Wal-Mart has long been the whipping boy of the plaintiff’s bar and the news media based in large part on its overwhelming market success. The plaintiff’s bar is constantly looking for a deep pocket (there’s no money in suing poor people) and the mainstream media is generally hostile to anyone doing well in business (who also are some of the same people who insist on newspapers making a profit). But Wal-Mart does an awful lot to bring this stuff on itself, too.
Take the company's latest debacle, which occurred in state court in Minnesota. Wal-Mart’s been ordered to pay $6.5 million to 56,000 current and ex-employees because it did not give them the rest and meal breaks to which they were entitled under state law.
Minnesota, like a number of states, has a baby Fair Labor Standards Act that is more restrictive than the federal statute. The Land of Ten Thousand Lakes requires a meal break during more than eight hours of work, requires payment for breaks that are less than 20 minutes, and requires accurate time records of all of this. Wal-Mart was sued by one of its grill cooks working in the lovely town of Apple Valley (not too far from where I went to high school, in fact). The ex-employee claimed violation of the state statute, as well as being denied the opportunity to use the bathroom and not being paid for actual hours worked.
You are probably thinking to yourself that a failure to comply with legal requirements affecting 56,000 people could not have escaped the notice of Wal-Mart management, and you would be right. In fact, Wal-Mart conducted at least two audits of its work force – 128 stores nationwide, and 6 in Minnesota – to determine the scope of compliance with various wage and hour laws and specifically, the accuracy of employee timekeeping. The audits were thorough. At six Minnesota stores, more than 1,000 meal breaks were unaccounted for and more than 2,600 rest breaks were missing in a one-week period. In other words, either people weren’t recording the breaks, or they simply weren’t being given the opportunity for them as required by the law.
Here’s where the real problem starts. A company that believed it was giving people adequate break time that was improperly recorded would move to correct the reporting deficiencies and do it quickly. Any employment lawyer looking at such an audit would realize immediately that the company was in significant danger of being sued for something that it wasn’t doing, i.e. not providing sufficient breaks.
But that’s not what Wal-Mart management did. Instead of trying to figure out whether it was actually breaking the law or just had sloppy record keeping, Wal-Mart management directed employees to stop recording breaks on their timecards. In other words, when you read bad news, burn the newspaper. This was probably the single most important factor in the court’s determining that Wal-Mart not only was breaking the law, but also knew it was breaking the law at a significant pace.
Minnesota has a long history of employee protection and imposes stiff penalties for intentional violations of its statutes. In this case, the penalties accrue at the rate of $1,000 per violation. That’s in addition to punitive damages. The penalty could total $2 billion, a number that would get your attention on a balance sheet anytime.
The lessons here are pretty obvious. I’ve said before that if I have to pick a statute that my clients are most likely violating, it would be the Fair Labor Standards Act or similar state statutes. Companies need to pay more attention to their timekeeping process and how their policies are actually being applied on the shop floor. They should allow their employees to verify the time records to ensure accuracy and give the employees a means of reporting errors that does not involve their local managers. The company should undertake periodic audits to ensure that the time records are showing compliance. And finally, if you see a problem, don’t try to solve it by making sure the problem can’t be reported to you. Ignorance is not bliss.