Return to search

LACERS commits to Roark fund despite board member concerns

Board member Nilza Serrano questioned the system's commitment to the new fund amid concerns about worker conditions at some Sonic locations.

Los Angeles City Employees’ Retirement System committed to the latest fund from Roark Capital Group despite one board member’s apprehension over labor relations at one of its portfolio companies.

Roark owns Inspire Brands, which in turn owns several high-profile chains of fast food restaurants, including Dunkin’ (formerly Dunkin’ Donuts), Jimmy John’s and Arby’s.

Recently, employees of Sonic Drive-In, another Inspire company, raised concerns about pay and working conditions.

Since Sonic is a chain of drive-ins, food is served by “carhops,” who bring the food out to customers. Many Sonic locations classify these employees as tipped workers, meaning they can be paid at below the federal minimum wage, with the assumption tips will make up the deficit or more. If they do not, labor law requires the employer to do so up to the minimum wage.

However, workers say many customers do not realize those employees are tipped, and until recently Sonic did not allow customers to tip when they used their credit cards.

In January, the company began allowing customers to give credit card tips through the Sonic app, but former employee Zella Roberts said that was not enough.

“This is a step in the right direction,” she said during the public comment session at LACERS’ May 25 board meeting. “This only makes up a small percentage of card orders.”

Roberts also brought up concerns about coronavirus safety. Employees are required to wear masks while working, but customers are not.

Roberts said she had reached out to Roark Capital and its founder and managing partner Neal Aronson but received no response.

Roberts also organized an online petition of Sonic workers and their supporters that garnered more than 8,000 signatures, of which 1,100 were Sonic workers, the petition hosts told Buyouts. The petition was hosted by Coworker.org, a non-profit sponsored by another charitable organization, the New Venture Fund, as well as donations, according to its website.

Their concerns have been amplified by the Private Equity Stakeholder Project, a non-profit advocacy group, which has written about the group and publicly petitioned LPs on the concerns. The PE Stakeholder Project is funded by “nonprofit organizations such as labor unions, civil rights groups and foundations,” founder Jim Baker has told Buyouts.

Later in the May 25 meeting, LACERS and its private equity consultant, Aksia TorreyCove, discussed the $22.4 billion pension’s recent private equity commitments, which included $40 million to Roark’s sixth fund.

Board member Nilza Serrano brought up Roberts’ comments earlier in the day, and raised concerns about the commitment.

Aksia vice chairman David Fann said the firm was “making progress” on the issues and that Aksia was preparing a discussion piece on the issue.

“It is my opinion that human capital is vital to the success of both these investments,” Serrano said. “If they are not treating their staff in a way that is going to be fruitful, they will leave, and if they leave, they will not be able to service their consumers and then our portfolio will suffer because of it, so how are we going to approve something without getting clarification on what their solution to the issue is?”

“I think the short answer is they are fixing the problem and they agree with you that their workforce is vital and critical to the success of the platform,” Fann responded.

Chief investment officer Rod June added that staff will continue to monitor the situation, too, but that as a passive private equity limited partner the system had little recourse.

‘We can certainly have conversations with the general partners and emphasize our points of view on human capital,” he said.

“I trust staff and our consultant to do the right thing and give us a report soon on what Roark is planning to do to take care of their employees,” Serrano said.

Fann declined to comment. Neither LACERS nor June responded to requests for comment.

Roberts told Buyouts she had heard nothing further from Roark Capital, Inspire Brands or Sonic Drive-In, but was aware of what Fann said at the meeting.

“I’m excited to hear that work is making some changes, but it seemed a little bit vague and I’d like to see some more concrete steps,” she said.

Inspire Brands told Buyouts the company planned to have the ability to tip through the Sonic app integrated at all Sonic drive-ins by the end of July. It also said it was “incorporating the ability to tip via credit card when ordering at the stall.” It added not all carhops were tipped employees, and that 92 percent of the 3,500 restaurants were owned by franchisees.

Roberts told Buyouts she was happy to hear there was a “concrete timeline” for enabling credit card payments though the app, but that she had been told for some time about the plans to enable credit card tips at stalls.

“I’ll need to see some follow-though before I feel relief,” she said.

Roark Capital declined to comment for this story.

Action Item: listen to LACERS’ May 25 board meeting here and read the documents for it here.

Update: this story has been updated with more information about labor laws requirements regarding tipped wages.