Monday, January 18, 2010

Costco’s Shocking Legal History

Your author has been a corporate researcher in the labor movement for over fifteen years and has encountered some of the most troubled companies in North America. But few of them compare to Costco, a company with epic legal problems that are so voluminous that they require hours of research to even begin to document. This is the company that will benefit from a $4 million subsidy proposed by the Montgomery County government to lure it to Westfield Wheaton.

Costco has been plagued with numerous class action lawsuits over the years. The company is currently a target of a $50 million class action suit filed in California for failure to pay overtime. The specific allegations involve the locking of employees inside stores after closing:

Mary Pytelewski, the person who filed the lawsuit, claims that Costco has required its employees to stay for 15 minutes inside the store even if they have already clocked out for the day. The employees were not allowed to go outside the locked store while the supervisors finish closing the store.

“Costco makes the false claim that locking these employees inside its warehouses until store managers and supervisors complete their closing routines is necessary for store security,” Pytelewski’s attorney said.

The lawsuit seeks financial compensation from Costco and to stop the policy of forcing employees to stay after clocking out.
This suit follows another class action by Costco managers alleging that the company “intentionally and improperly designated department managers as ‘exempt’ managers for its warehouses in order to avoid payment of overtime wages and other benefits.”

Costco is the target of yet another class action alleging gender discrimination in promotion. According to the plaintiffs’ lawyers:

The suit claims that senior management of Costco is virtually all male. Nationwide, less than 16 percent of General Managers are female. Promotions into Assistant Manager and General Manager positions are not based on any stated qualifications or criteria; openings for those positions are not even posted. Nor is there any application procedure for such positions. Instead, such promotions are based on a “tap on the shoulder,” a tap almost always made by a man.
Only two of Costco’s fourteen Directors are women and neither are members of its management team.

In 2003, Costco had to pay a $507,901 judgment to a Seattle-area female employee who alleged that a male co-worker “had a long history of making disgusting comments and gestures to his female colleagues, and on one occasion exposed himself to [her].” Costco did nothing to stop the behavior. The judge found that the male worker “frequently boasted of his sexual prowess, leered and made suggestive noises and gestures with his tongue, among other offensive behaviors” and exposed himself from the waist down to the female employee at 4 AM.

Just last year, Costco had to pay a $420,000 judgment to a former employee in Los Angeles “who was retaliated against for complaining of mistreatment because he is gay and HIV-positive.” When the employee complained about the General Manager’s use of the term “queers,” “his work load was doubled and his pay was cut.” The plaintiff was later stripped of benefits and demoted to cashier, after which he left the company. The plaintiff’s lawyer said, “He’s unemployed and has no health insurance, and that’s a death sentence for someone who has HIV.”

In its 2009 annual report, Costco’s disclosure of pending legal liabilities goes on for six pages. Costco has been sued over a sweeping variety of issues, including sales of gasoline, organic milk, farm-raised salmon, shrimp and even waffles. Additionally, the company admits that it is the target of many active government investigations, including:

On October 4, 2006, the Company received a grand jury subpoena from the United States Attorney’s Office for the Central District of California, seeking records relating to the Company’s receipt and handling of hazardous merchandise returned by Costco members and other records. The Company is cooperating with the inquiry and at this time cannot reasonably estimate any loss that may arise from this matter.

The Environmental Protection Agency (EPA) issued an Information Request to the Company, dated November 1, 2007, under the Clean Air Act. The EPA is seeking records regarding warehouses in the states of Arizona, California, Hawaii, and Nevada relating to compliance with regulations concerning air-conditioning and refrigeration equipment. On March 4, 2009, the Company was advised by the Department of Justice that the Department was prepared to allege that the Company has committed at least nineteen violations of the leak-repair requirements of 40 C.F.R. § 82.156(i) and at least seventy-four violations of the recordkeeping requirements of 40 C.F.R. § 82.166(k), (m) at warehouses in these four states. The Company has responded to these allegations, is engaged in communications with the Department about these and additional allegations made by letter dated September 10, 2009, and has entered into a tolling agreement.

An Information Request, dated January 14, 2008, has also been received concerning a warehouse in New Hampshire. Substantial penalties may be levied for violations of the Clean Air Act. In April 2008 the Company received an information request from the South Coast Air Quality Management District concerning certain locations in Southern California. The Company has responded to that request. The Company is cooperating with these inquiries and at this time cannot reasonably estimate any loss that might arise from these matters.

The Company has received notices from most states stating that they have appointed an agent to conduct an examination of the books and records of the Company to determine whether it has complied with state unclaimed property laws. In addition to seeking the turnover of unclaimed property subject to escheat laws, the states may seek interest, penalties, costs of examinations, and other relief.
So here’s a question for the county. Of its $4 million subsidy, how much will go towards legal defense of the newest lawsuits against Costco? And what happens if one of them is filed by employees or consumers who are Montgomery County residents paying for the company’s special deal?