Lessons from Wal-Mart: The Importance of Keeping Accurate Employee Records

On Behalf of | Dec 17, 2014 | Fair Labor Standards Act (FLSA) |

For decades, Wal-Mart has been an enormously successful, if not controversial, corporation. Wal-Mart has been lauded for their efficiency and lasting profitability. However, due to poor employee policies and payroll record keeping, the Wal-Mart has been besieged with costly employment lawsuits claiming the company has failed to compensate employees in accordance with state and federal laws.

In the most recent ruling, decided on Monday December 15, 2014, Pennsylvania’s Supreme Court held that workers at Wal-Mart and Sam’s Club Stores who worked off the clock or who were forced to skip their breaks are entitled to $151 million in unpaid wages and damages. This decision upheld the rulings of the lower and appellate courts. This case affects 187,000 people employed by Wal-Mart stores from March 1988 through April 2006. [1]

The majority opinion issued by Justices Castille, Eakin and Todd, stated this was a discretionary appeal concerning whether the class action proceedings against Wal-Mart, improperly subjected the company to a “trial by formula”. This case began almost a decade ago when employees brought various class action claims against Wal-Mart Stores and Sam’s Club. Former employees’ claims alleged breach of contract, unjust enrichment, violations of the Pennsylvania Wage Payment and Collection Law (WPCL) and Pennsylvania Minimum Wage Act (PMWA). These cases stated that Wal-Mart had originally promised employees paid rest and meal breaks, but then had forced them to miss or work through breaks and also to work “off the clock”. The jury trial of this class action suit spanned six weeks, involved eighteen fact witness and three expert witnesses. The jury rendered a verdict in favor of Wal-Mart on all claims relating to meal breaks, but ruled in favor of the employees on the claims concerning rest breaks and off the clock work. Wal-Mart appealed this verdict, and the Superior Court affirmed both parts. The Pennsylvania Supreme Court granted Wal-Mart’s request for discretionary review. In this decision, the Court addressed: 1) whether Wal-Mart was subjected to a trial by formula; and 2) whether employees were improperly relieved of their burden to produce class wide common evidence for the key issues of their claims.

A “trial by formula” in a class action lawsuit occurs when a single plaintiff’s legal theory and evidence becomes improperly extrapolated to encompass all of the other class members, resulting in unmerited and inaccurate awarding of damages. This practice is frowned upon by the United States Supreme Court. [2]

During trial, employees presented evidence of Wal-Mart’s business records regarding payroll, hours worked and breaks taken and a Wal-Mart conducted study called the Shipley Audit. The Shipley Audit, which commenced in 2000, was a national examination of time clock records. This study revealed that in one week, across 127 Wal-Mart stores, including five in Pennsylvania, more than 60,000 rest break violations occurred. Employees also presented evidence of Wal-Mart company policies, in which store managers earned significant year-end bonuses for maximizing profits, the key to which was keeping payroll costs down by intentionally understaffing stores and forcing employees to work off the clock. A store manager could earn a $1300 annual bonus by shaving one minute per week, per employee from a store’s payroll obligation. This evidence was presented to the jury by statisticians, Dr. Bagget and Dr. Shapiro. These statisticians had analyzed payroll records for over 139 Wal-Mart stores in Pennsylvania, for a period from 1998-2006. From this data they extrapolated the damages and back pay owed to each employee in the class.

Wal-Mart argued that the employees did not present sufficient class wide common evidence. Specifically that the employees relied on sham statistics, and that employees evidence of time clock and cash register records improperly extrapolated evidence and failed to show that class members on a class wide basis missed breaks, took shortened breaks or worked off the clock. Wal-Mart contended that the analysis, presented by the employees, failed to account for voluntary missed breaks, and the fact that it was not uncommon for cashiers to log into and operate cash registers under another employee’s name.

In Fair Labor Standards Act litigation, the burden of proving damages by producing specific evidence, is on the employees. Employees must be able to demonstrate, precisely how many hours they worked, and exactly what damages they are owed. However, if the employer has kept incomplete or unreliable records, the employee’s burden is relaxed and they may prove damages through statistical extrapolation.[3] Wal-Mart, by arguing that the register log in data did not necessarily reflect breaks, impliedly acknowledged that its record keeping was inaccurate. Due to the poorly kept records, the Court permitted the Plaintiffs to prove damages by extrapolating statistics. The Court held both sides presented clear and convincing evidence that Wal-Mart failed to compensate employees pursuant to their written policies, on a class wide basis.

Furthermore, the Court noted that a rule preventing employees from recovering for uncompensated work merely because they are unable to determine precisely the amount due, would result in rewarding employers for violating federal and state law. [4] The employees here offered data analysis from Wal-Mart’s own business records to support their claim. There was a single common issue of liability: whether Wal-Mart failed to compensate its employees in accordance with its own policies. Damages were assessed based on a computation of the average rate of an employees multiplied by the number of hours which pay should have been received. The Court held this was reasonable, NOT a case of trial by formula and upheld the $151 million award to Wal-Mart employees.

Walmart stated it was considering an appeal to the U.S. Supreme Court. [5] In addition to the monetary loss of the award money and legal fees, Wal-Mart is projected to take a 4% loss to its profit forecasts this quarter (approximately 6 cent loss per company share). [6] This is dismal news for a one of the nation’s largest private retailers, especially considering Wal-Mart has paid over $356 million in settling similar suits across the United States.[7] However unfortunate and expensive this case may be, it serves as a reminder to all employers that failure to implement sound personnel policies and maintain accurate and meticulous payroll records and may cost a company millions of dollars. This case illustrates how legal planning and detailed record keeping can save an employer potentially millions of dollars.

[1] Von Bergen, James. “Pa. Supreme Court Affirms $151M Ruling against Wal-Mart.”Philly.com. Philadelphia Inquirer. Web. 17 Dec. 2014. <http://www.philly.com/philly/business/20141216_Pa__Supreme_Court_affirms__151M_wages_ruling_against_Wal-Mart.html>.

[2] Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013); Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011)

[3] Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 686 (1946)

[4] Reich v. Southern New England Telecomms. Corp., 121 F.3d, 58,69( 2d Cir. 1997)

[5] Von Bergen, James. “Pa. Supreme Court Affirms $151M Ruling against Wal-Mart.”Philly.com. Philadelphia Inquirer. Web. 17 Dec. 2014. <http://www.philly.com/philly/business/20141216_Pa__Supreme_Court_affirms__151M_wages_ruling_against_Wal-Mart.html>.

[6] Layne, Nathan. “Wal-Mart Must Pay $188 Million in Workers’ Class Action.” Reuters. Thomson Reuters, 16 Dec. 2014. Web. 17 Dec. 2014. <http://www.reuters.com/article/2014/12/16/us-walmart-lawsuit-idUSKBN0JU1XJ20141216>.

[7] Dulaney, Chelsey. “Wal-Mart Weighs Appealing Wage Suit to U.S. Supreme Court.” WSJ. Web. 17 Dec. 2014. <http://www.wsj.com/articles/wal-mart-weighs-appealing-wage-suit-to-u-s-supreme-court-1418743477>.