Workforce.com

Wal-Mart Mea Culpa Saves Company Legal Costs Down the Road

January 26, 2007
Wal-Mart’s mea culpa in a case involving overtime pay for thousands of workers cost it tens of millions of dollars, but may have saved the company millions more, according to legal experts.

On Thursday, January 25, the giant retailer reached an agreement with the Department of Labor to pay $33 million in back wages and interest to 86,680 employees who were not properly compensated for overtime under the Fair Labor Standards Act. The company reported itself to the federal agency two years ago when it found errors during an internal review.

Ft. Smith, Arkansas.

The company admitted that it failed to include bonuses and other incentives when calculating regular pay, which is then used to determine overtime pay. It also set the regular rate on a biweekly rather than weekly basis and didn’t give appropriate overtime payments to managers in training.

“We want our associates to know that the situation has been fixed, that overtime calculations now are being done correctly, and that we’ve added safeguards to our payroll processes to make sure these types of errors don’t happen again,” said Sue Oliver, senior vice president of the Wal-Mart people division. “We are committed to our associates and we apologize to them for this error.”

Wal-Mart says that it went back five years, instead of the two years required by the law, to settle underpayments. The average amount that will be paid in back wages is $386 per worker. Salaried nonexempt managers in training will get an average of $843. Some workers will receive much higher payments.

The company also says that it found that 215,000 workers were overpaid but that it won’t ask for the money back.

Wal-Mart’s proactive approach impressed employment lawyers. “I have to applaud Wal-Mart for stepping forward the way they did,” says T.J. Wray, a partner at Fulbright & Jaworski, a Houston law firm. “It was a smart thing to do.”

The company may have saved millions of dollars in court fees and legal hassles by reporting itself.

“It would have been much more costly for Wal-Mart to fight the class action through the court system,” says Thomas B. Lewis, partner in charge of the employment litigation group at Stark & Stark in Princeton, New Jersey.

In this case, Wal-Mart workers would have been able to pursue a solid case based on violation of federal law. If a class action had been brought, it could have been fought out in each state where the company has stores.

“Wal-Mart recognized that and grabbed [the situation] before it spun out of control,” Lewis says. “It takes out huge potential exposure down the road.”

The company lost a $78 million case in Pennsylvania this past fall for failing to pay employees who worked off the clock.

Even though Wal-Mart blew the whistle on itself, its opponents were not satisfied with the outcome.

“Today’s settlement between Wal-Mart and the Bush Labor Department is not only an admission of wrongdoing by Wal-Mart but represents another ‘backroom sweetheart deal’ that potentially undermines the rights of millions of Wal-Mart workers and proves that Wal-Mart’s cozy dealings with the Bush administration have no bounds,” Chris Kofinis, communications director for WakeUpWalMart.com, said in a statement.

Kofinis also accused the government and Wal-Mart of making a “secret settlement without any outside legal representation for the workers affected.”

A Department of Labor official, however, dismissed the notion that the agency gave Wal-Mart a slap on the wrist.

Steven Mandel, associate solicitor in the Fair Labor Standards division, says workers received five years of recovery in an agreement that went beyond the two-year statute of limitations.

“We take very seriously our obligation to enforce the Fair Labor Standards Act on behalf of employees,” Mandel says.

Wal-Mart employees were not consulted during the investigation because there was no dispute about the violations or the application of the law. “There was no need to interview employees or get employee input,” Mandel says.

He also emphasized that by entering into the settlement, Wal-Mart agreed to a nationwide injunction. If it commits further overtime violations, it would mean that Wal-Mart is in contempt of court.

“That is probably the most powerful weapon we have at our disposal,” Mandel says.

Wray doubts that the agency has an inappropriately close relationship with Wal-Mart.

“In 30 years of practice, I’ve never seen the Department of Labor cozy with anybody,” he says.

Mark Schoeff Jr.