Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 29, 1990 TAG: 9004250626
SECTION: BUSINESS PAGE: D-1 EDITION: METRO
SOURCE: DIANA B. HENRIQUES THE NEW YORK TIMES
DATELINE: LENGTH: Long
The basis for Wall Street's enthusiasm is clear: the company's sales and profits have both grown at an average annual rate of more than 25 percent for the past decade, and its customers and shareholders display a loyalty that borders on the fanatical.
In fact, Food Lion of Salisbury, N.C., seems on its way to becoming the food-industry equivalent of Nordstrom's, that high-service department store chain whose superlative financial performance, year in and year out, made it the stock that retailing analysts would almost recommend in their sleep.
Unfortunately, the parallels go beyond their growth rate and profitability.
Late last year, Wall Street was caught by surprise when a local of the United Food and Commercial Workers International Union sued Nordstrom's, charging that the company had built its reputation for outstanding customer service on a foundation of unfair labor practices.
Nordstrom's stock suffered mightily.
Last month, the same union spearheaded an unflattering and troublesome lawsuit against Food Lion - a case that Wall Street has virtually ignored.
The Food Lion suit was filed in federal court in Charleston, S.C., on March 12 by a former employee, Rickey Bryant of West Columbia, S.C., assisted by Washington lawyers and employee benefits consultants hired by the union.
The civil action, which the plaintiffs are asking to have certified as a class action, accuses the supermarket chain and its top executives of illegally and systematically dismissing workers before they qualified for full benefits under the company's self-run profit-sharing plan.
The profit-sharing fund, established in 1960, now totals $266 million and has 21,000 employee participants.
The lawsuit contends that only a small fraction of the company's employees - "primarily highly compensated Food Lion officers," the documents note - were eligible for full benefits as of the end of 1987, the date of the most current reports filed with the Department of Labor. The lawsuit also charges that Food Lion is not providing dismissed workers with an extension of their health insurance coverage, as required by federal law.
Employers are required to offer the extended coverage to all departing employees except those fired for "gross misconduct."
The union-backed lawsuit charges that the company would improperly characterize the reasons for dismissals as "gross misconduct" so that the company could avoid offering the insurance coverage.
One of the lawyers representing Bryant is Ian Lanoff of Bredhoff & Kaiser in Washington, D.C. From 1977 until 1981, Lanoff was the administrator of the the labor department's pension and welfare benefits program, which helped administer the 1974 Employee Retirement Income Security Act, known as ERISA.
"What was unusual, in my experience, was the way this plan worked," said Lanoff referring to the Food Lion case. "People who failed to vest forfeit their interest, and the interest goes into the accounts of people who are vested. But in this case, a bigger portion of the forfeiture goes into the accounts of those with the longest tenure. Thus, the people who hire and fire are the very people who receive the benefits of the forfeitures."
Food Lion executives have denied the allegations and have characterized the lawsuit as a ploy by the food workers' union to gain a toehold in the company's non-unionized operations. So far, that empire encompasses 675 stores in 10 states from Delaware to Florida, with another 30 to 40 new stores in Texas on the drawing board, as well as warehouses, distribution centers and a fleet of trucks to service those stores.
The union "has not been able to get to first base with our employees," said Michael Mozingo, a Food Lion spokesman, when the lawsuit was filed last month. "They look to discredit the company and stop our growth." Nicholas Clark, assistant general counsel for the union, denies the company's charge. "The former employees came to us," Clark said. "Our interest is not in organizing; we don't have an organizing campaign, aside from some local instances. Their point in attacking us is to say that we shouldn't be assisting this worker. But if we don't, who will?"
The company has asked for and been granted an extension of time to file an answer to the complaint, Lanoff said. "We're really in the very early stages here."
Litigation, of course, is long and Wall Street's attention span is notoriously short. Still, it's difficult to understand why the Food Lion case has gotten so little notice on the street.
The company's advisers considered the legal dispute to be sufficiently important to be detailed fully in Food Lion's most recent annual filing with the Securities and Exchange Commission. "Because of the early stage of the litigation, the company is unable to express an opinion as to the likelihood of a favorable or unfavorable outcome in this matter, or as to the amount, if any, or range of possible loss," the SEC document reports.
The union claims that the case could affect thousands of workers and cost the company many millions of dollars. Aside from the legal expenses involved, the plaintiffs are seeking reinstatement, restoration of back pay and lost benefits, and punitive damages.
More important, the allegations may make the company's traditional invulnerability to unionization more difficult to maintain, especially as it moves into more unionized markets, such as those in the urban areas of Texas. That non-union structure, as analysts like to point out, is one of the reasons that Food Lion is able to offer its fiercely competitive food prices. And it was those "extra-low prices," the company's byword, that fueled the growth that Wall Street is so excited about.
by CNB