Labor-Law Violations Prove Costly: AMR Research

MICHAEL GARRY

BOSTON — Failure to comply with federal, state and union labor regulations cost retailers from a cross-section of trade categories an average of $250,000 in fines over the past 12 months, according to a new study from AMR Research here.

Wal-Mart Stores has paid perhaps the costliest fines stemming from labor-related class-action lawsuits, but the issue of non-compliance to labor rules pertains to all sizes of retailers, said Janet Sherlock, research director of retail for AMR Research, last week in a webinar hosted by labor systems provider Kronos, Chelmsford, Mass. “Smaller organizations are not impervious to having fines and lawsuits,” she said. “It's not just a Wal-Mart-size problem.”

The issue also cuts across all classes of trade. One-quarter of the respondents in the AMR study were food retailers; the rest were mass merchants/department stores (26%), restaurant and hospitality outlets (24%) and fashion/soft goods retailers (25%).

Retailers are required to follow labor practices on wages, hours and overtime pay set by the Fair Labor Standards Act, as well as rules established by the Family Medical Leave Act, state laws and collective bargaining agreements. A number of class-action suits have accused retailers of “time shaving” off employee time cards and improperly classifying employees as being exempt from overtime.

Late last year, Wal-Mart agreed to settle 63 wage and hour class-action suits for between $352 million and $640 million. The suits involved allegations of non-payment for hours worked and other violations. A month earlier, Wal-Mart paid up to $54.25 million to settle a class-action labor lawsuit in Minnesota alleging that it forced employees to work through their breaks without pay.

Also, in the last two months at least eight New York City supermarkets have settled labor-law violation investigations by the New York State Department of Labor and the state Attorney General's Office, agreeing to pay fines and back wages totaling close to $1.5 million. The stores, which operated under several different banners — including Associated, Pioneer, Key Food, C-Town, Food Bazaar and Fine Town — were found to have hired baggers for no pay or for less than minimum wage and instead allowed them to collect tips from customers. In addition, at two of the stores, delivery workers were paid less than minimum wage and were not paid overtime, according to statements from the state Attorney General's Office.

In the AMR study, 20% of retailers acknowledged that they did not comply with federal labor laws, 32% did not comply with state regulations and 35% did not comply with union rules.

The AMR Research study also found that 47% of retailer respondents received complaints from employees regarding the accuracy of time-and-attendance data. Sherlock, a former chief information officer for retail companies, linked that finding to another survey result showing that 82% of retailers allow someone other than the employee — typically a store or department manager — to have final approval over time cards. “All of these retailers have policies prohibiting the falsification of this data,” she said. “But if someone other than the employee has final review of a time card, the retailer is left open to accusations of time shaving.”

Another policy weakness uncovered by the study was that 41% of retailers take longer than two days to set up a new employee with an identification number and time card. Of that 41%, 42% have a practice of allowing employees to start working before they have been set up in the payroll system. “If you have gaps like this, you are likely to have employee complaints,” said Sherlock. “And if you have complaints, you are likely to have lawsuits and fines.”

The survey indicated that time-and-attendance systems and automated labor-scheduling systems were regarded by retailers as “imperative” for staying in compliance with labor regulations. “It takes work to [manually] do a schedule and stay on top of all of the changes in federal and state regulations,” said Sherlock. “But all of the rules are covered in an optimized labor-scheduling system.”

In addition, retailers in the study said they lost on average 3.8% of sales by not optimizing their labor schedules with an automated system. They also reduced labor costs an average of 3.5% by using automated scheduling. “Ease of integration” with other software was considered the top reason by retailers in the study for selecting a particular labor-scheduling provider.