Explosive New Lawsuit Alleges Exploitation and Corruption at America’s Largest Sandwich Chain

Allegations about Subway's exploitative treatment of franchisees have been well documented. Hostile takeovers of restaurants from operators, money-losing menu changes, and franchise agreements that can be changed without notice are just some of the ways Subway franchisees seem to be getting the short end of the stick. When they attempted to communicate their woes to CEO John Chidsey and co-owner Elisabeth DeLuca, their pleas for help went unanswered. Now, a new explosive lawsuit filed by a former Subway franchisee is putting the spotlight on the chain's inner turmoil yet again.

According to The New York Post, the lawsuit filed by Raj Mehta in Nevada state court last month outlines systemic exploitation of franchise owners, many of whom are immigrants, by Business Development Agents (BDAs). These regional managers who are franchisees themselves prey on new operators' naivete and push them into financial ruin, the suit claims.

"Subway is allowing its BDAs to profit off the backs of minorities, Indian Americans and/or Indian immigrants who have oftentimes invested their entire life savings on their franchises," the suit said.

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As many as 22,000 of the chain's domestic locations are run by franchisees, and about 50% of them are immigrants (well above the industry average of 30%). Some are recruited by Subway from Asia and lack basic math and English skills, which makes them easily enticed by the chain's relatively low upstart fees and a promise of the American dream, the suit claims.

Subway issued a comment to Eat This, Not That!, stating that the chain "is proud of its diverse franchisee network," and said that the company's "current recruitment strategy focuses on attracting experienced franchise operators with strong business acumen and providing them with the tools and support needed to grow their business and ensure long-term success."

This isn't the first time Subway has been accused of allowing rampant corruption within the ranks of its Business Development Agents (BDAs). These large franchisees with managerial power oversee hundreds of locations in their assigned territories on behalf of the company. They have the ability to shut down and take over restaurants from smaller operators for even the most benign violations of the company's rulebook, which, according to this suit, contains some 3,000 compliance points. Examples of infractions include improperly sliced cucumbers and smudged windows.

In particular, the lawsuit names Chirayu Patel as one of the BDAs who used dirty tactics for his own profit. Patel, who was the BDA for the plaintiff's Subway restaurants and owned a fleet of his own locations in the same territory, would send "hit men" with the goal of finding violations at franchisee's restaurants. Once written up, these operators would face fines and higher royalty rates, pushing them to the brink of bankruptcy. Patel would then acquire the struggling locations for next to nothing, the lawsuit alleges.

"Patel is an Indian American and most of his victims are Indian Americans," the suit says. "Stated simply, Patel finds it easiest to prey on those with whom he has the most in common and exploits the relationship of trust instilled between people who come from the same culture and circumstance."

The lawsuit accuses Patel of racketeering and taking over one of Mehta's shutdown restaurants, which he then resold for his own profit.

Patel recently resigned as a BDA for Subway, after another lawsuit accused him of cheating his workers out of almost $40 million in unpaid wages. The chain confirmed his Northern California and Reno, Nevada territories were transitioned to "a new group who is well-regarded in the Subway network and known for delivering operational excellence."

According to The Post, the chain has also begun to phase out the BDA system and has started to oversee some territories themselves.

"Subway is on a multi-year transformational journey to improve across all aspects of our business and build a Better Subway under the leadership of a new executive team," Subway said. "As part of our transformation, we're evolving from a development-focused to an experience-focused organization, with the goal of improving the guest experience and restaurant operations to increase traffic and drive profitability for our franchisees. This includes an enhanced focus on providing training and operations support to our franchisees, and in certain markets, evolving our business developer model and adopting a traditional franchisor/franchisee model."

The company has recently seen a major boost in sales, thanks to its major menu overhaul, but it looks like its reputation isn't out of the woods yet.

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Editor's note: This story has been updated with comments from Subway.

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