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Whole Foods Facing Two Class-Action Suits Involving ‘Gainsharing’ Program At Store Level

Whole Foods Market (WFM) is currently facing two class action lawsuits as a result of alleged improprieties in the retailer’s “gainsharing” bonus program. Under the program, Whole Foods employees can earn bonuses if the department to which they are assigned comes in under budget. Under the program, any budget surplus is to be divided among the department’s employees as a bonus.

On December 15, Whole Foods announced that it had fired store managers at nine locations in Maryland, Virginia and the District of Columbia for manipulating the gainsharing program and said that the practice had been employed at only a small number of its 457 nationwide stores. Whole Foods said at the time that it would investigate how much money was involved and would make sure that employees who were affected would receive proper compensation.

Within a week, one current and one former Whole Foods employee at the chain’s P Street store in Washington, D.C. filed a class action lawsuit in U.S. District Court against the Austin, TX based retailer, alleging that they were cheated out of earned bonuses. The lawsuit contends that Whole Foods avoided

paying gainsharing bonuses by shifting labor costs to other departments. Additionally, the suit says, the grocer created “fast teams” of employees that “float from one department to another,” shifting labor costs without accounting for the changes. The suit also alleges that, with the knowledge of company executives, the retailer employs these practices chain-wide “…to strip hard-working employees of earned bonuses in order to maximize their own profit.” The plaintiffs, Michael Molock and Randal Kuczor, are seeking $200 million in punitive damages and triple unpaid wages. Kuczor estimated that at least 20,000 WFM associates could be eligible for compensation.

“Rather than pay plaintiffs (and other associates similarly affected) the bonuses they earned through the gainsharing program, Whole Foods retained the surplus for its own benefit and to increase profit margin,” the suit alleges.

The five-count lawsuit also charges breach of contract, unjust enrichment, failure to maintain accurate employment records and two counts of failure to pay wages.

In response to the lawsuit, Whole Foods spokesperson Brooke Buchanan said in a statement: “We are still in the process of investigating the issues raised in the recently filed lawsuit, and as we do with any allegations affecting our team members, we will continue to conduct a thorough inquiry.”

That suit has now been followed by a second class action filed in D.C. Superior Court by the nine fired store managers who claim they were wrongfully terminated and defamed by the retailer. Each manager is seeking $25 million in damages. The former managers, whose tenures range from nine to 25 years, were employed at units in Washington, DC (two stores); Arlington, VA; Bethesda, MD; Vienna, VA; Gaithersburg, MD; Reston, VA; Columbia, MD; and Charlottesville, VA.

The latest lawsuit also claims that shifting labor costs to avoid gainsharing bonuses is a “nationwide, corporate practice” which “effectively stole the earned bonuses for countless employees across the country.” In addition to losing their jobs, the former employees allege Whole Foods defamed them because of the resulting negative news coverage after it was reported that they acted on their own rather than with corporate guidance.

According to the suit, an employee at a Mid-Atlantic area store had complained of not receiving an earned bonus due to the labor shifting practices. During an internal investigation following that allegation, according to the lawsuit, the nine plaintiffs were fired after they would not agree to Whole Foods’ talking points that the practice of shifting labor among departments was isolated to only a few stores.

“Whole Foods, which touts itself as an employee friendly corporation, engaged in a nationwide practice to subvert earned employee bonuses. When confronted with systemic wage theft, Whole Foods attempted to cover up the corporate fraud by terminating the nine whistleblower plaintiffs,” the lawsuit from the nine fired store manager states.

It will be very interesting to see how Whole Foods Market (WFM) responds to the two class-action suits it must defend. Both filings deal with the company’s “gainsharing” store level associate bonus program, which some store managers and employees feel was manipulated illegally. We’ll let the courts adjudicate the legal issues, but the decline of WFM over the past two years lies primarily with company management. The Austin, TX-based merchant certainly has lost its store ops crispness, and other consumer perception issues (such as accuracy in weights and measures) are a direct result of sloppiness, not intent in my opinion. Perhaps that’s one reason Walter Robb is no longer co-CEO and John Mackey is back as sole chief executive. However, it’s going to take more than one person to fix WFM’s problems. The company has lost many talented managers and executives over the past five years and in its quest for accelerated expansion, it’s laser keen operational disciplines at store level as well as the morale of its associates have somewhat diminished.

These lawsuits will not help matters.