Ralphs to Pay $70 Million for Illegal Hiring Scheme

The Ralphs grocery chain said Friday that it had agreed to pay $70 million in fines and restitution to settle criminal charges that it illegally rehired locked-out workers during the supermarket labor dispute in Southern California more than two years ago.

Under a proposed agreement filed Friday in U.S. District Court in Los Angeles, Ralphs would plead guilty to five felony charges included in the 53-count grand jury indictment returned against the company in December.

Ralphs was charged with violating federal laws by secretly rehiring about 1,000 locked-out workers during the 4 1/2 -month strike and lockout from October 2003 to February 2004. The case had been scheduled to go to trial Aug. 15 before U.S. District Judge Percy Anderson, who must approve the plea agreement.

In the agreement, Ralphs admitted that it used fake names and Social Security numbers to pull off the deception. Authorities said the scheme was designed to help keep stores running during the labor dispute, the longest and largest in U.S. history involving the supermarket industry.

The labor strife affected 852 stores and nearly 60,000 grocery workers at supermarkets across Southern and Central California. The dispute cost the grocery companies more than $1.5 billion in sales before it ended on Feb. 29, 2004, when workers ratified a new contract whose terms were widely seen as a defeat for the union.

“This labor dispute affected nearly everyone in Southern California,” U.S. Atty. Debra Wong Yang said in a statement. “I hope that the resolution of this case will provide some relief to the thousands of workers who were injured by the criminal conduct that unfairly prolonged” the dispute.

Ralphs said it would plead guilty to violating federal laws regarding identity fraud, pension reporting and Social Security and Internal Revenue Service record-keeping, as well as one count of conspiracy.

The grocery chain said it would pay a $20-million fine to the federal government and create a $50-million restitution fund. Most of the money would be paid to the 19,000 Ralphs grocery clerks and meat cutters who were locked out during the dispute.

Officials of the United Food and Commercial Workers union, which represented the grocery employees, estimated that some workers could receive as much as $3,000 from the settlement.

The amount each union member receives from the fund would depend on factors such as the worker’s pay rate, the amount of regular strike pay received and how much money, if any, the worker made at other jobs during the labor dispute.

The fund also would be used to reimburse the union for benefits paid to Ralphs employees during the standoff and to reimburse the grocery workers’ health and retirement funds.

The company also would be placed on three years’ probation and would establish court-supervised training programs.

Ralphs and its parent, Cincinnati-based Kroger Co., also agreed to cooperate with the government’s continuing investigation into the illegal hiring.

The agreement doesn’t prevent the government from prosecuting current or former employees of Ralphs or related companies that were involved in the illegal conduct. So far, no individuals have been charged in the case.

The U.S. attorney’s office said Ralphs admitted that two of its executives who helped oversee the employee health and retirement funds concealed the illegal hiring from other fund trustees. The unnamed executives were serving as top negotiators in contract talks with the union at the time, the government said.

If convicted on all counts in the indictment, Ralphs and Kroger could have faced fines of more than $100 million, plus restitution for workers and the union.

The amount of money the grocery chain agreed to pay was less important than the signal a plea agreement sent to the business community, said Nelson Lichtenstein, a history professor and director of the Center for the Study of Work, Labor and Democracy at UC Santa Barbara.

“The fact that Ralphs had to plead guilty and admitted to the tactics they used during the long dispute is clearly a victory for the union,” Lichtenstein said. “But it’s also a shot across the bow to businesses who think the days of the Wild West have returned in labor relations.”

At a news conference in the parking lot of a Ralphs store in Studio City, Rick Icaza, president of UFCW Local 770 in Los Angeles, said the company “made a big mistake. They should never have done what they did. If not for this illegal activity, this dispute would not have gone on for so long.”

Workers said money from the settlement wouldn’t come close to repairing the financial damage they suffered during the strike and lockout. But they said they felt vindicated by Ralphs’ guilty plea.

“We know they were guilty, and they didn’t get away with it. We feel validated,” said Jackie Gitmed, 46, a cashier from Burbank who said she started working at Ralphs 30 years ago.

Gitmed said she accumulated $15,000 in debt during the labor battle and was still paying back relatives who had helped her.

Of the workers who crossed the picket line and were rehired under the cover of false identities, she said, “I’m not bitter, but we were supposed to all be in this together.”

None of the workers who were illegally hired have been charged. “The investigation is focusing on the people most culpable for the criminal conduct,” said Thom Mrozek, spokesman for the U.S. attorney’s office.

Kroger had admitted earlier that managers at some Ralphs stores had falsified records to rehire workers, but said the practice was limited to only a few hundred workers and wasn’t condoned by upper management.

“Most of our managers followed the law and adhered to company policies,” Ralphs President Dave Hirz said in a statement Friday. “Nonetheless, the illegal hiring of some locked-out employees that occurred at Ralphs during the strike was wrong and we regret that it took place.”

Kroger initially placed the number of illegally hired workers at about 200 but has since concluded that the number might have approached 300, company spokeswoman Lynn Marmer said.

Kroger said it already had set aside enough money to cover the costs of the settlement.

The labor dispute began when union workers went on strike Oct. 11, 2003, against Safeway Inc. supermarkets Vons and Pavilions rather than accept cuts in their health benefits and pay. Ralphs and Albertsons Inc., adhering to a secret pact among the chains, locked out their workers the next day.

In addition to the criminal charges, the agreement announced Friday would also settle a complaint the union had filed against Ralphs with the National Labor Relations Board.

The labor board’s Los Angeles office had dismissed the complaint, but the union was appealing.

Ralphs and the other chains still face a state antitrust lawsuit over an agreement to support one another financially during the dispute.

And the companies have struggled to regain the customers they had lost to rivals.

“The hard line that the grocery chains took turned out to be a good deal more costly than they thought,” UC Santa Barbara’s Lichtenstein said.