Introduction
This paper assesses the overtime dispute that Wal-Mart faced. In 2007 Wal-Mart has paid $34 million in back wages and interest for calculating overtime incorrectly over a span of almost 5 years. The agreement with the Department of Labor covers 86,680 employees who worked for the company from February 1, 2002, to January 19, 2007 (Wal-Mart to Pay $34M for Incorrect OT Calculations 2007). This may be classified as a labor standard dispute.
The retail giant Wal-Mart has become the nation’s largest private-sector employer with an estimated 1.2 million employees (Bianco & Zellner 2003). The company’s annual revenues now amount to 2 percent of the U.S. Gross Domestic Product (Stein 2003). Wal-Mart’s success is attributed to its ability to charge low prices in mega-stores offering everything from toys and furniture to groceries. While charging low prices obviously has some consumer benefits, mounting evidence from across the country indicates that these benefits come at a steep price for American workers, U.S. labor laws, and community living standards. The paper assesses the historical background of the overtime dispute, the root causes, and what were the procedure that was employed to reach a plausible solution to the problem.
Historical Background
Wal-Mart has a history of overtime disputes and settlements. While wages are low at Wal-Mart, too often employees are not paid at all. The retail giant improperly calculated overtime payments by failing to include bonus payments into the employees’ pay rate when calculating overtime premium. The agreement also addresses payment of overtime to certain non-exempt salaried interns, manager trainees, and programmer trainees. While violations of this nature are common, Steven Mandel, an associate solicitor at the Department of Labor (DOL), said “these are serious violations.” The Fair Labor Standards Act (FLSA), along with state wage and hour laws, requires hourly employees to be paid for all time actually worked at no less than a minimum wage and at time-and-a-half for all hours worked over 40 in a week (U.S.C. 201). Wal-Mart, facing approximately 70 lawsuits for wage and hour violations throughout the country, reported these violations to the Department of Labor and then settled with the DOL.
These labor laws have posed a particular obstacle for Wal-Mart. As of December 2002, there were thirty-nine class-action lawsuits against the company in thirty states, claiming tens of millions of dollars in back pay for hundreds of thousands of Wal-Mart employees (Chicago Tribune 2003).
Many observers blame the wage-and-hour problems at Wal-Mart on the pressure placed on managers to keep labor costs down. In 2002, operating costs for Wal-Mart were just 16.6 percent of total sales, compared to a 20.7 percent average for the retail industry as a whole (Greengouse 2002). Wal-Mart reportedly awards bonuses to its employees based on earnings. With other operating and inventory costs set by higher-level management, store managers must turn to wages to increase profits. While Wal-Mart expects those managers to increase sales each year, it expects the labor costs to be cut by two-tenths of a percentage point each year as well (UFCW 2004).
Reports from former Wal-Mart managers seem to corroborate this dynamic. Joyce Moody, a former manager in Alabama and Mississippi, told the New York Times that Wal-Mart “threatened to write up managers if they didn’t bring the payroll in low enough.” Depositions in wage and hour lawsuits reveal that company headquarters leaned on management to keep their labor costs at 8 percent of sales or less, and managers, in turn, leaned on assistant managers to work their employees off-the-clock or simply delete time from employee timesheets (Greenhouse 2002).
In its 2006 annual report, Wal-Mart spends nearly two pages of text outlining its legal problems, including certified class action lawsuits in California, Colorado, Massachusetts, Minnesota, Missouri, New Mexico, Oregon, Pennsylvania, and Washington.
Most of these cases were brought under the Fair Labor Standards Act by current and former Wal-Mart employees, who charge they were forced to work “off the clock” and not paid for the work they performed. The DOL sued Wal-Mart for failing to pay time-and-a-half pay to its workers when they worked in excess of 40 hours per week.
The federal lawsuit also charged that Wal-Mart did not properly calculate bonuses and geographical variations in pay when calculating the wages before determining the time-and-a-half rate.
Wal-Mart set the salaries of some managers in training based on a 45-hour or 48-hour week but failed to pay them overtime when they worked more than 40 hours. This week’s settlement is one of the largest on record.
The consent decree was filed in U.S. District Court for the Western District in Fort Smith, Arkansas. In response, Wal-Mart says that it tipped off the DOL that the company had overtime problems, which were uncovered during an audit Wal-Mart did on its own books.
Legal Implications
Overtime is the amount of time someone works beyond normal working hours. In the U.S., the Fair Labor Standards Act (FLSA) of 1938 applies to employees in industries engaged in or producing goods for, interstate commerce. The FLSA establishes a standard workweek of 40 hours for certain kinds of workers and mandates payment for overtime hours to those workers of one and one-half times the workers’ normal rate of pay for any time worked above 40 hours. The law creates two broad categories of employees; those who are “exempt” from the regulation, which is exempt from the regulation include certain types of administrative, professional, and executive employees. To qualify as an administrative, professional, or executive employee and therefore not be entitled to overtime, three tests must be passed based on a salary basis, duties, and salary level and those who are “non-exempt”. Under the law, employers are not required to pay exempt employees overtime but must do so for non-exempt employees. Independent contractors are not considered employees and are not protected by the FLSA.
An employer may not retaliate against an employee for filing a complaint or instituting a proceeding based on the FLSA. An employer that does retaliate would be liable under the Fair Labor Standards Act Section 216(b) for equitable relief including reinstatement, promotion, payment of lost wages, and payment of liquidated damages. Acts of retaliation include terminating employment, disrupting the workplace, threats, acts of physical violence, and constructive discharge.
Time off in lieu; compensatory time; or comp time refers to a type of work schedule arrangement that allows workers to take time off instead of, or in addition to, receiving overtime pay. A worker may receive overtime pay plus equal time off for each hour worked on certain agreed days, such as Bank Holidays. In the United States, such arrangements are currently illegal for private-sector workers under overtime laws, but the practice is legal in the public sector (U.S.C. 207).
Some employers require employees to work “off the clock” by prohibiting them from recording time actually worked; failing to compensate them for meal periods and rest breaks; failing to pay overtime for travel from shop to work-site and back; not paying overtime for time spent working while traveling; failing to pay overtime for attendance at training, meetings, and lectures; failing to compensate for arriving early to perform necessary preparations for work; not paying overtime for a time it takes to suit-up or put the protective gear on, time waiting to log in, on-call time, or time in security line; forcing employees to work on the weekends without clocking in; or instructing them to report fewer hours than actually worked. Such practices are generally prohibited in the United States under the overtime laws for non-exempt employees (U.S. DOL).
When an employer violates overtime law, employees have the right to seek back pay for the wages they are entitled to. Complaints can be filed with the Department of Labor’s Employment Standards Administration Wage and Hour Division who investigates overtime law violations claim. In 2003 alone, this agency helped to recover $212 million dollars in back wages and $10 million in civil penalties for overtime law violation.
The state of California’s overtime laws involves overlapping statutes, regulations, and precedents that govern the compensation of employees in California. California overtime law is codified in provisions of the California Labor Code and in Wage Orders of the Industrial Welfare Commission. Because there are two sources of applicable law (federal and state), a California employer must comply with whichever standard provides greater protection to employees. In California, based on California Labor Code 1171, only an employment relationship is required for overtime rules to apply.
Key Participants
In 2001, Wal-Mart forked over $50 million in unpaid wages to 69,000 workers in Colorado. These wages were paid only after the workers filed a class-action lawsuit. Wal-Mart had been working the employees off-the-clock. The company also paid $500,000 to 120 workers in Gallup, New Mexico, who filed a lawsuit over unpaid work (Chicago tribune 2003). In a Texas class-action certified in 2002 on behalf of 200,000 former and current Wal-Mart employees, statisticians estimated that the company shortchanged its workers $150 million over four years – just based on the frequency of employees working through their daily 15 minute breaks (Greenhouse 2002). In Oregon, 400 employees in 27 stores sued the company for unpaid, off-the-clock overtime. In their suit, the workers explained that managers would delete hours from their time records and tell employees to clean the store after they clocked out. In December 2002, a jury found in favor of the workers (Chicago Tribune 2003). One personnel manager claimed that, for six years, she was forced to delete hours from employee timesheets (Foden-Vencil 2004). In a class-action filed in November 2003, noting evidence of systematic violations of the wage-and-hour law, a judge certified a lawsuit for 65,000 Wal-Mart employees in Minnesota. Reacting to the certification, a Wal-Mart spokesperson told the Minneapolis Star Tribune: “We have no reason to believe these isolated situations… represent a widespread problem with off-the-clock work.”(Freed & Reenan 2003)
In the recently settled dispute of Wal-Mart with DOL, the case involved 87,000 salaried and hourly employees who were not paid at the proper overtime rates. Hence we may say that the key participants in the lawsuits were the employees themselves backed by the labor unions and the Department of Labor.
Negotiating Techniques
This is a case where Wal-Mart after an internal audit agreed to the accusations that it was violating overtime norms and reached a settlement with the Department of labor. In such a situation a quick settlement was reached where the employees had no say regarding the settlement amount.
DOL and California State Labor Commissioner sued Wal-Mart in an effort to recover underpayments of overtime wages resulting from errors in the retail chain’s payroll processes. Wal-Mart then sought a settlement with the labor dispute settlement bodies that would include the assessment of penalties. Wal-Mart reported errors in calculating overtime payments in early 2005. Most of the errors resulted in small amounts of underpayments to a large number of employees throughout the United States.
Wal-Mart accepted its failure to include periodic bonuses and other earned income in determining some workers’ weekly average hourly pay rate, or “regular rate,” which is used to determine employees’ overtime pay. Wal-Mart also calculated the regular rate on a biweekly instead of a weekly basis and did not properly account for overtime involving some managers-in-training and other associates. The retailer said it has corrected the problem and adopted measures to prevent them from occurring in the future.
Wal-Mart voluntarily informed the labor commissioner that the company had underpaid overtime wages to approximately 50,000 California employees. Approximately 90 percent of the workers and former employees were underpaid by less than $20 over the past five years. Wal-Mart told the state it would quickly correct the payroll calculation problems and it would pay all workers employed in California since Feb. 1, 2002, whatever they were underpaid, no matter how small the amount.
The Labor Commissioner’s office has been working with Wal-Mart to determine precisely how much is owed to the California employees. Each employee is to be fully reimbursed for all wages that exceed what the U.S. Department of Labor determined are owed under federal wage and hour laws (Johnson 2007). Many workers were overpaid as a result of the errors in the computer payroll program, but Wal-Mart will not seek reimbursement from those employees.
Dispute Resolution
Wal-Mart, as a settlement amount, was supposed to pay more than $33 million in back wages to thousands of employees after turning itself into the Labor Department for paying too little overtime over the past five years, according to an agreement announced by the U.S. Department of Labor. The agreement with the Department of Labor covers 86,680 employees who worked for the company from February 1, 2002, to January 19, 2007.
The Labor Department said the settlement would average about $386 in back pay and interest for each of the 87,000 Wal-Mart employees. “These are employees not making a lot of money, and so the fact that they did not get all of the overtime due is a significant problem,” said Steven Mandel, a lawyer for the department’s Fair Labor Standards Division. “$386 is real money.” The settlement included absolutely no penalties, no interest and it is unclear whether the employees are even getting anywhere near what they are actually owed in unpaid overtime.
A case where an employer admits they broke the law and turns themselves in for it would usually be an easy case to win. Also, federal law allows courts to double the number of overtime wages due as a penalty for not paying those wages in the first place. It looks as though these employees are actually receiving less than half of what they are owed.
The California labor commissioner is now apparently negotiating with Wal-Mart to settle overtime claims against the company under California law. It would be in these employees’ best interest to seek out their own personal legal counsel so that they get every penny they deserve.
Resolution Implementation
After the settlement was reached, Wal-Mart apologized to 86,680 of its workers all across America for denying them the overtime wages they were due. The apology was worth five years of back wages, a total of $33.5 million, and means that on average workers who were denied overtime pay will get $375 in back pay. According to the New York Times, 75 workers received more than $10,000, and one lucky worker received more nearly $40,000 in back wages.
Recently, Wal-Mart spokesman assured its “associates” that the overtime system at the retailer “has been fixed,” and that new safeguards at the company will “make sure that these types of errors don’t happen again.” But the company maintains its stance, that it was not a case of violation, but an unintentional error. One company spokesman said the charges were not “particularly unusual violations.” However, the lawsuit charged that Wal-Mart was making illegal calculations because it computed pay on a biweekly rate rather than a weekly rate. The company was also including vacation and sick pay in determining the base hourly rate, which produced a lower hourly rate.
Conclusion
Wage and hour lawsuits are one of the fastest-growing types of employee lawsuits. According to the Department of Labor, employees receiving Fair Labor Standards Act Back wages increased by 27% in 2003, with over 300,000 employees receiving back wages as a result of Wage and Hour Division investigations.
Wal-Mart is a classic case where the company has a steady history of overtime wage violation and has been sued for the same earlier too. But this is a classic case when the company itself agreed to miscalculations and violations due to calculation errors in their payroll process. Wal-Mart discovered the errors during an internal review and voluntarily reported them to the DOL. Under the terms of the consent judgment, Wal-Mart has agreed to pay all back wages the Labor Department has determined are owed for violations identified in the consent judgment to present and former employees, and to pay pre-and post-judgment interest. A third-party administrator will disburse the payments to the affected employees. The agreement resolves only those violations identified in the consent judgment. It does not affect ongoing private litigation or workers’ ability to file complaints with the Labor Department.
With more than 1.2 million domestic employees, Wal-Mart is the largest private employer in the United States and the world’s largest retailer. By proactively approaching the department regarding its errors, the retail giant exhibited its commitment to its employees, serving as a reminder of the importance and benefit of training all supervisory employees on their responsibilities under wage and hour laws. But many critics are not very sure of this and are almost certain of the numerous labor law violations that the company faces and has faced which they continue to practice. But apparently, this dispute was resolved and the law body helped in the dispute resolution process.
Reference
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Stein, C. (2003). “Wal-Mart Finds Success, Image Breed Contempt,” Boston GlobeI p. H1. U.S.C.
Associated Press, (2003). “Federal Jury Finds Wal-Mart Guilty in Overtime Pay Case,” Chicago Tribune, Business 3.
Greenhouse, S. (2002). “Suits Say Wal-Mart Forces Workers to Toil Off the Clock,” New York Times A1.
United Food & Commercial Workers (UFCW) (2004). “Wal-Mart’s War on Workers’ Wages and Overtime Pay,” Web.
Foden-Vencil, K. (2004). “Multiple Lawsuits Accuse Wal-Mart of Violating Workplace Regulations,” NPR Morning Edition.
Freed, G. & Reenan, J. (2003).”Wal-Mart Suit Gets Class Status,” Star Tribune 1D.
Johnson, K. (2007) “State labor department sues Wal-Mart”East Bay Business Times. Web.
Wal-Mart apologizes to 86,680 workers for overtime, (2007), Wal-Mart to Pay $34M for Incorrect OT Calculations, Web.