When software steals: Domino’s paycheck miscalculations systematically cheated workers, NY AG alleges


Corporations hack people.  They hack consumers, and they hack their own employees. Mere mortals don’t stand a chance when high-powered computers with finely-tuned algorithms attack them.  Computerized cheating is among the most frightening developments of our time, and it should alarm you much more than it does.

The latest frightening example of this comes from allegations made against Domino’s that it exploited well-known “errors” in its software to cheat workers out of pay. The software enabled stores to pay workers less than the minimum wage and avoid overtime pay, according to the New York state attorney general’s office. Formulas used to calculate pay rates were incorrect, for years. Domino’s management knew this was happening, and didn’t care to fix it — or didn’t want to, the allegations claim.

You know the well-worn movie plot where an evil genius worker figures out how to steal millions from a bank, a fraction of a penny at a time?  Ironically, it’s sometimes called “salami slicing.” This is that — but with the corporation stealing dollars from minimum-wage workers for profit.

To back up a bit, consumers are quickly enraged to learn that corporations have developed software designed to manipulate people them into overpaying. For example, banks that carefully stacked the order in which checks were processed to maximize overdraft revenue had their head handed to them in the court of public opinion. Target caught Hell when people found out the firm could use Big Data to learn when teen-age girls were pregnant, even before other family members.  Websites that cleverly hide hidden fees in fine print or fonts tested for invisibility spark protests when exposed. We don’t like being hacked.

We should feel the same outrage — probably more — when workers are hacked.

Let’s provide some context.  We all know restaurant workers earn very little, even in places where the minimum wage has been bumped up.   You might not know that restaurants where workers get tips can be paid even less than minimum wage.  In Washington D.C., the minimum wage is $10.50, but restaurant workers can be paid as little as $2.27, for example. Restaurants can claim “tip credit” for the difference – a presumption that staff earn the other $8.23 per hour from nice patrons.

The labor costs for restaurant service can be stunningly low. And yet, Domino’s allegedly used software to make it even lower. The firm requires that stores use software named PULSE, which tracks every single activity at pizza-making franchises.  There are four allegations about the way PULSE cheated workers:

Domino’s employees often do both tipped and non-tipped work on the same shift: they deliver pizzas sometimes, work in the franchise at other times.  They are required to pay two different rates for these tasks, for obvious reasons. PULSE made it hard to pay workers the higher, non-tipped rate even when they weren’t earning tips, a violation of labor law.

Second, PUSLE didn’t recognize that employees did shifts at multiple stores, which prevented workers from surpassing 40 hours in a week and earning overtime pay. Someone who worked at one store 30 hours and another store 20 hours was paid 50 regular hours, rather than 40 hours and 10 over time hours, because the software had no way to add up hours worked at multiple locations.

Third, New York restaurant employees who work more than 10 hours per day are entitled to one extra hour of pay; those wages were not calculated by the software.

And finally – the most complicated but perhaps most troubling flaw: Domino’s incorrectly calculated time-and-a-half pay for tipped workers. Stores gave themselves a time-and-a-half discount by illegally multiplying what the “tip credit” they can claim by 1.5.  In an example included in the lawsuit, the difference in calculation meant a worker earned $7.50 per overtime hour, rather than $9.28. (See below for a specific example)

Dollars to a poorly-paid worker, but hundreds of thousands to store owners. Three franchisees who own 10 stores investigated in the lawsuit owe at least $567,000 in back wages to employees.

For its part, Domino’s distances itself from this illegal activity, saying that its stores are operated independently.

“We were disappointed to learn that the Attorney General chose to file a lawsuit that disregards the nature of franchising and demeans the role of small business owners instead of focusing on solutions that could have actually helped the individuals those small businesses employ,” the firm said in statement to media outlets.

Here’s the problem: Domino’s forced stores to use this software, and in fact, stores paid between $15,000 to $25,000 to buy and operat the system.  And Dominoe’s knew it was flawed. For years.

“I’m told the Pulse system does not currently function to pay a driver a different rate of pay in the same shift and therefore franchisees are just paying the tip wage for the entire shift which is not following the law,” wrote one executive – who was responsible for communicating with franchisees — in an email back in 2007.

In its lawsuit, New York says Domino’s knew workers were underpaid for years and did nothing, making it culpable for the lost wages.

“Domino’s actions and knowing omissions cannot be characterized as simply an unfortunate programming glitch: the company knew about the flaws; it knew about the impact on franchisees and workers; it made many other fixes and changes to PULSE and communicated those updates to franchisees. But year after year, Domino’s failed to address the PULSE programming flaws,” the lawsuit says.

Was it a bug, or a feature?  We’ll probably never know. But I am increasingly worried — and you should be too — that software is being used to systematically cheat people. It’s an invisible weapon; there is often no defense.  When Volkswagen used software to evade emissions tests, I warned that the firm had hacked its consumers. How many other products are loaded with mysterious software that does invisible things to us? How would we find out?

The immediate lesson from this Domino’s story is that payroll checks can be wrong. Workers should be well-versed in calculating their own pay rate and should ravenously double-check the work of the payroll department.  Yes, in this case, pay stubs create an audit trail that wasn’t available in the Volkswagen situation.  On the other hand, if you believe below-minimum-wage restaurant workers living off tips are in a good position to complain about the subtle miscalculations on their paystubs to management, I have a bridge to sell you.

And this is why the minimum wage debate sounds like so much noise to me.  Yes, $15 an hour would be a big help to a slice of the population. But it should be obvious that our income and wage problems run much deeper. America doesn’t respect its workers any longer; that hostility can now be automated. That should frighten you.

Here’s an example of Domino’s wage miscalculation and the wrong overtime pay rate:

“One investigated franchisee paid $5.00 per regular hour to tipped delivery workers and $7.50 per overtime hour. However, under the Labor Law at that time the franchisee should have been paying $9.28 per overtime hour ($10.88, which is one-and-a-half of $7.25, less a $1.60 tip credit) and a “tipped” minimum wage of $5.65 per hour (the $7.25 minimum wage at the time less $1.60 tip credit). This approach of simply multiplying the lower, tipped rate by 1.5 has the effect of multiplying the benefit of the tip credit to the employer, in clear violation of the Labor Law.”

Here is Domino’s response to Eater.com

Here is a copy of the firm’s letter and settlement offer to New York, as provided to Eater

And here is a statement from the NYAG office:

“At some point, a company has to take responsibility for its actions and for its workers’ well-being. We’ve found rampant wage violations at Domino’s franchise stores. And, as our suit alleges, we’ve discovered that Domino’s headquarters was intensely involved in store operations, and even caused many of these violations,” said Attorney General Schneiderman.  “Under these circumstances, New York law – as well as basic human decency – holds Domino’s responsible for the alleged mistreatment of the workers who make and deliver the company’s pizza. Domino’s can, and must, fix this problem.”

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About Bob Sullivan 1386 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

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