Chipotle Faces Class Action Lawsuit Over Unpaid Wages

Per a recent CNNMoney report, fast-casual chain operator Chipotle Mexican Grill, Inc. (NYSE:CMG) is in trouble again as nearly 10,000 of its workers have joined a class-action lawsuit against the company for wage theft.

Reportedly, under the lawsuit, current and former Chipotle employees have accused the company of compelling them into working overtime after their shifts, and not compensating for the same.

Though Chipotle has faced similar lawsuits in the past, this is the first time there has been such a large class-action suit against the company for wage theft. In fact, the plaintiffs come from various states across the U.S.

Notably, the suit calls for a jury trial for full overtime payment of all workers concerned in the case.

However, on its part, Chipotle has denied all charges and is likely to defend the case. The company has claimed that the case holds no merit as it has duly paid all wages to employees.

We note that despite various food-safety initiatives, Chipotle continues to reel under the negative publicity associated with the E. coli and norovirus outbreaks in several states, which surfaced toward the end of 2015.

As a safety measure, Chipotle was forced to close several outlets. Although these were reopened later with fresh ingredients and extensive cleaning and sanitizing activities, the incidents dealt a severe blow to Chipotle’s sales.

The fact that Chipotle has used only healthy ingredients has long been its marketing strength, despite the comparatively high prices. Thus, given the negative publicity related to these food-borne illnesses, Chipotle’s popularity among health-conscious diners is declining.

Moreover, with respect to the current lawsuit, we believe that if the legal proceedings work in favor of the workers, Chipotle’s reputation might further suffer a setback. Also, it will raise the company’s labor cost and hurt profits thereby compounding its woes.

Zacks Rank & Stocks to Consider

Chipotle currently has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Papa John's International Inc. (NASDAQ:PZZA) , Del Taco Restaurants, Inc. (NASDAQ:TACO) and Restaurant Brands International Inc. (NYSE:QSR) . All the three stocks carry a Zacks Rank #2 (Buy).

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