Dec. 24 (Bloomberg) --
Wal-Mart Stores Inc., accused of cheating hourly workers and forcing them to work through breaks, agreed to pay as much as $640 million to settle 63 federal and state class-action lawsuits.
A settlement yesterday ends most of the group lawsuits pending in state courts and in federal court in Nevada, and occurs two weeks after a Dec. 9 agreement in Minnesota. The company, the world’s largest retailer, will record an after-tax fourth-quarter expense of $250 million, or about 6 cents a share. The agreement comes five weeks before Mike Duke takes over from outgoing Chief Executive Officer H. Lee Scott, who has overseen a sales resurgence and sought to burnish Wal-Mart’s image among environmentalists, politicians and labor groups. Wal-Mart may pay from $352 million to $640 million, potentially less than 0.1 percent of its $378.8 billion in revenue in 2008. “They’re saying they need to put this behind them,” said Janna Sampson, who helps manage $1.1 billion at Oakbrook Investments. “It’s just terribly bad publicity to have these suits come up over and over again.” The Lisle, Illinois-based firm owned 444,760 Wal-Mart shares through September.
Similar lawsuits in California, Massachusetts and Pennsylvania aren’t on a list of settled cases that was provided by Wal-Mart. Dan Fogleman, a company spokesman, declined to comment on the status of those lawsuits. Wal-Mart rose 15 cents to $55.44 at 1:15 p.m. in New York Stock Exchange composite trading. The stock’s gain of 17 percent this year is best among the 30 members of the Dow Jones Industrial Average, which has dropped 36 percent.
The total amount to be paid by Wal-Mart will depend on the number of claims submitted by class members, the company said. Wal-Mart didn’t disclose what would determine the range of settlement amounts going to the workers. Settlement details will be covered in preliminary approval hearings in individual courts. Those hearings haven’t been scheduled. “Resolving this litigation is in the best interest of our company, our shareholders and our associates,” Tom Mars, Wal- Mart executive vice president and general counsel, said in a joint statement by the company and the plaintiffs. “Many of these lawsuits were filed years ago and the allegations are not representative of the company we are today.” The settlement is “fair and reasonable” for Wal-Mart and Sam’s Club hourly workers, said attorney Frank Azar, who represents employees in 14 states. “Wal-Mart has made tremendous strides in wage-and-hour compliance.”
The settlements include three cases that were scheduled for trial in 2009 on behalf of workers in Missouri, Washington and New Mexico. Settling these cases shows Wal-Mart is “scared and throwing dead weight overboard” ahead of a possible U.S. congressional vote on legislation making it easier to unionize companies, said David Nassar, executive vice president of Wal- Mart Watch, in a statement. The Washington-based group has pressed the retailer to improve wages and benefits and supports the Employee Free Choice Act, which would allow unions to side-step secret ballots that employers can require when workers vote on union representation. Wal-Mart’s “decision to settle these cases so suddenly is clearly driven by the knowledge that having such cases pending is strong evidence for the need” for the legislation, Nassar said.
In recent months, Scott and other Wal-Mart executives have told analysts the company views the Employee Free Choice Act as a threat to workplace privacy and the U.S. economy’s ability to prosper globally. “Our policy is to pay associates for every hour worked and to provide rest and meal breaks,” Mars said. As part of the settlements, Wal-Mart said it agreed to continue to use various electronic systems and other measures designed to maintain compliance with its wage-and-hour policies and applicable law. Wal-Mart’s $4 prescriptions, selling of energy-efficient light bulbs and conservation of electricity and water usage in its stores have improved the company’s reputation among consumers and legislators, Scott told analysts in October and June. Starting next year, Wal-Mart will add some health and wellness programs, ranging from smoking cessation to pregnancy counseling, for its U.S. workers. In September, it said it improved employee benefit programs including dental, profit sharing and 401(k) plans.
Resolving the suits “is going to be viewed as a positive by everyone, including Wall Street,” Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based retail consulting and investment banking firm, said in a phone interview. “They don’t want to pass this along to the next CEO.”
Wal-Mart, based in Bentonville, Arkansas, faced more than 70 wage-and-hour suits, including class actions claiming the company failed to pay for all hours worked or didn’t properly compensate workers properly for overtime. The workers claim that Wal-Mart’s own records show that hourly employees were cheated. Wal-Mart has denied the allegations.
Among risks to its financial performance, Wal-Mart’s most recent annual 10-K securities filing cites litigation by employees including wage and hour “off the clock” class- action suits. “Often a stock valuation is tied to how few footnotes there are in the annual report,” said John McMillin, a Jersey City, New Jersey-based analyst at Lord, Abbett & Co., which owned 15.2 million Wal-Mart shares through September. “Getting this behind them is a positive.”
Wal-Mart agreed Dec. 9 to pay $54.3 million to settle a class-action, or group, suit by Minnesota hourly workers claiming violations of wage and hour laws. The Minnesota judge found in July that the company broke wage-and-hour laws more than 2 million times and ordered Wal- Mart to give employees $6.5 million in back pay. Wal-Mart settled the case this month, avoiding a trial scheduled for January, in which a jury would have been asked to order the company to pay as much as $2 billion.
Wal-Mart had won decisions denying class certification of wage cases in more than 20 states including New York, Illinois and Maryland. The company had lost such decisions in states including New Jersey, Washington and Missouri. Other cases haven’t been settled. The retailer lost a $78 million jury verdict in Pennsylvania in 2006 over rest breaks and unpaid work and a $172 million verdict in California in 2005 over meal breaks. Wal-Mart appealed both verdicts. The Massachusetts supreme court in September reinstated a lawsuit against the company brought on behalf of about 67,000 current and former Wal-Mart workers.
To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net and Chris Burritt in Greensboro, North Carolina, at 1348 or cburritt@bloomberg.net.
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