Domino’s Pizza Class Action
Yesterday morning, Domino’s Pizza Enterprises Limited (ASX: DMP) advised the public through an ASX announcement that the company was presented with an unsealed class action filed to the Federal Court of Australia.
The legal proceeding has been filed by London based Litigation company, Phi Finney McDonald, on behalf of Australian franchisee employees who were employed as delivery drivers or in-store workers between 24 June 2013 and 23 January 2018.
The claim states that Domino’s allegedly mislead its franchisees by advising them to pay delivery drivers and in-store workers under a series of industrial instruments and not the Fast Food Industry Award 2010.
Employees at the Domino’s franchises, in the period, missed out on basic workplace entitlements including 25% loading for casual workers, penalty rates for working after hours and on holidays, minimum three-hour shifts, and a laundry allowance. Dominos has responded saying that its’ advice to franchisees was correct and that it will defend against the legal action.
The company is domestically comprised of 90% franchises, whose labour costs have risen significantly since they switched to the award in 2018.
Brett Spiegel, principal lawyer at Phi Finney McDonald stated, “We think based on our calculations this potentially affects tens of thousands of Domino’s workers, past and present, between the period of 2013 and 2018,”. He went on to comment on the value of the underpayment, “We believe that for many workers we’re talking thousands of dollars and for some workers, it will be more than that”.
With Domino’s CEO Don Meij taking home an enormous $36.84 Million pay packet last year, comment has been made to whether employees are reaping the rewards as well. In particular, investors are upset by the company’s exposure to the lawsuit, especially when the stock has been on the decline for some time now. The lawsuit shows the potential shortcomings of the company’s ability to temper profits and efficiency with fair pay and community benefit. As such, market is not confident in Domino’s ability to hit its 2019 full year target of at least $227 Million earnings before interest and tax (EBIT). The timing of the payment scandal has also clashed with Domino’s domestic demand plateau. Approximately half of all sales come from the A/NZ region, and with sales growth slowing alongside the number of store openings, the question of whether the two events are related can be debated.
Domino’s share price was heavily affected by the release of the class action, losing $2.33 or 6.01% over the session yesterday in combination with a stagnant market. The fall has now sent Domino’s share price to a four-year low of $36.30. Overall, the stock has lost 54% of its market value ($3.8 billion) in the last two years.
Regardless of whether Dominos is to win or lose the civil case, the publicity and media coverage regarding the wage payment failure is likely to see a continued effect on the share price.
The company has made efforts towards offsetting labour costs, including putting trackers on their delivery drivers to increase productivity, introducing delivery guarantees allowing for an increase of prices, and the introduction of new higher-priced menu items. They have also launched their artificial intelligence pizza checker ‘Dom’ in May, to respond to their biggest customer complaint, that the pizza doesn’t look like the photo.
However, with a civil suit carrying damaging potential, it is anyone’s guess what the fast food giant will do next to try to put their share price back on the run again.
By Will Banham
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