Wal-Mart Shareholders Benefit From Nevada Judge on Worker Pay

By Margaret Cronin Fisk

Sept. 2 (Bloomberg) -- Wal-Mart Stores Inc., facing as much as $2 billion in damages in a Minnesota employee-pay trial, may be shielded from similar cases in the future thanks to a 2005 federal law.

The statute requires federal courts to handle class-action lawsuits of $5 million or more when plaintiffs and defendants are from different states. Because judges have been less willing to certify these cases as class actions, the law may save Wal-Mart as much as $5 billion, said Robert Bonsignore, lead workers' attorney in Nevada suits against the world's largest retailer. That's equivalent to 77 percent of Wal-Mart's $6.5 billion first- half profit.

Hourly employees in more than 30 states have sued since the law's passage, claiming Wal-Mart manipulated time cards to reduce pay. The cases were combined in federal court in Las Vegas, where a judge in a test ruling refused to allow class-action suits in four of the states.

``It put a decision on state laws before a judge in a distant federal court,'' Bonsignore said of the Class Action Fairness Law. ``It unleveled the playing field.''

Judge Philip Pro may apply the same reasoning in 31 other cases, effectively killing them and chilling future claims, Bonsignore said.

State and federal courts have ruled on 36 wage-and-hour class actions against Wal-Mart, according to company spokeswoman Daphne Moore. Judges denied class-action status in 24.

The Bentonville, Arkansas-based retailer faces more than 70 such suits in the U.S., including cases older than the 2005 law and not governed by it.

`Pay Every Associate'

Company policy is ``to pay every associate for every hour worked,'' Moore said. Managers who break that rule are ``subject to discipline, up to and including termination,'' she said.

Avoiding multiple wage-and-hour trials will bolster the shares, said Patricia Edwards, a portfolio manager at Wentworth, Hauser & Violich Inc. in Seattle. The firm oversees $14.8 billion, including Wal-Mart stock.

``Any time you don't have to spend your time and effort fighting in the press and in the courts for your reputation, it's certainly better,'' she said in an interview.

Wal-Mart, whose shares have gained 24 percent this year, fell 1.4 percent to $59.07 on Aug. 29 in New York Stock Exchange composite trading.

The company lost a $78 million Pennsylvania verdict in 2006 over unpaid work and inadequate rest breaks and a $172 million California verdict in 2005 over meal breaks. It has appealed both.

Minnesota Case

In what may become the biggest case, a Minnesota state judge in July found Wal-Mart broke labor laws more than 2 million times. State law sets possible damages at $1,000 per occurrence, meaning jurors at a trial to start Oct. 20 might bring in a $2 billion award.

The company's future risk from wage-and-hour claims is limited, said Arthur Bryant, executive director of the Public Justice Foundation, a trial lawyers' group in Washington. The Nevada judge ``granted a huge cap on Wal-Mart's potential liability,'' Bryant said.

``The primary goal of the legislation was to get class actions out of state courts and into federal court,'' where judges ``are much more friendly to business and much more antagonistic to class actions,'' he said.

Backers of the law sought to make such litigation fair for defendants, not to deny workers' rights, said Darren McKinney of the American Tort Reform Association. The Washington-based group seeks to limit lawsuits.

Nevada Ruling

Pro ruled June 20 that workers in Delaware, South Dakota, Nevada and Alaska didn't prove common issues predominated in their cases.

Wal-Mart argued workers sometimes took breaks without clocking out. The company has taken action to ensure its workers are paid for all hours worked, Pro wrote, including locking registers of cashiers who aren't clocked in.

Denying class-action status means employees seeking relief in court would have to sue singly. Wage-and-hour claims are rarely pursued individually because the money at stake doesn't make the litigation worthwhile, law professor Carl Tobias of the University of Richmond in Virginia said.

``The whole point of the class-action device is to make it feasible for people whose claims are too small to band together,'' Tobias said.

Business groups including the U.S. Chamber of Commerce pushed for the 2005 law, saying plaintiffs' lawyers got large fees while clients saw negligible recoveries.

Backed by Bush

President George W. Bush backed the bill, calling it ``an important step forward in our efforts to reform the litigation system'' by curbing frivolous suits.

Senator Edward M. Kennedy of Massachusetts called the measure an example of the administration's ``putting the interests of big companies ahead of America's working families.''

The bill passed 279 to 149 in the House and 72 to 26 in the Senate, with Barack Obama and 17 other Democratic senators voting for it. John McCain was among Republicans voting for it.

The bipartisan support means the law is unlikely to be repealed, said McKinney, of the tort-reform group.

The wage-shaving lawsuits are consolidated as In re: Wal- Mart Wage and Hour Employment Practices Litigation, MDL 1735, U.S. District Court, District of Nevada (Las Vegas).

To contact the reporter on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.

Last Updated: September 2, 2008 00:00 EDT