RALPHS COULD FACE FINANCIAL PENALTIES 2004-10-04 (1)

ELLIOT ZWIEBACH

COMPTON, Calif. -- Ralphs Grocery Co. here could face stiff financial penalties if it is found guilty of violating federal labor, tax or Social Security laws during the strike-lockout earlier this year.

The potential violations stem from allegations the chain hired locked-out employees under false names or Social Security numbers during the 141-day labor dispute here that lasted from mid-October through early March. SN reported last week that the U.S. Attorney's Office for the Central District of California is investigating the matter and soliciting information from Ralphs employees.

According to an attorney contacted by SN, if Ralphs is found liable, it could be responsible for paying unemployment compensation to most of its 20,000 employees in an amount that could total $75 million, or for paying back wages to locked-out employees that could total $150 million. In addition, Ralphs district managers or higher-up executives could face fines or prison sentences, he added.

It's also possible Ralphs could reach an out-of-court settlement with the government, he pointed out.

The most likely scenario could involve unemployment benefits, the attorney said. Under California law, employees who go on strike, or those locked out in support of strikers, are not entitled to unemployment compensation. However, if the situation was considered a selective lockout because some employees were rehired, then it would be considered a layoff, and those employees would be eligible for benefits, which would have to be paid by Ralphs or repaid by Ralphs to the state, the attorney told SN.

Another possibility is for Ralphs to be required to make restitution to employees who suffered harm by being locked out while others were rehired illegally, since they would be considered victims of an unlawful lockout and therefore eligible for back pay, the attorney explained.

On an individual level, those working as district managers could also be found liable, the attorney said. At this point, it remains unclear whether anyone above the district manager level was involved, but any individuals found guilty of violating federal laws could be fined or sent to prison, he pointed out.

Ralphs, which is a division of Kroger, Cincinnati, has not acknowledged publicly whether any store managers hired locked-out clerks under false identities. However, the company did acknowledge, in a letter obtained by SN in late July from chain management to employees, that some store managers had encouraged or permitted locked-out employees to work under false identities; the letter threatened to suspend or terminate anyone found guilty of such behavior.

Ralphs officials declined comment last week to whether any disciplinary actions have been taken.

The U.S. Attorney's Office is offering immunity from criminal prosecution to Ralphs employees who worked under false identities and who come forward and cooperate in the federal investigation. That offer of immunity was contained in an advisement from the U.S. Attorney's Office to all Ralphs' hourly employees, which was accompanied by a letter from Mary M. Kasper, the chain's vice president, legal services, that asked employees to cooperate with the investigation.

SN obtained copies of the U.S. Attorney's advisement and the Ralphs letter from sources other than the principals involved.

In a prepared statement, Ralphs said the letter from its legal counsel was designed to enable the company to gather information "to ensure that it has complete and accurate payroll information, including Social Security, tax withholding and related data ... so that federal, state and local agency records can be corrected, if necessary."

The company said the letter also provided assurances that Ralphs will not discipline hourly employees who worked during the lockout.

Ralphs said the letter was sent to all employees, though it asked only those who had worked under a false name or Social Security number to fill out an attached questionnaire and return it to the chain's legal department. The questionnaire asked for the employee's actual name and Social Security number and the name and Social Security number they may have used to work at Ralphs during the lockout, with the approximate dates worked.

According to the text of the letter obtained by SN, "We encourage your assistance in responding to the questionnaire ... and returning it to Ralphs' legal counsel so we may advise the company with regard to the government's investigation and so Ralphs may correct its payroll information and any erroneous reports issued to government agencies or any other entity.

"Although the company intends to treat your response confidentially, you should understand that we will be notifying responsible government agencies and others about payroll and Social Security reporting errors that we determine exist, based in part on your candid responses to this questionnaire.

"You may be contacted by federal investigators following up with regard to the information you furnish."

In its advisement, the U.S. Attorney explained that the "full cooperation" it is seeking from Ralphs' employees means, "When interviewed by the U.S. Attorney's Office or law enforcement agents, or called to testify before the grand jury or at a trial, the grocery clerk is completely forthright, candid and truthful in responding to any and all questions that may be put to him or her.

"If the U.S. Attorney's Office determines that a grocery clerk has not been fully cooperative with the criminal investigation or has provided false, misleading or materially incomplete information to the [U.S. Attorney], law enforcement, the grand jury or the jury or court at a trial, the grocery clerk will be subject to criminal prosecution, including, but not necessarily limited to, criminal prosecution for making a false statement to a federal agency or obstruction of justice."