LOS ANGELES - Kroger Co. said Ralphs Grocery Co. intends to plead not guilty later this month to charges it knowingly hired locked-out workers under false names and Social Security numbers during the Southern California strike-lockout in late 2003 and early 2004.
Attorneys for Ralphs are scheduled to appear at an arraignment hearing later this month, on a date not yet set, during which a magistrate judge will assign the case to a federal judge, who will subsequently schedule a trial date.
Although a trial is usually set to commence within two months of an indictment, Thom Mrozek, a spokesman for the U.S. Department of Justice here, told SN it's rare for trials to start that quickly because of the time needed for discovery. He said Ralphs will be entitled to a jury trial if it requests one, "but if a defendant wants to waive a jury trial and have a bench trial [where the judge decides the case], then we generally go along with that request," he said.
The charges against Ralphs, the Compton, Calif.-based wholly-owned subsidiary of Cincinnati-based Kroger, are contained in a 53-count indictment handed down in mid-December by a federal grand jury after more than a year of deliberation. The indictment alleges Ralphs engaged in a deliberate effort to secretly hire hundreds of the chain's 19,000 locked-out employees under false identities during the 141-day strike-lockout, in the course of which it falsified thousands of employment records and reports submitted to union trust funds.
The indictment also accuses Ralphs of money laundering because it issued thousands of weekly payroll checks under the false identities and allowed workers to cash them at its stores to conceal the ongoing deception.
Analysts contacted by SN said they do not believe Kroger will suffer any significant financial damage from the case, regardless of its outcome, nor do they anticipate any negative impact on store operations from public opinion. "In fact, Ralphs' alleged actions may look positive to some consumers who believe Ralphs was trying to help locked-out workers by giving them a place to work," said Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va.
In a statement following the indictment, Kroger said it cooperated with the U.S. Attorney's office in the ongoing investigation of the allegations. It also said it has taken disciplinary actions against store managers who violated explicit company policy by re-hiring strike workers, made voluntary contributions to employee benefit plans and corrected records with the Social Security Administration and other government agencies.
"Although we believe many of these managers acted for humanitarian or personal reasons, their actions nonetheless were wrong and contrary to explicit company policy," said Paul Heldman, Kroger senior vice president.
"[However], we strongly dispute the claim that the behavior of some store managers reflected a corporate plan ... The federal prosecutors simply have this wrong," he said. "Ralphs hired more than 50,000 temporary workers during the strike, and we believe less than 1%, or about 200, of them were locked-out employees who were re-hired unlawfully."
The federal indictment cites 83 "overt acts" of illegal hiring practices, 14 specific instances of employees who faked their identities, 10 instances of money laundering and 15 instances in which false filings were submitted to the unions' health and pension funds.
According to the U.S. Attorney, if Ralphs is convicted on all 53 counts, it would face potential penalties that include five years of corporate probation, fines of up to twice the amount it gained as a result of its alleged criminal conduct - which could be more than $100 million - and payment of restitution to the victims of its alleged crime.
In a joint statement, five of the seven Southern California locals in the United Food and Commercial Workers Union that waged the strike said they were "pleased" with the indictment against Ralphs but were disappointed the National Labor Relations Board "has chosen, thus far, not to issue a complaint against Ralphs for its misconduct."
The unions filed a grievance with the NLRB during the labor dispute, but no action was taken. According to the union statement, "This is probably the biggest case in NLRB history, and yet the NLRB has performed only a cursory investigation into the facts. In addition, two days before receiving a full report from the Department of Justice about its investigation, the NLRB dismissed most of the unions' charges against Ralphs, [even though] the NLRB knew the DOJ report was forthcoming and essentially ignored its sister agency's findings."
The UFCW said it has appealed the NLRB's decision.
Different Directives
In outlining the allegations against Ralphs, the indictment says Albertsons and Safeway-owned Vons issued directives to management employees before the labor action stating that hiring locked-out workers was forbidden, while Ralphs adopted a policy of "not knowingly hiring" members from the striking unions - a policy the indictment says "could be, and was, applied to allow store directors to hire locked-out and striking employees if they could plausibly deny knowing that applicants for temporary replacement positions were union members.
"In fact, zone managers and store directors came to understand the policy to be tacit approval, if not encouragement, by Ralphs' senior management to hire locked-out or striking employees. In explaining the ... policy to zone managers, Ralphs' senior management emphasized the word 'knowingly,' which resulted in zone managers emphasizing the word 'knowingly' when explaining the policy to store directors," the indictment says.
The indictment makes clear Ralphs employees acted with the knowledge of the chain's senior management. Once the union decided to remove pickets from Ralphs stores two weeks into the labor dispute, the indictment says, "Ralphs' senior management knew and understood ..., store directors could not operate their stores in the manner demanded by Ralphs' senior management without a cadre of well-trained and experienced grocery workers. As Ralphs' senior management also knew and understood, however, the only large and available pool of such workers was locked-out and striking employees."
When Ralphs set out to recruit those workers, the indictment indicates, store directors usually targeted key persons "who might want to impress Ralphs' management with their loyalty to enhance their chances of obtaining a promotion to a management position." It also says store directors persuaded some lower-level employees to return to work by suggesting they would be in a better position to obtain favorable treatment after the lockout was over.
The indictment says locked-out employees used names and Social Security number of family members, entirely fictitious names and numbers, altered versions of their names and numbers and maiden names. It notes that store directors sometimes transposed the last two digits of numbers or changed the employees' names slightly.
In the course of its actions, the indictment indicates, Ralphs issued hundreds of false W-2 forms and submitted copies to the Social Security Administration, which sent them to the Internal Revenue Service; submitted false remittance forms to the union trust funds; and falsified thousands of electronic documents it maintains to administer the funds.
Moving Workers
The indictment says Ralphs acted deliberately to conceal its hiring of locked-out employees "by ... assigning [them] to work at stores far from the stores at which they regularly worked, moving locked-out employees to new stores when they were seen working by union members and refusing and failing to give the unions requested and relevant information that would have revealed that Ralphs was selectively re-hiring locked-out employees."
It also says Ralphs assigned locked-out employees to perform tasks that kept them away from the front of the store or to work shifts when stores were closed to the public.
According to the indictment, Ralphs management dragged its feet when asked to cooperate with investigations by the NLRB and the federal grand jury and, in light of those inquiries, began seeking to shift responsibility for any alleged violations. For example, when news of Ralphs' re-hiring policies began appearing in the local press early in 2004, "members of Ralphs' senior management directed zone managers who, in turn, directed store directors to begin inconspicuously terminating any temporary replacement workers known or believed to be locked-out or striking employees," the indictment says.
The indictment also says Ralphs submitted information to the NLRB indicating employees who admitted working under false names "immediately upon discovery ... have been denied employment and returned to locked-out status" or they had been "terminated immediately."
It also says Ralphs indicated any hiring violations that occurred had been "apparently isolated and sporadic" and had resulted "not from an employer's policy but rather from the random and quixotic behavior of certain employees in violation of company policy" - representations Ralphs knew were "false and fraudulent," according to the indictment.
