Can Roark change the food service industry with Subway acquisition?

Roark Capital is one of the largest private equity employers with an estimated 1.4 million employees, the majority of which work in food service. Roark’s acquisition of Subway greatly expands the firm’s global presence as a fast food franchisor – Subway has the second most locations of any restaurant chain in the world after McDonald’s (whose Chinese segment is also owned by private equity firms). As of September 2023, Roark claims $37 billion in assets under management, up from $25 billion in 2021.

Unfortunately for 410,000 Subway employees, Roark has a history of labor issues at its other food service companies, including wage theft and child labor. There do not appear to be any unions at Roark-owned companies, [1] making it even more difficult for workers to advocate for better conditions. 

Subway has its own issues that Roark should strive to improve as it takes over the chain. In 2014, CNNMoney found that Subway led the fast food industry in wage theft. As recently as May 2023, the Department of Labor found that Bay Area Subway locations gave employees bounced checks and violated child labor law. As Roark acquires Subway, it should look to use its outsized power and capital in the industry to lead change by implementing standards such as the Private Equity Labor Rights Platform. While Roark did not create the problems that are so common in the food service industry, it can improve wages and working conditions for employees, which has been shown to increase productivity and customer satisfaction.

Wage Theft
According to 2022 numbers from the Bureau of Labor Statistics, food service workers are among the lowest paid workers in the United States, with fast food service positions paying less than $14 per hour. A 2020 GAO report found that employees at Roark brands Dunkin Donuts, Sonic, Arby’s, Hardee’s, and now Subway are among the most frequent recipients of food stamps in some states. The company has lobbied to keep its wages low, bragging about its role in helping to kill the federal Raise the Wage Act and partnering with the National Restaurant Association, one of the major opponents of raising the federal minimum wage.

In addition to low wages, restaurant industry workers often face wage theft. Despite the immense wealth that Roark manages, the private equity firm continues to have wage theft issues in its portfolio. The Department of Labor has ordered Inspire Brands and CKE Restaurants to pay more than $700,000 in back wages to workers under Roark’s management. [2]

Workers have also experienced wage theft at Sonic, which Roark acquired in 2018. In August 2020, a class action lawsuit was filed against 30 Sonic Drive-Ins in Tennessee, Mississippi, and Arkansas for alleged minimum wage and overtime pay violations between August 2017 and August 2020. [3] According to the complaint, the owners of the Sonic Drive-ins “induced, required, forced, expected, encouraged, and/or permitted” the Sonic workers to perform job duties while clocked off their time keeping system without being compensated at the applicable overtime and/or minimum wage rate of pay. Specifically, the complaint alleges that Sonic managers routinely had workers clock-out at the end of their shift and then “required and forced them to continue working for thirty (30) minutes or more while ‘clocked-out’, for which they were not paid.” In February 2022, the Sonic franchises settled, resulting in $28,500 in back wages for workers. [4] The Sonic franchisees denied the complaint’s allegations.

Child Labor
The Department of Labor (DOL) has recently cracked down on child labor, including at private equity-owned companies like Blackstone’s Packers Sanitation. Roark’s Dunkin’ Donuts franchises have also been scrutinized for child labor violations in Massachusetts, Maryland, and West Virginia in 2023. In Massachusetts, Attorney General Andrea Campbell fined Dunkin’ franchises more than $500,000 “for failure to obtain valid work permits, employing minors after 8:00 PM without adult supervision, employing 16- or 17-year-olds for more than nine hours in a day” and employing minors outside of permissible hours. In Maryland and West Virginia, the DOL found that Dunkin’ franchises employed 14- and 15-year-olds that operated ovens in violation of the Fair Labor Standards Act that prohibits minors under the age of 16 from most baking and cooking. The franchise paid more than $40,000 in fines

This year, Sonic franchises were fined for violating child labor laws in Nevada and South Carolina. In Nevada, the DOL investigation revealed that a Sonic franchise hired a minor as young as 13, while in South Carolina, 91 children worked across several locations. One of the franchisees in the South Carolina case is Atticus Franchise Group, a private equity firm that only invests in Roark brands and is also based in Atlanta. 

Roark should consider implementing standards such as the Private Equity Labor Rights Platform to ensure that the nearly 1.5 million employees at its companies have full rights and protections. 

Labor Disputes and Anti-Union Activity
In August, workers at an Atlanta Dunkin Donuts store launched a strike action by giving management strike notice and walking off the job two weeks later. Workers went on strike to protest a number of issues including low wages – one employee had been working at Dunkin for 10 years and only made $9.50 per hour. The Union of Southern Service Workers (USSW) joined the action, supporting Dunkin employees’ demands: 

• Demand for dignity and equal treatment.
  •  An end to favoritism.
• Ensuring health and safety in the workplace.
  • Affordable company health insurance paid sick leave and vacation time off.
• Fair and consistent scheduling.
  • Sufficient hours every week to make a livable income, including returning staff to their previous number of hours per week.
• Fair pay that enables workers to build their lives.
• The exercise of their right to organize and demand for a seat at the table.

Despite efforts backed by large unions like the Teamsters in the Northeast and the Bakery, Confectionery, Tobacco Workers and Grain Millers (BCTGM) in Ohio, Dunkin employees have not been able to win a union election under Roark’s ownership of the brand. Like Dunkin, Roark’s other franchise-based service food service models make union organizing more difficult, as the union must negotiate with several different employers. USSW has also taken strike action at a Sonic franchise early this year in South Carolina, and the entire staff at three Sonic locations in Ohio walked out in 2019 after wages were lowered to $4 per hour (a Sonic representative denied the workers’ claim about lower wages).

To combat concerning working conditions such as those cited above, especially at franchise models like Dunkin, Sonic, and Subway, Roark should institute a set of labor standards across its portfolio, ensuring that its franchises will pay workers a living wage, improve and closely monitor health and safety conditions, and honor employees’ right to organize.

Citations

[1] As of August 2023. Union election data was collected using NLRB filings from the time of Roark’s acquisition of each company.

[2] As of August 2023. Wage theft was collected using DOL filings from the time of Roark’s acquisition of each company.

[3] Henderson v. Sonic Drive In, Memphis, No. 2:20-cv-02604-MSN-tmp, second amended complaint, filed 3/2/21.

[4] Henderson v. Sonic Drive In, Memphis, No. 2:20-cv-02604-MSN-tmp, settlement agreement and release of all claims, filed 2/1/22.