Wal-Mart Suffers "Litigation Fatigue"

Wal-Mart is suffering from a corporate illness that even its $4 prescriptions can't cure: Litigation Fatigue.
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Wal-Mart is suffering from a corporate illness that even its $4 prescriptions can't cure: Litigation Fatigue.

In its recently-released 2007 Annual Report, Wal-Mart devotes two entire pages of 10-point type to the subject of "Litigation." The giant retailer has become a giant target of legal actions against it. "The company is a defendant in numerous cases containing class action allegations," the company admits, "in which the plaintiffs are current and former hourly associates who allege that the company forced them to work 'off the clock' or failed to provide work breaks, or otherwise that they were not paid for worked performed."

In most of these cases, class action status is still under consideration by the courts. Wal-Mart says that in 14 cases, class action certification has been denied, but in 8 cases it has been approved in full or in part. In all, there are roughly 30 such lawsuits currently pending. These cases are like a financial sword hanging over shareholders. "The Company cannot reasonably estimate the possible loss or range of loss which may arise from these lawsuits," Wal-Mart warns. Just before Christmas of 2005, Wal-Mart was fined $172 million in one of these cases in California, and the retailer has now appealed that verdict. In October of 2006, Wal-Mart lost a similar case in Pennsylvania, setting the company back by $78 million.

The largest class action lawsuit now pending, Dukes v. Wal-Mart, began six years ago, is a gender discrimination suit that covers 1.6 million women workers. Wal-Mart appealed the class certification in the Dukes case, lost, and at the end of February, 2007, filed a motion to reconsider. In a classic understatement, Wal-Mart warns its shareholders that if it loses or settles in the Dukes case, "the resulting liability could be material to the company."

Yesterday, the New Jersey Supreme Court ruled that another off-the-clock lawsuit could proceed as a class action on behalf of roughly 80,000 current and former Wal-Mart employees. The attorney for the plaintiffs, Judith L. Spanier, said the New Jersey case was similar to the Pennsylvania case noted above. The New Jersey Supreme Court ruled 5-1 against Wal-Mart, which means that this case can proceed as one action, rather than thousands of separate lawsuits. "By allowing this manageable litigation to proceed, we permit a class of hourly, retail employees to unite and -- on an equal footing with their adversary -- to seek relief for their 'small claims,' " the court ruled. As a class action case, Wal-Mart financial risk is much greater, as opposed to facing individual cases, many of which would never come to trial. The New Jersey case covers all hourly employees who worked for Wal-Mart stores in New Jersey since May 30, 1996. According to the decision written by Chief Justice James R. Zazzali, "The core of the present dispute is whether Wal-Mart engaged in a systematic and widespread practice of disregarding its contractual, statutory and regulatory obligations to hourly employees in this state by refusing to provide earned rest and meal breaks and by encouraging off-the-clock work."

Wal-Mart issued its standard reply in such cases: "We've always maintained that it is our policy to pay every associate for every hour they have worked." But the plaintiffs charge that, in fact, Wal-Mart forced its workers to work hours without pay, and to skip required rest breaks. The court noted that many of the low-wage workers might remain silent because of "legitimate fears concerning employer retaliation, lack of resources, or a sense of powerlessness when confronting their would-be corporate adversary...We cannot ignore the reality that if the proposed class is not certified, thousands of aggrieved employees will not seek redress for defendant's alleged wrongdoing."

In addition to litigation fatigue, Wal-Mart's comorbidity is "headline shock." This New Jersey decision, coming one day before Wal-Mart Annual Shareholder's Love-In in Fayetteville, Arkansas, couldn't have happened at a worse time for the retailer. Suffering from continual pounding in the media, Wal-Mart's shares have fallen nearly 16% in the past three years. Same stores sales increased by only 2% this year. Net income in 2006 increased 9% over the previous year, but in 2007, net income increased by less than one half of 1%--the worst growth in the company's 45 year history. The company continues to over-build stores, cannibalizing its own sales per square foot. For the coming year, Wal-Mart will add only 5 to 10 new discount stores (it has closed over 900 since 1995) plus 270 supercenters. However, more than half of these new supercenters (145) will be relocations, conversions, or expansions. Last year, Sprawl-Busters recorded 46 defeats of Wal-Mart projects at the local level.

Al Norman is the founder of Sprawl-Busters.com. His blog can be found at walmartwatch.com/battlemart.

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