A Crain’s investigation shows benefits were less than suggested by the national hype

By Brigid Sweeney and Eddie Baeb
First published by ChicagoBusiness.com, April 11, 2011

When Wal-Mart Stores Inc. hired Margaret Garner in 2005 as the first black woman contractor to build one of its stores, she was hailed as a symbol of the benefits local businesses and minority communities would reap from the retail giant’s push into Chicago.

Six years later, her company is bankrupt, crushed by cost overruns on Wal-Mart’s first Chicago store, located in the Austin neighborhood on Chicago’s West Side. A Crain’s investigation shows that the benefits to minority contractors were less than suggested by the hype surrounding Ms. Garner’s hiring.

Much of the large-scale work on the Austin store went to non-minority firms. Ms. Garner herself engaged two such firms during much of the project to fulfill her role as general contractor.

“What happened at the end of the day is that (Wal-Mart) paraded her around the country as its African-American female (general contractor),” said Omar Shareef, founder of the Chicago-based African American Contractors Association. “And she wound up going down.”

The Austin project casts doubt on the predicted boon in jobs and contracting dollars for minorities from Wal-Mart’s plan to build several dozen stores in Chicago over the next five years. Wal-Mart and supporters, including Mayor Richard M. Daley, used such promises as a rallying cry to beat back opposition to the Bentonville, Ark.-based chain’s expansion in Chicago.

“It’s not at all what was promised to residents of that ward and the city of Chicago,” said Virginia Parks, a professor at the University of Chicago’s School of Social Service Administration, who is co-writing a book on Wal-Mart’s push into urban neighborhoods.

Contractors in Austin also learned a hard lesson about the risks of major construction projects on urban sites for a demanding customer like Wal-Mart. Some subcontractors wrote off from 10% to 50% of their bills as the project’s cost soared to $27 million from a budgeted $17.8 million.

Wal-Mart has been eyeing locations in New York City for several years and is reportedly gaining momentum to open its first store in the five boroughs.

Ms. Garner, 51, canceled a scheduled interview for this article and did not respond to subsequent requests for comment.

HARD-WON APPROVAL

The world’s biggest retailer won approval to build the Austin store in 2004 after months of debate that pitted Mr. Daley and aldermen who wanted jobs in their wards against unions and community leaders who cast Wal-Mart as a predatory company that pays low wages and kills small businesses.

Wal-Mart’s pitch to city leaders emphasized not just the jobs the store would create, but also the opportunities for minority contractors to help build it.

The following year, Wal-Mart awarded the contract to build the store to Broadway Consolidated Cos., the Chicago construction company Ms. Garner founded in 2000. Before launching the firm, she held executive posts at the U.S. Department of Housing and Urban Development and the Chicago Housing Authority. In its first five years, Broadway worked on government projects around the Chicago area, often paired with a more-established contractor such as politically wired Walsh Construction Co. The Wal-Mart job landed Ms. Garner on the pages of local and national publications, including Time and Ebony , in which Wal-Mart took out a full-page ad praising her work in Austin.

The partnership also was a coup for Wal-Mart, which was running out of room to grow in rural and suburban America. To crack city markets like Chicago, it needed to present a more multicultural image. Hiring a charismatic African-American woman to build its first Chicago store helped accomplish that.

But while Ms. Garner served as the public face of the Austin project, she quickly farmed out the nuts-and-bolts duties of a general contractor to a white-owned firm.

Just months after Broadway won the Wal-Mart job, in early 2005, Ms. Garner tapped Canadian construction giant Ledcor Group of Cos. as a subcontractor. The Vancouver-based firm, a general contractor that has built many Wal-Mart stores, was hired to “provide project-management supervision and coordination,” according to Ledcor’s October 2005 lien seeking more than $168,000 from Broadway and Wal-Mart.

Ledcor initially competed against Ms. Garner to become the general contractor. But when it appeared Ledcor wouldn’t win the job, the company approached Wal-Mart in hopes of teaming up with Broadway as co-general contractors so that the veteran firm could guide Ms. Garner, said Chad Bouck, Ledcor’s Oakbrook Terrace, Ill.-based regional manager.

Wal-Mart rejected such an arrangement, said Mr. Bouck, whose firm no longer does work with the retailer.

Nevertheless, Broadway hired Ledcor as a subcontractor, with the responsibilities of a general contractor, including hiring subcontractors and overseeing the site’s construction superintendents, Mr. Bouck said.

“It was a good move for Wal-Mart to go with a woman-owned (company),” he adds. “She had a lot of political connections that we needed.”

In a Jan. 5, 2007, letter seeking payment of about $368,000 from Wal-Mart, Ms. Garner says Broadway’s work on the project “included extensive community interaction, emotional and procedural guidance of minority subcontractors, regular intercession with the city building department in obtaining permits and correcting design deficiencies and regular assistance arranging meetings with city officials.”

Ledcor left the project in July 2005, after less than two months, over a payment dispute. Mr. Bouck says the firm received about $80,000 for its work—less than half of its $168,000 bill. Eight months later, Broadway hired another non-minority company for general-contracting duties.

Bush/Kowert Associates of west suburban Glen Ellyn, Ill., signed on in March 2006 and oversaw the project until quitting in a payment dispute in February 2007. The firm acted as the “de facto general contractor,” according to an Aug. 28, 2007, letter from Bush/Kowert’s attorney to Wal-Mart.

Broadway acknowledged as much in a court filing, saying Bush/Kowert’s “duties and responsibilities included, but were not limited to, the supervision of the entire Wal-Mart project until completion and acceptance by the owner, scheduling of the entire Wal-Mart project to ensure the Wal-Mart project was completed on time, supervision of the entire budget for the Wal-Mart project to ensure the project was within the allotted budget, and to oversee and obtain approvals from all change orders for the Wal-Mart project.”

Bush/Kowert executives didn’t return calls seeking comment.

Non-minority firms also were well-represented among the project’s subcontractors. Some of the biggest contracts—steel-framing, masonry, electrical and concrete—went to white-owned firms, according to legal filings and a partial list of contractors obtained by Crain’s .

Some 17 of the 19 subcontractors that filed liens against the project were not minority- or woman-owned. (Only firms that have done actual work on a project can file liens.)

A separate lawsuit also reveals that at least one minority subcontractor on the Wal-Mart job farmed out substantial work to a non-minority company.

Now-defunct United Demolition Inc. of northwest suburban Vernon Hills, Ill., sued in 2005 to collect on its lien of $417,000. The suit says the company, which filed for Chapter 7 bankruptcy liquidation in July 2010, entered into a contract with minority-owned Midwest REM Enterprises Inc. in February 2005—the same month Broadway awarded the job to Midwest REM.

Melrose Park-based Midwest REM, headed by Alberto Ramirez, later sued Broadway, saying it was owed $1.4 million, indicating Midwest REM also did significant work on the project.

Former United Demolition President August Pusateri didn’t return calls seeking comment, and a Midwest REM executive declined to comment.

So-called pass-throughs, when minority subcontractors pass along their assignments to white-owned firms, are a common way of undermining minority contracting requirements, according to a 2010 report by Chicago’s inspector general on that city’s Minority and Women-Owned Business Enterprise Program.

According to the report, the city’s program is “beset by fraud,” and it found that in 2008 the program overstated by about 15% the amount of actual payments to minority firms for city construction projects.

Inspector General Joseph Ferguson says rampant gaming of the system impedes the mission of bolstering minority- and women-owned businesses. He’s calling for better oversight and auditing “to make sure the money is going to the sort of businesses that were intended.”

A Wal-Mart spokesman says the company isn’t involved with the hiring of subcontractors, but it urges its general contractors to meet or exceed city procurement mandates and minority set-aside requirements for public works projects. On the Austin project, the spokesman said, 57% of the contracts went to minority- or women-owned firms. That far exceeds the requirements for city work—that 24% of contract amounts go to minority-owned firms and 4% to women-owned firms.

One reason local officials and community leaders press for minority contracting set-asides is to increase the number of minority group members and neighborhood residents hired to work on local projects. Wal-Mart’s Austin store was expected to generate well-paying construction jobs in a neighborhood beset by unemployment.

A Wal-Mart spokesman said “nearly 100” tradesmen from the Austin community were hired for the job. No record of total hiring on the project could be found.
But a black subcontractor who worked on the site questions Wal-Mart’s figure. Silas Williams, chief executive of Chicago-based TVS Mechanical Inc., says no one on the project verified names and addresses of laborers to prove that they lived in the neighborhood. He says the 100-worker estimate is too high, based on his observations at the worksite and the fact that Wal-Mart pledged to hire only union labor.

“How many neighborhood union (members) are there? Not that many,” he said.

NEW TO THE CITY

Ms. Garner and her subcontractors encountered problems early. Unlike most Wal-Mart stores, which often are built on greenfield sites in suburbs or outside small towns, the Austin project was on an old industrial site in a densely populated city neighborhood.

“(Wal-Mart is) used to having a big open farm field in the suburbs to do what they need to do,” said Todd Kalesperis, the Ledcor project manager on the Austin store. “Producing stores in inner cities is just a different ballgame.”

The Austin site, a former Helene Curtis hair-care products factory at 4650 W. North Ave., sat atop a huge underground storm-water system. Ultimately, more than 40,000 cubic yards of hazardous materials and buried concrete structures had to be removed at a cost of $4 million, according to the Jan. 5, 2007, letter Ms. Garner wrote to a Wal-Mart executive.

Removing the materials took longer than expected, delaying construction and increasing costs. What was supposed to have been a 30-week project stretched to 63 weeks.

According to Ms. Garner’s letter to Wal-Mart, the project racked up $10 million in cost overruns on top of an original budget of about $17.8 million.

Calling site conditions “amongst the most difficult and complicated in the city of Chicago,” the letter said preliminary cleanup work “pushed the completion of the majority of the weather-sensitive activities like concrete, masonry and other structural work from a normal fall construction season into the more demanding and expensive cold Midwestern winter months.”

She also cited numerous changes and design revisions required because of the “prototypical nature of this building and the unique building standards required by the city of Chicago.”

Recovering unexpected costs requires a general contractor to submit “change orders,” a meticulous process on any job and more so with demanding clients like Wal-Mart and other large retail chains.

Subcontractors say the process didn’t go smoothly on the Austin site. Weeks or months passed without payment. Some say they still haven’t been paid what they’re owed.

TVS Mechanical’s Mr. Williams says his firm has received only $70,000 of the $86,000 it was to be paid for completing the store’s heating, ventilation and air-conditioning systems, putting him in the red on the project. “I just paid to work on that Wal-Mart,” he said.

Thomas Mooncotch, owner of La Grange, Ill.-based All Erection Co., says he has never encountered such a messy project in more than 25 years building Wal-Marts. He had to file a lien to collect $182,000 of the $612,000 he was owed for erecting steel framing.

All told, contractors filed liens for unpaid claims totaling $4.4 million, or 16% of the project’s total costs. Most were paid eventually, although some accepted lesser amounts.

A TOUGH BOSS

Contractors say it’s difficult to make money building for Wal-Mart in part because the company is such an exacting client and also because fierce competition for the work forces bids lower.

Generally, subcontractors provide their own materials and add a 3% to 4% markup that’s passed on to the owner. But Mr. Williams says subcontractors lose one opportunity for profit when working for Wal-Mart because the company, like other large retail chains, provides its own materials and supplies as a cost-cutting measure.

“You’re taking these jobs to break even at best,” said Herb Lande, owner of Joliet-based Imperial Construction Associates Inc., whose steel-erection firm has done work for several large retail chains, including Wal-Mart.

Mr. Lande’s firm worked on the construction of a Sam’s Club store in Calumet City in September 2007, a project Wal-Mart awarded to Ms. Garner as general contractor despite the difficulties on the Austin store. The Sam’s Club project also resulted in a spate of liens and litigation.

Mr. Lande cites Wal-Mart’s rigorous inspections and “demanding” processes as the reason it’s difficult for some contractors to turn a profit building the company’s stores. He says he’s still owed $17,000 on his $400,000 contract to provide steel erection, decking and roofing detail for the Sam’s store.

“Before they pay you, they run you through the wringer and you wind up doing all the procedures 1 1/2 times,” he said. “Even if you doubled your bid, you’d have trouble making money.”

Ledcor’s Mr. Bouck says Wal-Mart pays promptly but only if the general contractor closely follows its bill submission processes.

The process can be daunting for contractors who haven’t worked for big companies like Wal-Mart before. Improperly submitted invoices get snarled in red tape, Mr. Bouck and other veteran Wal-Mart contractors say.

Mr. Lande says Ms. Garner struggled with Wal-Mart’s record-keeping requirements.

“The only thing Broadway may have been guilty of was not following Wal-Mart’s paperwork (requirements) as closely as they should have,” he said. Adhering to Wal-Mart’s “paperwork trail is very difficult.”

But many contractors, especially in a moribund construction market, can’t afford to wait weeks as payment vouchers are resubmitted and reprocessed.

“If you don’t have deep pockets, you’ll choke off and die,” Mr. Lande said. “You can’t pay your vendors, and then you won’t be able to staff your next job.”

BANKRUPTCY FILING

Ultimately, the burden of the cost overruns fell on Ms. Garner. General contractors often are required to obtain surety bonds guaranteeing their client that the job will be completed on time and within budget. When costs run over, the bonding company steps in to pay the subcontractors. Once the bills are paid, the bonding company then looks to collect from the general contractor.

“A bond claim can be fatal,” said Joshua Glazov, a construction attorney at law firm Much Shelist Denenberg Ament & Rubenstein P.C. in Chicago.

An $11.9-million claim stemming from a surety bond on the Austin project accounted for most of $14.1 million in liabilities listed in the Chapter 7 liquidation petition Broadway filed in Bankruptcy Court in Chicago on Dec. 7, 2010.

Despite the project’s construction woes, Ms. Garner’s public role didn’t change.

In April 2006, a month after bringing in Bush/Kowert to take over the general contractor’s role, Ms. Garner toured the construction site with Wal-Mart’s then-CEO, H. Lee Scott. When the store opened five months later, she appeared in newspaper photos with other Wal-Mart executives.

To give Ms. Garner another shot, Wal-Mart awarded her the Calumet City Sam’s Club contract in 2007. Expected to be a simpler job, that project also generated its share of payment disputes with subcontractors.

Even in January 2010, as her firm was months away from failing, Ms. Garner was a panelist at a Black Enterprise magazine forum conducted with Wal-Mart.

The promise of Wal-Mart still burns brightly for many in Chicago. Indeed, the Austin store created jobs in an area where they are scarce and brought groceries to a neighborhood abandoned by traditional supermarkets.

Last summer, the company overcame years of resistance from unions, community activists and Chicago aldermen to win approval to build two more supercenters on the city’s South Side. Construction starts on one in the Chatham neighborhood this spring and another in the Pullman area next year. After winning those approvals, Wal-Mart announced plans to open several dozen stores of varying sizes in Chicago by 2015.

Last month, Mr. Daley stood at a podium flanked by fresh produce to herald six additional sites in the Englewood, Chatham and West Loop neighborhoods of Chicago. Chiding rivals who fought Wal-Mart, Mr. Daley touted the jobs those projects would create for minority workers. “When construction comes, I’m going to see men and women of color on this job,” he said.

Mayor-elect Rahm Emanuel has said repeatedly that he views Wal-Mart and other big-box retailers as a solution to Chicago’s “food desert” problem and, like his predecessor, welcomes them to the city.

NEW CANDIDATES

Although the Wal-Mart project sank Broadway, other minority contractors have stepped up for the retailer’s next Chicago projects. A pair of local African-American-owned general contractors, Powers & Sons Construction Co. and Ujamaa Construction Inc., are strong contenders to build the Chatham supercenter.

Chicago-based Ujamaa is an 8-year-old firm whose recent jobs have included a green-roof installation for FedEx at O’Hare International Airport.

Ujamaa also has been in a joint venture with Chicago-based Bulley & Andrews—a non-minority firm—to build the Lowe’s-anchored Chatham Market on the South Side, where Wal-Mart will build its next supercenter. The company has at least one Wal-Mart job under its belt: the remodel of the Austin store last year that added a full-size grocery department.

Gary, Ind.-based Powers & Sons has ranked among the 100 biggest contractors in the Midwest. The company has been building stores for Wal-Mart for several years and for other national chains including McDonald’s, Walgreen and Menards, according to its website.

Wal-Mart will require general contractors on all future projects to use an online system that tracks the amount of work done by minority- and women-owned firms.

“Across the country, Wal-Mart seeks to ensure minorities and women are a part of the process when it comes to building and remodeling our stores,” a Wal-Mart spokesman said.

Still, some wonder if the new Chicago stores will be a better deal for contractors than the Austin project.

“Might be, but I doubt it,” TVS Mechanical’s Mr. Williams said. “There’s just not much room to make money.”

Sidebar: A sad chapter in Garner’s rags-to-riches story

Before she won national media attention as the first black female general contractor on a Wal-Mart store, Margaret Garner was a single mother who built her firm, Broadway Consolidated Cos., from the ground up.

Ms. Garner, 51, grew up in a public housing complex in Pittsburgh, the youngest of eight children. She graduated from the University of Pittsburgh in 1981 with a degree in business and economics, married soon after and had a daughter.

Her marriage ended around 1990, forcing Ms. Garner to find subsidized housing and start a new career.

She went to work in Pittsburgh for the U.S. Department of Housing and Urban Development before joining the Chicago Housing Authority in 1995, overseeing housing redevelopment projects.

Ms. Garner founded Broadway in 2000. Her company worked on local construction projects, including Comer’s Children Hospital at the University of Chicago, the Randolph Street Metra station and the Wacker Drive restoration.

In partnership with Chicago-based Walsh Construction Co., she built a Near West Side mixed-income housing development and sites for the U.S. Navy on the Great Lakes Naval Base in North Chicago.

“We think that there’s unlimited opportunity for quality people like Margaret, in quality companies like Broadway Consolidated, in finding mentor companies like Walsh Construction and in pursuing a joint business plan together,” Walsh Construction President Dan Walsh gushed in a testimonial that once appeared on Broadway’s website.

Ms. Garner said in a media interview in 2006 that Broadway employed as many as 12 people and had annual revenue of $5 million to $20 million.

She often spoke of her commitment to creating jobs in city neighborhoods, especially during the Austin project. Problems on the job weighed heavily on her, according to a subcontractor.

“She was struggling,” said Christy Webber of Chicago-based Christy Webber Landscapes. “You could just see it on her face.”

Broadway filed for Chapter 7 bankruptcy protection in December, citing $14 million in liabilities—$11.9 million from the Wal-Mart project. In February, the trustee overseeing the case declared Broadway had no assets.

A Wal-Mart spokesman says the company will continue to give minority- and women-owned businesses key roles in building its Chicago stores.

“We worked with Ms. Garner throughout the process to give her company every opportunity to succeed and wish her well in her future endeavors,” the spokesman said.

©2011 Crain Communications Inc.

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By Bill Mears – Published by CNN March 29, 2011

Female workers suing retail giant Wal-Mart Stores for workplace discrimination faced an uphill battle at the Supreme Court on Tuesday in their efforts to proceed in a massive class-action lawsuit.

The case is among the most important dealing with corporate versus worker rights that the justices have ever heard, and their ruling — expected by late June — could eventually impact nearly every private employer, large and small.

The conservative majority on the bench appeared skeptical during oral arguments that allowing employees from across the country to band together and make their claims in one trial would be appropriate, at least in this particular case. But the three female justices each offered a spirited defense of the plaintiffs’ claims of a consistent pattern of discrimination that allegedly trickled down from corporate headquarters to individual stores.

Justice Ruth Bader Ginsburg, who before joining the court was a pioneering legal advocate for gender equality on the job, said that based on the similar claims from the workers, it was “reasonable” to allow the case to proceed as a class action.

“The company gets reports month after month showing that women are disproportionately passed over for promotion, and there is a pay gap between men and women doing the same job,” she said. “It happens not once, but twice. Isn’t there some responsibility on the company to say, is gender discrimination at work, and if it is, isn’t there an obligation to stop it?”

But Justice Anthony Kennedy appeared skeptical there was a corporate culture of discrimination, noting Wal-Mart has a long-standing anti-discrimination policy.

“You said this is a culture where Arkansas (home of Wal-Mart) knows, the headquarters knows, everything that’s going on,” he told the plaintiffs’ attorney. “Then in the next breath, you say, well, now these supervisors have too much discretion. It seems to me there’s an inconsistency there, and I’m just not sure what the unlawful policy is.”

At issue is whether as many as 1.6 million current and former female Wal-Mart employees can make a unified claim of systemic discrimination, which they say has occurred over the past decade, at least. The plaintiffs allege women were paid less than, and were given fewer opportunities for promotion than, their male counterparts. They seek back pay and punitive damages against the world’s largest retailer.

A divided 6-5 ruling by the San Francisco-based 9th U.S. Circuit Court of Appeals last year had allowed the combined, multiparty litigation to move ahead to one trial, where a verdict against the company could result in tens of billions of dollars in damages.

The Supreme Court will decide only whether the original lawsuit should be handled as a class action, instead of lower courts potentially being flooded with thousands of individual discrimination claims against the company. A ruling by the justices against Wal-Mart, permitting class-action status, could put severe pressure on the company to settle the claims out of court.

The lawsuit alleges the company’s “strong, centralized structure fosters or facilitates gender stereotyping and discrimination.” The workers bringing suit also say women make up more than 70 percent of Wal-Mart’s hourly workforce but in the past decade made up less than one-third of its store management.

The current litigation was filed in 2001 by Betty Dukes, a store greeter in Pittsburg, California, along with five of her co-workers from different facilities. She and another of the original six plaintiffs attended the arguments.

“I brought this case because I believe that there was a pattern of discrimination at Wal-Mart, not just in my store, but I believe that it is across the country,” she told CNN at the court. “Since we have filed our lawsuit in 2001 I have heard from numerous women telling me basically the same story as mine of disparate treatment in lack of promotion as well as in lack of pay.”

The company has protested the size of the class action, which it called “historic” in scope, saying it would be too onerous to litigate. The company has more than 4,300 U.S. facilities in 41 regions.

Gisel Ruiz, who now heads the company’s human resources division, told CNN after the arguments, “Wal-Mart has had a long history of promoting and advancing women. I joined the company in 1992 as a management trainee in Medera, California, and in less than four years, I was promoted to store manager. What’s wrong with this case is that three plaintiffs are trying to represent more than 1.5 million associates. I’ve had a very positive experience at Wal-Mart like thousands of other women, and not being able to opt out of the case is wrong.”

In arguments, Theodore Boutrous, attorney for Wal-Mart, cited company figures that at “90 percent of the stores, there was no pay disparity.”

But Justice Sonia Sotomayor cited information accepted by lower federal courts “including job history, job ratings, and other things, and found that the disparity could not be explained on any of the normal variables that one would expect and that the disparity was significantly much higher than the 10 competitors of Wal-Mart and what they were paying their labor force.”

Joseph Sellers, attorney for the women workers, cited what he called “the Wal-Mart way” of dealing with pay and promotions. “The company has a very strong corporate culture,” he said, adding, “the decisions of the managers will be informed by the values the company provides to these managers in training.”

Chief Justice John Roberts sharply questioned that premise.

“How many examples of abuse of the subjective discrimination delegation (by mangers) need to be shown before you can say that flows from the policy rather than from bad actors?” he said. “I assume with however many thousands of stores, you’re going to have some bad apples.”

Roberts added that Wal-Mart’s pay disparity across the company was less than the national average.

Justice Samuel Alito expressed concern about whether the claims against Wal-Mart met the criteria for establishing class-action. Citing a hypothetical business similar to Wal-Mart, he wondered, “You have the company that is absolutely typical of the entire American workforce, and let’s say there weren’t any variations (in an anti-discrimination policy). Every single company had exactly the same profile. Then you would say every single company is in violation” of federal civil rights laws?

Alito’s colleague, Justice Antonin Scalia, followed up, pressing Sellers further: “(What) your answer assumes is if there is a disparity between the advancement of women and the advancement of men, it can only be attributed to sex discrimination.”

Sellers said that was not true in every case but was true at Wal-Mart, a situation he blamed on “standardless, recordless decisions” by the company, in essence benign neglect of what he said is a nationwide pattern of discrimination at individual stores.

“Well, if it’s standardless and recordless, then why is there commonality?” asked Kennedy, who could prove to be the swing vote in the case. “It seems to me that your answer that you just gave really shows a flaw in your case on commonality” of discrimination claimed by the plaintiffs.

Declaring class-action status for the lawsuit would raise the financial and judicial stakes considerably, since more individual plaintiffs could join, creating greater potential liability for the company. In federal courts, such certification must generally follow well-established principles to ensure a lawsuit would not become so large as to be impracticable, and would allow the parties to fairly represent the common interests of the larger class of plaintiffs.

Wal-Mart also has been accused in separate lawsuits of discrimination against African-American truck drivers and workers with disabilities. In 2001 the company settled 13 lawsuits by paying out $6 million.

‘I’m a fighter’

A mammoth appeal started small — six women from California, unknown to each other at first, but sharing a common story.

“I’m a fighter if nothing else, and so are all the other women that are involved,” said Christine Kwapnoski, one of the original plaintiffs. Speaking with CNN, she recounted why she brought suit against Wal-Mart in 2001.

“I was saying I want to do something more, but for whatever reason I kept getting overlooked for team leader positions,” she said. “They kept hiring men off the street. Literally, I don’t even know where they came from, whether they came from college, men who never even had a day’s worth of Sam’s Club experience were coming in and I was the one training them.”

Kwapnoski, 46, began working at Sam’s Club retail warehouse — part of the Wal-Mart brand — in 1986, eventually relocating to a store in Concord, California. By 2000 she was the longest-tenured hourly employee at the store, but claims she was being paid “virtually the same” as male associates with half her experience. She was eventually promoted in 2001, two weeks after the lawsuit was filed, and remains at the company.

Kwapnoski soon realized her experiences were similar to other female workers — first in the San Francisco Bay area, then across the country.

“They know we’re right and they just don’t want to admit it,” she told CNN Correspondent Kate Bolduan. “They never want to admit anything when they’re wrong, they just believe that they’re semi-untouchable because of their size.”

Kwapnoski claims she was told by a male general manager “to doll up,” wear more makeup and dress a little better as a new supervisor on the loading dock, comments she says were inappropriate. And she says mangers frequently yelled at her and other female workers, but not male counterparts.

The plaintiff’s lawyer Joseph Sellers says there is a “corporate culture” at Wal-Mart, where female associates are treated as second-class employees, and that the company’s “strong, centralized structure fosters or facilitates gender stereotyping and discrimination,” which trickles down to individual stores.

“The store managers don’t make up their own pay and promotion policy — they follow a common set of policies that are established by headquarters in Arkansas,” he said. “There is extensive oversight of the decisions they make.

Spokeswoman says people are held accountable

Wal-Mart operates 4,300 facilities in the U.S., with more than $400 billion in global sales in 2009. It employs 1.4 million people in the U.S. alone. Officials boast their anti-discrimination policy has been in place as long as the company has been around, and a recent public relations campaign has been launched to promote its diversity and inclusion.

Gisel Ruiz is an example of what Wal-Mart says is a person who started small but has risen in the company because of her talents and hard work. After beginning as a store management trainee nearly two decades ago in California, she is now executive vice president for people at Wal-Mart, responsible for human resources. Ruiz is also a representative in corporate efforts to fight these claims of discrimination.

“From my personal experience, it’s not part of the company’s culture or part of the policies. My career growth has been very positive with Wal-Mart. I am in a job that I never dreamed that I would be — it’s based on my ability, my performance, my leadership abilities, but I am just one of many women,” she told CNN. “I’ve never been exposed to the examples that have been shared by the plaintiffs. I simply haven’t seen it and I will tell you that we don’t have a tolerance for that kind of misconduct.”

Ruiz says every employee from part-time entry level hourly workers to salaried managers must follow the rules.

“The policies against discrimination are in place for very good reasons; not only is the law, but is the right thing to do,” she said. “There’s oversight at a corporate level to ensure that the policies are in place, that they are relevant to today’s workforce and today’s workforce issues. Ultimately at store level, that’s where those policies are enforced, and people are held accountable if they violate those policies.”

Wal-Mart says case is too big

The workers bringing suit say women represent more than 70% of Wal-Mart’s hourly workforce, but in the past decade made up less than one-third of its store management.

A federal appeals court had concluded there was enough merit in the claims to proceed to trial on a class-action track. Since the lawsuit was filed a decade ago, both sides of the dispute have held discovery hearings, where preliminary testimony was taken to establish facts.

The high court will not judge the merits of the sweeping claims at this stage, just whether a class-action trial can proceed. The parties have the option of settling the dispute out of court at some point in the future, and the company may feel great financial pressure to do if they lose at the Supreme Court on this gateway issue.

The company has protested the size of the class action, which it called “historic” in scope, saying it would be onerous, with too many disparate issues, to litigate.

“The plaintiff’s lawyers in this case went way too far. It’s the way the plaintiffs have framed the case, implicating every store, every person. There’s no way, one woman can be representative of a million women in a case like this,” said Theodore Boutrous, an experienced appellate attorney who will argue the case for Wal-Mart before the justices. “The danger is that it would expose virtually every company in America to huge, costly, baseless class actions that’s bad for jobs, bad for the economy, and at the end of day it doesn’t help the people on behalf the case is being brought.”

The company has the support of the business community, while a variety of civil and gender rights groups and unions back the plaintiffs. The Obama administration has not weighed in on the case.

“Wal-Mart is arguing in effect there is a large-company exception — that when the company is sufficiently large and the discrimination is sufficiently widespread — it’s just impractical to have a class action,” said Sellers, attorney for the plaintiffs. “But there is no large-company exception to civil rights claims in this country.”

Declaring class-action status for the lawsuit raises the financial and judicial stakes considerably, since more individual plaintiffs can now join, creating greater potential liability for the company being sued. In federal courts, such certification must generally follow well-established principles to ensure a lawsuit would not become so large as to be impracticable, and would allow the parties to fairly represent the common interests of the larger class of plaintiffs.

Wal-Mart also has been accused in separate lawsuits of discrimination against African-American truck drivers and workers with disabilities. In 2001 the company settled 13 lawsuits by paying out $6 million.

Most workplace discrimination lawsuits fail to reach a court for resolution, according to data compiled by the federal Equal Employment Opportunity Commission.

In 2003, when the Wal-Mart litigation was in its preliminary court stages, about 27,000 sex discrimination claims nationwide were resolved administratively by the EEOC, little changed from the prior decade. More than 57 percent — some 15,000 claims — were ruled administratively to have “no reasonable cause” and those usually were dismissed.

Just over 10 percent were judged to have merit, resulting in a total of $94.2 million in settlements, or $34,200 on average per case, according to the data, which include all such claims, not just those involving Wal-Mart.

The case is also a clash of dueling cultures — some have dubbed it the Battle of Bentonville vs. Berkeley, for the corporate headquarters and the home to the liberal legal team outside San Francisco where the lawsuits first percolated.

Both sides have lots of data

Three women now sit on the high court and each brings their own personal and judicial approach to gender bias cases.

Whether their views will sway their male colleagues is unknown, but the court in the past three decades has restricted when class actions can proceed, saying “rigorous analysis” must first be conducted by the courts. This after women, blacks, Latinos and the disabled launched high-profile class actions beginning in the 1960s.

The problem is that both Wal-Mart and the plaintiffs have presented their own massive sets of data — statistics and depositions — that could overwhelm any “rigorous analysis” of the facts. The dueling numbers — which experience shows can often be manipulated in creative ways to make the point — paint completely different pictures of the level of discrimination.

Both sides agree the case, however it is resolved in the courts, will irrevocably alter the workplace landscape for generations to come.

The case is Dukes v. Wal-Mart Stores, Inc. (10-277).

© 2011 CNN

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By Courtney Gross
Published by the Gotham Gazette, February 14, 2011

It was a relatively quiet morning in front of Atlantic Center — the usually buzzing Brooklyn shopping complex kitty-corner to the site of Atlantic Yards.

Mikey Richardson, 29, had a Target bag in one hand and a cigarette in the other. Richardson comes to Target — the anchor store in the center — once or twice a month for the occasional household item.

Last week it was a power tool set.

The 29-year-old Crown Heights resident has no problem unloading his wallet at this particular national retailer, which boasts more than 1,700 stores throughout the country.

But Richardson changed his tune when it came to its competitor, the world’s number one retailer: Wal-Mart.

“It would hurt these small businesses, so I am going to say ‘No,'” Richardson said of supporting a Big Apple Wal-Mart.

For the second time in a decade, Wal-Mart, which boasted $408.2 billion in revenue in its last fiscal year, is exploring a New York City location. In 2005, the corporation attempted to settle in Rego Park, but was driven away by a cacophony of community opposition.

This time around Wal-Mart is trying to appeal directly to New Yorkers. It has stuffed flyers into mailboxes and flooded the airwaves with calls for support. Wal-Mart plans on circumventing the City Council by landing a location that could be developed “as of right” — with no need to go through the land use process.

It may have set its sights on Brooklyn.

Wal-Mart argues New York already has chain stores and national retailers. The skyline is dotted with Best Buy, Target, Bed Bath and Beyond and more.

So, why not Wal-Mart?

Wal-Mart Versus the Big Apple

Earlier this month, more than two dozen members of the City Council hosted a standing room only crowd in Lower Manhattan.

The topic: What effect Wal-Mart could have on the Big Apple’s economy? Wal-Mart did not attend the hearing. By focusing exclusively on Wal-Mart, its executives argued, the meeting was unfairly targeting the company.

Council officials, however, say it should.

“Wal-Mart is in a category by itself,” said Councilmember Karen Koslowitz, the chair of the council’s Consumer Affairs Committee, at the hearing. “Wal-Mart’s main competitors are Costco, Target, Sears and Kmart. Wal-Mart by itself exceeds the number of stores, employees, annual revenue and profits earned from each of these companies combined. Clearly Wal-Mart is different.”

Every one of those competitors — and then some — have New York City locations.

Target has seven. Costco has a location in every borough. There are at least five Kmarts in the Big Apple.

“The competitors do lower wages in order to compete when Wal-Mart comes in,” said Ken Jacobs, the chair of UC Berkeley’s Labor Center. “Target and Best Buy just aren’t big enough to have the same kind of effect.”

In addition to the size of the company, Wal-Mart opponents cite the mega-corporation’s so-called poor labor practices, including low wages and a failure to provide health care benefits.

But when it comes to average wages, Wal-Mart does not differ from other big box stores already rooted in New York City.

According to data provided by IBISWorld, an independent market research group, sales associates or cashiers at Target, Kmart, Barnes and Noble , Kohl’s and BJ’s Wholesale Club all make less on average than a Wal-Mart associate. At Target, according to IBISWorld, a cashier makes $7.96 an hour on average, while a Kmart cashier makes $7.59.

On average, a Wal-Mart associate, according to IBISWorld, makes $8.81 an hour. (Wal-Mart’s New York City Web site contends a full-time associate makes $13.09 per hour).

The Wal-Mart wage is far less than what a cashier would make at Costco, which IBISWorld estimates pays an average of $15.50 per hour.

According to an analysis by the Fiscal Policy Institute, the average wage for a unionized retail employee in New York City is about $13.33 an hour.

At Costco, 90 percent of employees are covered by health insurance, according to IBIS. Kmart, Home Depot, Lowe’s and Target also offer health insurance, but details of their plans were not made available. Target refused to answer questions from Gotham Gazette for this story.

Industry experts said all of these companies require employees to contribute to these health plans. Given their wages, Wal-Mart opponents said, many could not afford to participate.

Steve Restivo, Wal-Mart’s director of community affairs, said 53 percent of Wal-Mart associates are enrolled in their health care plan, and many others are covered by their spouses or are first time employees still using their parents’ insurance. Restivo said the company’s lowest cost plan is $11 per pay period for an associate and $33 for a family.

While improvements in its health coverage have been recognized, Wal-Mart still makes appearances on lists of employers with large numbers of employees receiving state-subsidized health care.

On top of wages and benefits, criticism of Walmart has centered on the size of the corporation and its proven ability to shut down small businesses and competitors. Advocates and storeowners oppose a Big Apple store in hopes of holding onto New York’s mom and pop shop character.

“Wal-Mart has more revenue than Austria’s economy, sells more guns than anyone on the planet, and has lifetime history of pushing out mom and pop shops — there is no comparison between Wal-Mart and anyone else. No matter how many times they use glitzy expensive PR campaigns to remake their image the truth always stays: Wal-Mart eliminates jobs, destroys small business and ruins neighborhoods,” said Stephanie Yazgi, director of Walmart Free NYC.

Beyond Healthcare

When bashing Wal-Mart, officials also point to a 10-year-old gender discrimination lawsuit making its way to the Supreme Court, which accuses the corporation of failing to promote and provide equal wages to at least 500,000 women.

The City Council is holding an oversight hearing on Thursday on the lawsuit and the corporation’s labor practices.

Both Target and Home Depot have had discrimination suits filed against them — though not on the scale of Wal-Mart’s. Home Depot has 21 stores in the five boroughs, according to a spokesperson.

To some, it appears there are more similarities than differences between these big box retailers.

“They all follow basically the same business model, which is based on preying on small businesses, paying low wages, squeezing suppliers, relying on overseas labor that is often exploited by building huge stores,” said Stacy Mitchell, the senior researcher for the Institute for Local Self Reliance. “Target’s marketing is we’re hip, we’re urban. … It’s worth looking at that with a skeptical eye and not assuming the companies are that different because Wal-Mart has a red state, country image.”

Wal-Mart’s Future In New York City

Restivo treads carefully when asked about Wal-Mart’s plans in the five boroughs.

The corporation is reportedly eyeing a site in East New York — part of a Related development called Gateway II. ShopRite, which is unionized, is also vying to locate there. In an interview with Gotham Gazette, Restivo would not name a single site Wal-Mart is seriously interested in.

“It’s no secret we want to open stores in New York City,” he said. “We are evaluating lots and lots of opportunities.”

In contrast to its pursuit of New York City space in 2005, Wal-Mart is exploring a number of different size stores — better suited for an urban setting, Restivo said. The typical Wal-Mart is about 80,000 square feet. It also has mid-sized stores, between 30,000 and 60,000 square feet, and plans on pilot testing smaller spaces under 30,000 square feet.

“We have made a lot of changes as a company. Quite frankly, we are a better company than we were five or six years ago,” Restivo said. “In the last year especially we have gotten more flexible in our approach.”

Wal-Mart isn’t just looking at New York City, but it plans on opening stores in cities across the country. One of its first urban stores was built in Chicago in 2006 . That location has 150,000 square feet. Restivo said Wal-Mart would eventually have dozens of stores in the Windy City.

He said Wal-Mart had no set number of stores they hoped to have in the five boroughs.

“Just because you live in a big city, it doesn’t mean you have to pay more for products, especially groceries,” said Restivo. According to industry experts, Wal-Mart provides 25 percent of all the groceries in the country.

During this month’s hearing, not a single council member expressed support for a New York City Wal-Mart. Wal-Mart is currently making its rounds with council members in an attempt to plead its case.

Although the company’s support in the city’s legislature is frigid, there are plenty of people in the five boroughs who want to see the corporation break ground. The city’s construction unions struck a five-year deal with Wal-Mart earlier this month, guaranteeing any new construction or rehabilitation would be done by union workers.

Some residents want to see Wal-Mart because of low prices and the promise of jobs. Back at Target, Joseph Quinlivan, a 50-year resident of Sheepshead Bay in Brooklyn, had no qualms about a Wal-Mart in his borough. Well, I think Wal-Mart should come,” the 85-year-old said. “Their prices are cheaper, and it brings jobs.”

Even Richardson, the 29-year-old Brooklynite who doesn’t support Wal-Mart in his borough, said he would probably shop there if the corporation were successful. “It’s cheaper,” he said.

© 2005 Gotham City Gazette

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