Wal-Mart's in Trouble With the Feds

Doug McMillon, the new president and CEO of Wal-Mart Stores (NYSE: WMT  ) , is originally from Jonesboro, Arkansas, which is just four hours and 49 minutes outside of Bentonville, the company's global headquarters. McMillon makes it more difficult for labor unions to come after Wal-Mart, as after all McMillon started off as an hourly summer associate in a Wal-Mart distribution center. Even still, Wal-Mart is under increased scrutiny for unlawful labor practices. Organizations like the National Labor Relations Board, or the NLRB, are using the nation's largest discount retailer to make a point.

The NLRB
The NLRB is an independent federal agency with a mandate to protect private sector employees and "improve their wages and working conditions." In November, the NLRB's general counsel issued a press release threatening to file complaints against Wal-Mart unless it settled certain charges filed against the company by employees. Ultimately, the NLRB accused Wal-Mart of unlawful retaliation for firing employees during a protest.

Over the last two years Wal-Mart workers have started walking off their jobs at the busiest times of the year, such as Thanksgiving weekend. Walking off the job isn't new, but now employees return back to their jobs after the protests are over. These short strikes are organized by several advocacy and union groups via social media forums.

I feel the need to play devil's advocate. Government prosecutors are supposed to help the settlement process along. Making a public statement in the middle of negotiations virtually guarantees a stall in the settlement process as employees use that backing to call bluffs that may or may not have merit. If Wal-Mart loses this case the implications for company earnings could be devastating, as a new era of non-union protesters use shorter strikes to exact numerous demands, from longer rest periods to increased pay.

A challenging retail environment
The retail industry is under a great deal of competition from online and specialty competitors. Comp-store sales are on the decline for many retail outlets and cuts in government spending are creating yet another challenge, especially for discount retailers that accept food stamps. These companies are looking for ways to cut expenses and labor tends to be the easiest way out.

Family Dollar Stores' (NYSE: FDO  ) same-store sales dropped 3% in the first quarter. The company also posted an $11.5 million litigation charge as part of a settlement to store managers regarding overtime pay. This is a common theme at dollar store chains that assign the designation of "manager" to certain employees, excluding them from basic protections in federal labor law. These "managers" work for the same amounts of time as other workers, but they don't get paid much more than the workers they manage.

Dollar Tree Stores (NASDAQ: DLTR  ) has numerous complaints against it -- some are single-party suits, some are class action suits. Several allege that store managers were "misclassified by the Company as exempt employees." Other suits commonly allege that Dollar Tree "failed to maintain accurate time records and wage statements; and failed to pay wages due upon termination of employment." Many of these cases, including a class action suit that included over 2000 store managers, were settled for "immaterial amounts."

The most recent earnings report from Dollar General (NYSE: DG  ) lists many of the same basic types of lawsuits. Several store managers have alleged that they were "improperly classified as exempt executive employees under the Fair Labor Standards Act." Last August a preliminary settlement was reached for $8.5 million -- hardly an immaterial sum. Another lawsuit was filed in May that alleges that, ""key carriers" were not provided with meal and rest periods in violation of California law".

Clearly, labor is an issue for discount retailers, which is why this case is precedent-setting.

Wal-Mart takes on the NLRB
Not surprisingly, Wal-Mart refused to settle with the NLRB. The NLRB followed suit by filing a complaint against the company on Jan. 15, alleging that Wal-Mart threatened employees engaging in a "legally protected strike." However, as a recent Forbes article points out, Wal-Mart walk-outs are not exactly legally protected.

Evidently, short and repeated work-related strikes are not covered under the National Labor Relations Act. A traditional strike usually takes place over an extended period of time; the strike has a specific objective or demand, like higher wages. As a result, employers are better able to manage through traditional strikes.

Clearly, Wal-Mart employees have stumbled upon an effective loophole, but should that loophole be honored by the law or treated as absenteeism by the employer? The NLRB believes the law should be honored and updated to include "intermittent" work stoppages. According to Forbes, Wal-Mart, leaving little room for interpretation, told its employees the following:

Should you participate in further union-orchestrated intermittent work stoppages that are part of a common plan or design to disrupt and confuse the Company's business operations, you should expect that the Company will treat any such absence as it would any other unexcused absence.

Foolish bottom line: it doesn't look good for Wal-Mart
According to Peter Schaumber, former chairman of the National Labor Relations Board under George W. Bush, the NLRB is controlled by three former union labor lawyers. If that's true, I'll be shocked if the strikes aren't approved. No doubt, this decision will have a lasting affect on both labor relations and the retail bottom line.

Whether or not the NLRB uses Wal-Mart as an example, things are looking pretty bad for the retail behemoth. If you're looking for stock ideas to put your upcoming tax refunds to work, you may want to hold off on Wal-Mart for now. Instead, the Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


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Comments from our Foolish Readers

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  • Report this Comment On February 10, 2014, at 8:29 PM, Katsdad wrote:

    Anyone that thinks the NLRB is "independent" after Obama ILLEGALLY packed the board with his Union cronies is seriously deranged. This administration would like nothing better than to ruin Walmart as a business, even though it's the largest employer ( other than Government ( also Unionized ) in the country. Those that think unionizing Walmart will somehow BENEFIT anyone besides the unions is even MORE deranged, or flat out Communist supporter.

  • Report this Comment On February 10, 2014, at 8:48 PM, JePonce wrote:

    No surprise!

    The Leftist's in their ongoing effort to destroy capitalist companies the refuse to form corrupt unions is on the attack.

    Nothing like corrupt Leftist public attorneys and judges, and privates sector greedy lawyers, criminals and bandits all, and their attack on our way of life.

    The Left likes to push the wonders of Costco because they pay better, but they do, not as a moral imperative, but for survival. Costco is unionized by the teamsters in California, and the states of the North East.

    Pay up or close down.

    Obama and the Left also show their support for unions by not prosecuting union crime. Bush indicted 689 in 2008, and Obama 111 in 2013.

    When you have formed a symbiotic relationship with the criminal element to contribute to each others power and wealth, you have a moral duty to overlook their crimes.

  • Report this Comment On February 10, 2014, at 9:27 PM, Dontredonme wrote:

    Keep buying the kool aid. Fair wage for fair work. I don't see the Waltons suffering.

  • Report this Comment On February 10, 2014, at 9:31 PM, comosichiam wrote:

    If I were the head of Wal- mart I would tell the feds to get screwed and get off our backs or we shut the whole frikkin thing down. See if the commies like that one.

  • Report this Comment On February 10, 2014, at 9:47 PM, William301 wrote:

    I have worked for Walmart in both stocking and TLE, neither time was the pay something to complain about. If you are a cashier then perhaps, and it is not even a matter of low pay per hour but low hours.

    As for Dontredonme's comment, who do you suppose will come up with this "fair wage for fair work"? Not every employee puts in the same amount of effort, nor does every employee do the same job. If you want to instate a "fair wage for fair work" then it should also be allowable to fire an employee if their performance falls below the "fair" mark. If a cashiers at Walmart are to be given this "fair wages for fair work" then require that they be able to ring up a minimum of 600 items per hour(10 items per minute) if they can not then they should be fired on the spot because they can not provide "fair work".

  • Report this Comment On February 10, 2014, at 9:58 PM, Dontredonme wrote:

    You crush the middle class and create the third world. The crime is that the masses have not stood up to the overlords and crushed them. Ford knew that the people making his cars had to be able to afford to buy them. The factories ARE closed down.

  • Report this Comment On February 10, 2014, at 10:04 PM, Clownzilla wrote:

    @William301

    Lol, isn't that the truth! I see Walmart employees working WAY below minimum wage efficiency all the time. Just last week I waited at the empty service desk for over 30 minutes to pick up a coffee maker I ordered. I kept pushing the "call" button on the checkout pad and literally 30 minutes later (I was off work that day and really had nowhere else to go) some fat lady walks out and doesn't apologize for my wait or anything.

  • Report this Comment On February 10, 2014, at 11:55 PM, traveller94 wrote:

    Let's face it, the "Left," including the Liberal Media, hate Walmart, and would like nothing more than for the company become an arm of the Government, with the Feds dictating pay, hours and benefits.Since Walmart competes on price, margins are going to shrink and the shareholders are going to suffer.

    Walmart won't go under. It is too big for that. But profits are going to be squeezed. The writing is on the wall (no pun intended).

  • Report this Comment On February 11, 2014, at 1:58 AM, ninjakimmie wrote:

    This Celan Bryant has amazing resentment, maliciousness and animosity against Walmart. She has written article after article about the "impending" doom of this giant retailer as if she is WISHING it will fail, with no evidence or actual proof that it will be failing. Anyone with an actual brain that can put together a thought and can google how big this company is will realize that Walmart is the 27th largest economy in the world. Little things like judicial problems over a few dozen worker walk-outs will not be able to impact them one....little....bit. Bryant wants to influence readers all in an effort to persuade people into not investing in their stock. I see through you Celan. Nice try, but I will be purchasing their stock and getting in on the action.

  • Report this Comment On February 11, 2014, at 3:14 AM, MotleyFoolStinks wrote:

    motley fool is pure liberal trash now

  • Report this Comment On February 11, 2014, at 3:28 AM, rickshelton53 wrote:

    I walked out of walmart with a bag of dog food and didn't get caught ....

  • Report this Comment On February 11, 2014, at 5:49 AM, Mack2108 wrote:

    If someone working for me walked off the job I would see it as an implied "I Quit" therefore I would replace that individual with someone who wanted to work. The government needs to keep there nose out of businesses in this country and this political bias toward unions needs to stop. WalMart may need to do the same thing they did in Canada where the unions demanded WalMart to go unions and WalMart shut down the stores and walked away. Doesn't sound like good business but it stopped the non-sense of the unions.

  • Report this Comment On February 11, 2014, at 5:54 AM, Rob61a wrote:

    This is what I think WalMart should do and keep in mind I live in a rural area and WalMart is the store we have. They should fold up fire every last employee and fold up then lets see what ovomit does with his illegally seated nlrb.

  • Report this Comment On February 11, 2014, at 7:44 AM, bigalnc wrote:

    I'm a conservative, life long GOP voter. Conservatives seek natural balance; rather than government regulation. Today, corporate power is hardly opposed. Thus, I do NOT ally myself with the "corporatist" wing of the GOP.

    Personally, I'd far rather endorse Walmart (and the retail/service industry) unionization, as opposed to government regulation of corporate decisions, i.e. minimum wage, living wage, etc.

    Increased unionization would partially solve the awful, contemporary imbalance between unbridled management power, and comparatively, far weaker workers.

  • Report this Comment On February 11, 2014, at 7:46 AM, Rantingmonkey wrote:

    Walmart is in more trouble than it thinks but less trouble than Ms. Bryant would have you believe.

    The trouble doesn't stem from anything the government is doing. Rather, Walmart's issues come from the company being run by people trying to please Wall Street rather than Main Street.

    The stores are empty because Wall Street says inventory has to be as low as possible, lines are long because Wall Street says payroll has to be as low as possible

    Sam Walton knew that the secret to success was filling the shelves and taking care of the customers. If he built this company using Wall Street standards, Walmart would be a regional company at best.

  • Report this Comment On February 11, 2014, at 9:06 AM, JuergenH wrote:

    Walmart's got issues beyond the NLRB. We've just about stopped grocery shopping at our local Walmart and have shifted to a newly opened Shop Rite instead. The deli is better, meat products and produce are better and it's cheaper.

  • Report this Comment On February 11, 2014, at 9:47 AM, fuskiegirl21 wrote:

    If my employees protested because they were unhappy working for me I would fire them all too. Why is this a shocker? No one holds a gun to anyone's head and makes them work at Wal-Mart. Screw the unions (they kill companies) and screw the government.

  • Report this Comment On February 11, 2014, at 9:58 AM, sabebrush6 wrote:

    Have to agree with Katsdad on this one. Unions and higher wages at Wall-Mart will only drive up those good prices that we all go there for. So, if you want to pay Safeway or QFC prices, just keep screwing up Wall-Marts business and you'll get just that.

    If you work at a low paying job and they don't want to give you a raise, you are always free to go elsewhere. You may be a reason they won't give you a raise. Think about that. Just because you want a raise does not mean you earned one.

  • Report this Comment On February 11, 2014, at 10:05 AM, Bradknowsall wrote:

    There's fault on both sides here. Yes Wal-Mart is cheat, their business model for low labor costs utilizes mostly part time employees. Nothing against the law there. But if the NLRB is threatening to file complaints, there's something Wal-Mart is doing that isn't right. On the other side, there are questions that need to be answered. Did you know what the pay was going to be? Did you know what the hours were going to be? If the answer to both is yes, then you don't have a reason to complain.

  • Report this Comment On February 11, 2014, at 10:06 AM, Bradknowsall wrote:

    Cheap, not cheat, sorry

  • Report this Comment On February 11, 2014, at 11:26 AM, TrojanAl wrote:

    It's too bad that the Federal Government can not run as efficient as Wal Mart. The Labor Relations Board is little more than an apparatus of Obama that he can use as a club.

  • Report this Comment On February 11, 2014, at 11:35 AM, Kngrthr wrote:

    So who isn't in hot water with the Feds? They control everything from before birth to after death.

  • Report this Comment On February 11, 2014, at 12:40 PM, kennyhobo wrote:

    Obama might shutdown Wal-mart? It has too many employees and sells products at prices the poor and the middle class can afford. That is bad for Obama behavior. He needs the people to be poorer! more destitute! and without jobs! Because the mainstream corrupt news media likes the mess Obama creates.

  • Report this Comment On February 11, 2014, at 7:44 PM, rcshovelhead wrote:

    that's it lets get rid of walmart. then k mart then target then khols then ross,s then the next guy and the next guy and the next guy......

  • Report this Comment On February 11, 2014, at 8:27 PM, dannystrong wrote:

    What big labor cannot control they must destroy. Having missed the chance to become part of the process of work -- being too busy getting labor studies degrees and singing Pete Seeger songs -- the unions cannot comprehend their proper role in the workplace.

    Unions and Management should be working together to get the job done. Instead, both sides have used the workers as pawns in an endless game of one-upmanship. They should both grow the heck up.

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