica show the company has been lobbying federal agencies and lawmakers on immigration since 2008, and hired an outside firm to begin lobbying on additional immigration and workforce issues in 2017. Last year, the company’s new CEO, Dave Hoffman, told Bloomberg that being able to bring over more workers on J-1 work-study visas would be “critical” for the company.

While suing its own franchises might be a bad look for the Canton, Massachusetts-based company, attorneys contacted by The New Food Economy said Dunkin’ could be attempting to demonstrate that it’s a lawful employer, to improve its chances at landing more legal work visas. President Trump has pledged to reform the immigration system based on needs for foreign workers.

Dunkin’ could also be protecting its bottom line, and taking steps to avoid the costs of labor violations, particularly if its franchises are raided by law enforcement. While President Trump’s labor board has indicated that franchisors aren’t directly responsible for their workers, in what’s known as the joint employer doctrine, fast-food companies aren’t taking chances. Last year, after Immigration and Customs Enforcements agents raided 98 7-Eleven stores, the company stated that the franchisees, not the company, was responsible for vetting workers. The company had reportedly aided in the raids, and thus far has avoided any charges.

The joint employer doctrine isn’t a hard and fast rule, and could be interpreted differently in the future. In that case, if a franchisee can’t afford to pay for a labor violation—like, for instance, the tens of thousands of dollars in fines associated with hiring illegal workers—the government could ask Dunkin’ to pay up, says David Sherwyn, a Cornell University law professor.

“Consistency in government isn’t always clear. Whomever enforces this could decide they’re going to go after Dunkin’. And now Dunkin’ is in joint employer hell,” he says. “You just don’t want Dunkin’ to be associated with hiring undocumented workers.”

Neither Dunkin’, nor several lawyers representing franchisees in the lawsuits, responded to questions by press time.

Sam Bloch

Sam Bloch is a staff writer at The New Food Economy. He has also written about arts and culture for publications including The New York Times, L.A. Weekly, Places Journal, and CityLab. Reach him by email at: [email protected]

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