Dunkin’ Donuts In Hot Water Again

Blue MauMau:

quotation.jpgA federal judge has ruled that franchisees may explore Dunkin’s ulterior motive in terminating their franchise agreements.

For the past decade, Dunkin’ has faced allegations of  spying, intrusions into franchisee‘s love lives, and assorted bare-knuckles tactics in terminating franchisees.

One of the nation’s leading franchise journalists was threatened with a lawsuit if she wrote about the tactics taught by Dunkin’ at an American Bar Association meeting; ironically Dunkin’s outside law firm justifies higher assessments of attorney fees to franchisee-Defendants based on their “national reputation” achieved by presenting at the ABA meetings.

Now a federal judge has ruled that Dunkin’ must disclose documents which may shed more light on the controversial practices followed by the Dunkin’ attorneys.

Dunkin’ Donuts Franchised Restaurants LLC v. Grand Central Donuts Inc (19 July 2009) is a set of allegations familiar to franchise industry observers.

  • Between 2003-2005, the franchisees opened 5 locations.
  • In February 2006, they allege that Dunkin told them that Dunkin would be buying their stores.
  • The franchisees refused.
  • Dunkin commenced an audit in June 2006.
  • On September 24, Dunkin told the zees that they had filed inaccurate W-2 forms and transferred an interest in the franchises.
  • Dunkin told the franchisees that their franchises were terminated.
  • On September 26, Dunkin brought suit in federal court.

A steady stream of franchisees from Detroit to Brooklyn to Ohio and Rhode Island have told similar tales of being pushed out by Dunkin’ at fire-sale prices, many losing their life savings when they refused the Dunkin’ offer.

In many cases, Dunkin’ alleges underreporting, and the Dunkin’ personnel charged with audits are paid based in part on how much they claim the franchisee underreported sales.

Since December 2001, Dunkin’ has inserted a clause into franchise agreements stating that failure to comply with tax laws is grounds for termination, and routinely “audits” the franchisee‘s tax returns and reports to the IRS; one franchisee who sued Dunkin in 1999 got hit with four dozen counts of a criminal tax fraud. More recently, Dunkin’ has taken to involving itself in the payroll and employment practices of franchisees, and engaging in mass terminations on (for example) the grounds that a franchisee has not paid overtime wages to employees, notwithstanding that at the same time Dunkin’ avoids vicarious liability in employee tort suits by maintaining that it does not maintain control over the franchisee‘s employees.

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