A group of United States employees has launched legal action against Guzman Y Gomez (GYG) over the sudden closure of its American operations as the potential cost of this failed expansion attempt starts to mount.
The lawsuit filed in an Illinois federal court alleges the ASX-listed Mexican-themed chain failed to give adequate notice to staff before shutting all of its Chicago-area restaurants last week.
“GYG is aware of legal action filed in the United States, and we are confident we have met all of our legal obligations to our U.S. employees," a GYG spokesperson was quoted saying in this Reuters story.
“We are not in a position to provide further comment on this matter.”
The class action claim could reportedly affect more than 500 employees who are seeking up to 60 days’ wages and benefits under U.S. laws requiring employers to provide advance notice of mass layoffs.
Chicago law firm Haseeb Legal claimed workers first heard about the closures on 21 May via an internal message posted on the company’s message platform, according to this article in The Guardian.
The message allegedly read: “After careful consideration, we have made the difficult decision to exit the US market. This means we will be closing all our restaurants from today.”
Guzman y Gomez Limited said on 22 May it had decided to exit the U.S. market and stop trading its restaurants in Chicago with immediate effect.
It said the decision would reduce profits by between US$30 million (A$41.8 million) and $40 million in the 2026 financial year, of which no more than $15 million would be paid in cash.
Founder and Co-CEO Steven Marks said he realised after spending the last three months in the U.S. that it was going to take significantly more time and capital than expected to improve sales momentum in the country.
“In assessing the trajectory of the current network, the Board and I have concluded that the business is unlikely to deliver the performance that would justify continued investment of shareholder capital,” he said in an ASX announcement.
The company’s six-year attempt to establish a foothold in Chicago was part of ambitious plans to open hundreds of restaurants across the U.S. and compete with established operators like Chipotle Mexican Grill Inc (NYSE: CMG).
Guzman Y Gomez (ASX: GYG) shares were trading at $19.86 at the time of writing, capitalising the company at $2.01 billion, which was up $3.95 or 25% from the price prior to announcement.
