Fast-food chain Subway has raised the ire of a US senator, The Post has learned.
US Sen. Catherine Cortez Masto (D-Nev.) is investigating the federal government’s backing of loans to Subway franchisees amid complaints — first reported by The Post — that the chain has been going after store owners for minor infractions in an effort to put them out of business.
In a May 21 letter to the Small Business Administration, Cortez Masto questioned the SBA’s practice of guaranteeing loans tied to “franchises with a history of complaints about unfair and deceptive practices.”
The letter demands information about the SBA’s lending practices tied to four such franchises, including Subway, the country’s biggest restaurant chain by the number of locations. The other chains are vitamin company Complete Nutrition, Dickey’s Barbecue, and Experimac, an Apple product repair company.
By guaranteeing these loans, the SBA risks putting taxpayers on the hook for defaults.
Cortez Masto’s letter cites The Post’s May 5 report showing that Subway has been rapidly closing stores and taking their franchisees to arbitration at a far higher rate than industry peers. Disgruntled franchisees say this is no coincidence, because the company has been going after them for minor grievances like smudged glass and “choppy” vegetables in order to take over their stores.
“Subway is accused by its franchisees of using minor infractions to steal stores from owners through a rigged arbitration system,” the senator’s letter said.
Cortez Masto’s letter comes amid talks between her office and a Nevada Subway franchisee who claims he was also dinged for slicing vegetables in a choppy manner, a source said.
Subway’s defaults for loans arranged between 2009 through 2018 was 2.6 percent, compared with 1 percent at Burger King over the same period, according to The Coleman Report, an industry data provider.
Cortez Masto plans to introduce a bill that would force franchisees to reveal SBA defaults for the prior three years so new franchisees will know the risks, the source said.
“Thank you for bringing the Senator’s letter to our attention. We will look into it,” a Subway spokeswoman said.
Last year, Subway lost a net 1,108 stores, or 4.3 percent of total locations. McDonald’s, by contrast, lost a net 122 stores in 2018, or just 1 percent of its US base, according to regulatory filings.
Meanwhile, Subway initiated 702 arbitration actions against US franchisees in 2017, compared with one by McDonald’s, two by Dunkin’ and none by Pizza Hut, Burger King or Wendy’s, according to Pacific Management Consulting Group.
The company continues to face pushback, including from a former Chicago-area franchisee who says she is in the process of filing a suit against the restaurant chain for shuttering her family’s store last month after 14 years.
Subway had said the store was out of compliance for what the franchisee, who requested anonymity ahead of her lawsuit, claims were minor issues, including smudges near the cash register.
“They keep putting you out of compliance every month, creating a paper trail. But the reality is, it is harassment and there is no solution.”