Wal-Mart began as a simple dream by its founder, Sam Walton, to provide low prices for customers every day.

That philosophy has taken Wal-Mart from one pre-Wal-Mart 5-and-10-cent store in Bentonville, Arkansas, to the first Wal-Mart, which opened in Rogers, Arkansas, in 1962, to the largest retailer in the world with an annual revenue in 2011 of almost $447 billion.1,2,3 In 2005, Wal-Mart was the largest company in any industry in the world based on revenue, but slipped to number two in 2006 and again in 2011, when Exxon/Mobil took over the number one position.4 Wal-Mart, which employs more than 2 million associates worldwide, expects fiscal year 2012 sales to be approximately $444 billion, thanks to the more than 200 million customers and members who visit, every week, Wal-Mart’s 10,300 stores under 69 banners in 27 countries and the company’s e-commerce websites in 10 countries.5 However, in 2011, Wal-Mart came in last in the American Customer Satisfaction Index (ACSI), an annual survey conducted by the researching firm ACSI, and in a 2011 Harris Poll, only 37% of Wal-Mart customers reported having a high degree of satisfaction (Extremely/Very Satisfied) with their experience.6,7 Walton’s vision and beliefs remain the cornerstone of Wal-Mart’s business philosophy. However, the Southern “good old boy” culture cultivated in rural Arkansas has created a number of 21st-century problems for the company.

Off-the-Clock Work

In 2000, Wal-Mart settled a class-action lawsuit in Colorado for $50 million when 69,000 current and former Wal-Mart employees claimed that they worked for Wal-Mart without receiving any compensation. The lawsuits continued in August 2001, when additional lawsuits were filed against Wal-Mart for refusing to pay overtime to workers and failing to compensate workers when they worked during their scheduled breaks.

Eleven states had lawsuits pending pertaining to Wal-Mart employees not being paid for their work. The lawsuits alleged that Wal-Mart forced the workers to work “off the clock” by requiring them to punch out with their time cards, yet told them they had to continue to work.8 By June 2002, the number of states that had off-the-clock lawsuits against Wal-Mart had risen to 28. One employee in Kansas City, Missouri, Verette Richardson, had clocked out and was walking to her car when her manager ordered her to go back into the store and straighten up some merchandise in the apparel department. Richardson spent the next hour, without pay, getting the inventory back in order. In other incidents, Richardson was ordered to corral the shopping carts in the parking lot after she had clocked out.

One complaint that the Wal-Mart employees had was the lock-in procedure managers would use at night. The managers would lock the doors after the store had closed and force the workers to stay in the store until all the work had been completed. The managers justified the lock-in procedure as a method used to try to reduce inventory theft but claimed that all employees were paid during the lock-in. However, many of the employees had stated that they had already clocked out when the lock-in took place. An example of the potential problems of a lock-in occurred in a Sam’s Club in Corpus Christi, Texas. An employee’s ankle was injured by some heavy machinery, but the employee was not allowed to leave the store. The manager was not in the store with the keys, and the employees had been told not to use the fire exit unless there was a fire or else they would be dismissed. Other personal emergencies such as a woman going into labor or a natural disaster such as a hurricane could greatly hamper the potential for an employee to leave the store quickly.10 The common philosophy of the store managers was that employees could not leave their positions until the work was finished, and if the employees could not complete that work in an 8-hour shift, then the employees must use their own unpaid time to complete their work. If they did not complete their daily tasks, the employees feared that they would be disciplined the next day by the manager. Employees were told they had to clock out so overtime pay would not show up on the store reports. In addition, 12 Wal-Mart employees, including 4 employees who worked in Wal-Mart’s payroll department, stated that managers would come in and delete overtime hours from the worker’s time cards so Wal-Mart would not have to compensate them for the additional time worked.11 A deposition given by a senior payroll executive at Wal-Mart revealed that corporate headquarters gives the store managers a target total payroll expense and each store must be below the target amount. If the store goes over the target payroll expense, the store manager is disciplined and could be demoted or eventually dismissed from Wal-Mart. In addition, the Wal-Mart handbook stated explicitly that overtime pay would not be given to employees except during the busy Christmas season.12 Another common practice that Wal-Mart managers used was the “one-minute clock-out.” This practice occurred when Wal-Mart employees failed to clock back in after their lunch. Managers clocked out the employees 1 minute after their lunch breaks began. As a result, the employees did not receive any payment for the hours worked after lunch, which could result in nonpayment of 4 hours or more per day for each employee. Wal-Mart responded by stating that it had broadcast a video to managers in April 2003 explaining to them that one-minute clock-outs would not be allowed. If the employee failed to clock back in, it was up to the manager to determine the number of hours the employee would get paid for that day.13 Wal-Mart’s corporate objective was to keep its labor cost at 8% of sales, which were lower than the industry average of 9% to 10% in 2004. In addition, corporate headquarters wanted the store managers to reduce labor costs by 0.2% to 0.3% annually. An additional way Wal-Mart reduced labor costs was to have the assistant managers take over the responsibilities of the regular employees once the employees reached their 40-hour limit. Because the assistant managers are not required to receive overtime and are required to work at least 48 hours a week, Wal-Mart can shift the burden of multiple tasks to the assistant managers without any additional costs. In 2010, an assistant manager might work as many as 75 hours a week.14 Wal-Mart’s official response was that it has a strong policy that does not allow off-the-clock work, which is explicitly stated in the Wal-Mart handbook. Wal-Mart officials described the off-the-clock problem as minimal and isolated, and quickly corrected whenever it was brought to the attention of Wal-Mart management. In addition, officials stated that managers who force off-the-clock work will be disciplined and possibly dismissed.15 Wal-Mart officials stated that off-the-clock work is in direct violation of the company’s official policy and is against the law. On December 20, 2002, a jury in Portland, Oregon, found Wal-Mart guilty of not paying its employees overtime when it was due.16 In 2009, a federal jury found that Wal-Mart forced Oregon employees to work unpaid overtime between 1994 and 1999, after more than 400 employees from 24 of Wal-Mart’s 27 Oregon stores sued the retailer for violating federal and state wage laws.17 On October 13, 2006, Wal-Mart was found guilty of violating Pennsylvania labor laws by requiring its employees to work through rest breaks and off the clock. The jury in Philadelphia stated that Wal-Mart must pay its employees $78.5 million to settle the class-action lawsuit. The lawyer for the plaintiffs also stated that the employees would seek an additional $62 million from Wal-Mart because the jury found that Wal-Mart was acting in bad faith. Each plaintiff from the lawsuit was expected to receive from $50 to a few thousand dollars in the settlement. During the closing arguments of the trial, Wal-Mart attorney Neal Manne stated that Wal-Mart thought a lot of its employees and that they had missed their breaks or had a shorter break because of their own personal choices.18 Evidence during the trial included computer records that showed that Wal-Mart employees in Pennsylvania had missed 33,000,000 rest breaks from 1998 to 2001.19 On January 25, 2007, Wal-Mart agreed to pay $33.5 million in back wages and accumulated interest to settle a lawsuit that claimed that Wal-Mart had violated federal overtime laws for 86,680 of its workers. The claims in the lawsuit included Wal-Mart’s failing to pay time and a half to nonmanagement employees who had worked more than 40 hours a week. The federal lawsuit also claimed that Wal-Mart had violated the Fair Labor Standards Act by not including bonuses and geographical differences when calculating the time-and-ahalf rate for its workers. The average payout to the more than 86,000 employees was $375. Seventy-five employees received more than $10,000, and the highest amount given was $39,775.20 In December 2008, Wal-Mart agreed to pay a settlement of $54.25 million to approximately 100,000 current and former employees who worked in various Minnesota Wal-Mart and Sam’s Club stores. The judge ruled that Wal-Mart had failed to follow state laws regarding rest breaks and other wage-related rules more than 2,000,000 times from September 1998 to November 2008. Wal-Mart also agreed to develop and maintain an electronic tracking system to ensure it complies with state labor laws.21 At the end of December 2008, Wal-

Mart settled 63 lawsuits in 42 states related to not paying employees for off-the-clock work. The total final payment was approximately $640 million. Wal-Mart’s response was that this was a settlement of Wal-Mart’s actions long ago, and they do not represent Wal-Mart’s current policies related to working off the clock.22 In December 2009, Wal-Mart agreed to pay 87,500 Massachusetts employees a total of $40 million to settle claims that Wal-Mart had denied the employees legally required rest and meal breaks. Wal-Mart also allegedly manipulated the time cards of the employees and had refused to pay them overtime. The amount of the settlement per employee ranged from $400 to $2,500. This settlement came 3 months after Wal-Mart had settled with the state prosecutors in Massachusetts by paying $3 million for not allowing employees proper meal breaks.

Sexual Discrimination

In a lawsuit filed in 2001 in San Francisco, Wal-Mart was accused of sexual discrimination with regard to its promotion policies. The lawsuit was based on the fact that in 2001, female employees at Wal-Mart were 65%

of the hourly workers, yet they comprised only 33% of the managers. The potential lawsuit included 700,000 female employees who had worked at Wal-Mart from 1996 to 2001. In addition, the lawsuit claimed that women employees were also discriminated against in their pay rates. The lawsuit alleged that female employees received $1,150 per month, 6.2% less on average than their male counterparts for similar jobs. The lawsuit also claimed that female managers were paid less than males were. Female managers received an average yearly salary of $89,280, $16,400 lower than male managers. Another fact presented in the lawsuit was that 89.5%

of the cashiers, 79% of the department heads, 37.6% of the assistant store managers, and 15.5% of the store managers at Wal-Mart were women. The official response from Wal-Mart was that it does not discriminate against anyone. Wal-Mart stated that women did not have a high percentage of management jobs because they did not have an interest in working in management-level jobs at Wal-Mart. The example Wal-Mart gave was that whenever there is a management training program, only 43% of the applicants are women. Wal-Mart officials did admit that the companywide posting of management positions started after plaintiffs’ lawyers had complained that Wal-Mart did not give every employee the chance to apply for a management position, which the lawyers argued were usually given based on favoritism. On June 22, 2004, the sex discrimination lawsuit achieved class-action status and covered 1.6 million current and former Wal-Mart employees. It was the largest class-action sex discrimination lawsuit ever to be filed in the United States.24 Depositions given by Wal-Mart employees for the lawsuit showed that a manager told one woman that a man was promoted instead of a qualified woman because the man had to support his family. In another deposition, a manager in a South Carolina Wal-Mart told a woman that men are paid more because, according to the Bible, Adam was created before Eve.25 One plaintiff in the lawsuit claimed that a store manager told her that men work at Wal-Mart for a career and women do not. In addition, the store manager told her that retail is just for housewives who want to make some additional money. Another plaintiff stated that when she asked to work in the hardware department, the male store manager said, “Why do you want to work in hardware? You are a girl. You are needed in toys.” Other claims in the lawsuit included a stripper performing at a store meeting to celebrate the manager’s birthday and management’s calling the women employees “Janie Q” and “girl.” Yet the executive vice president of human resources at Wal-Mart, Coleman Peterson, had warned members of the board of directors in 1999 that Wal-Mart was falling behind other companies in the number of women it promoted to managers. Peterson also told the board that Wal-Mart was behind the rest of the world when it came to the treatment of women.

In April 2010, the federal appeals court allowed the sex discrimination lawsuit against Wal-Mart to proceed as a class-action lawsuit. Wal-Mart claims that the lawsuit is without merit because sexual discrimination is unique to the individuals and cannot be combined together as a homogenous group.27 In December 2010, the U.S. Supreme Court agreed to hear Wal-Mart’s appeal of the lower court ruling. The Supreme Court agreed not to examine the pattern of alleged discrimination at Wal-Mart but instead agreed to examine whether the claims of more than a million people can be combined into a single class-action lawsuit.28 In June 2011, the Supreme Court ruled that there are too many plaintiffs for the class-action lawsuit. The Court ruled in favor of Wal-Mart by deciding that the unique experiences of these 1,500,000 women cannot be combined into a single class-action lawsuit. Justice Antonin Scalia stated that it was not feasible for the women to sue pertaining to “millions of employment decisions” all at once.29 In October 2011, current and former Wal-Mart employees in California filed a class-action lawsuit against Wal-Mart alleging discrimination. After the Supreme Court decision, the plaintiffs scaled down their lawsuit in hopes of supporting the argument that the patterns of discrimination are similar enough in the California stores to establish a class-action lawsuit. In this lawsuit, 90,000 women are represented who are former or current Wal-Mart employees.....

Questions

1. Are the ethical issues Wal-Mart faces really any different from those of other large retailers?

2. Wal-Mart management has stated that they don’t feel women are interested in management positions at the company. Do you agree or disagree?

3. Wal-Mart is continually criticized for its health care policy. Is this really an ethical issue? Why or why not?

4. Should Wal-Mart be concerned about unionization of stores since allowing unionization of workers in China?