Wal-Mart Subject Of Another Whistleblower Complaint

Wal-Mart Stores is the subject of a whistleblower complaint for the second time in three weeks. A complaint filed Friday with the U.S. Labor Department asserts that Rickey Armstrong, a quality auditor in Wal-Mart’s Dallas Optical Laboratory, was fired by the retailing giant on March 12 in violation of Section 806 of The Sarbanes-Oxley Act of 2002.

The complaint asserts that in February and March of 2005, Armstrong made reports to Wal-Mart’s human resources organization and others within management of conduct that he “reasonably believed” to be in violation of federal law pertaining to fraud against the company’s shareholders. Wal-Mart responded by retaliating against Armstrong and terminating his employment, it adds.

The legal filing calls on Wal-Mart to reinstate Armstrong pending a full hearing on the merits of his complaint by an Administrative Law Judge. It also seeks back pay with interest as compensation for lost wages due to his “retaliatory discharge,” compensatory damages—including litigation costs—expert witness fees, reasonable attorneys’ fees, and “other and further relief as may be directed in order to make him whole.”

Kardell

The complaint was filed by Steve Kardell of the Dallas-based law firm, Clouse Dunn Hirsch. Kardell is the same attorney who last month filed a complaint with the Labor Department that the world’s largest retailer fired Jared Bowen in retaliation for reporting to Wal-Mart’s senior management critical information that led to the resignation of Vice Chairman Thomas Coughlin. In related news, Wal-Mart said last Friday that it is rescinding the retirement package for Coughlin.

In an interview with Compliance Week, Kardell calls the latest case more interesting than the Bowen case because it involves a “Soviet-style response.”

Burning Down The House

At the heart of the case are charges that Armstrong was punished for reporting violations of Wal-Mart’s Statement of Ethics (see box above, right), which in early 2005 was reaffirmed by both President and CEO Lee Scott, and Chairman of the Board Rob Walton, in the wake of a scandal that led to the termination of a number of managers, including Coughlin.

Armstrong joined Wal-Mart in July 2003 as a quality auditor. The complaint, which paints the department as a close knit group of individuals who had been working together for nine or 10 years, asserts that in February 2005, Armstrong detailed for the company’s human resources department conduct by his supervisor, Karl Lauther—as well as several associates—which he believed to constitute fraud against Wal-Mart’s shareholders. In a report and a discussion with Rick Carlson, the HR director for Wal-Mart’s Optical Labs and retail outlets, Armstrong alleged that Lauther, a lab manager named Melissa Hyatt, and other lab personnel were using company resources for their personal benefit or for the benefit of friends and family. In addition, the complaint alleges that the individuals were falsifying company records or reports for their own financial gain, and were misappropriating funds entrusted to the company.

Armstrong also accused Lauther and Hyatt of directing lab maintenance personnel to go to their homes and service their personal vehicles while “on the clock.” They were also allegedly directing lab groundskeepers to perform lawn care and other related functions at their homes—at the expense of the company—and even allegedly directed Lab personnel to construct (on company time) a pavilion in the Lab parking lot that was later used for Melissa Hyatt’s wedding.

Armstrong also alleged that Lauther and other lab personnel falsified reports so as to reflect that lenses broken through negligence were the result of “manufacturing defects,” thereby increasing the amount of their quarterly bonuses. He also charged that the Optical Lab’s offices were used as a cost-free day-care facility by several female employees, and that Lauther and others allowed certain lab employees to clock in on Saturdays and receive overtime while performing no work. In addition, he alleged misappropriation of funds collected by Wal-Mart personnel for the “Prevent Blindness” charity.

SOX 806

Excerpt below from Section 806 of The Sarbanes-Oxley Act of 2002, "Protection For Employees Of Publicly Traded Companies Who Provide Evidence Of Fraud":

(a) WHISTLEBLOWER PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES—No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee:

(1) to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by:(A) a Federal regulatory or law enforcement agency;(B) any Member of Congress or any committee of Congress; or(C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct); or(2) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.(b) ENFORCEMENT ACTION

(1) IN GENERAL- A person who alleges discharge or other discrimination by any person in violation of subsection (a) may seek relief under subsection (c), by

(A) filing a complaint with the Secretary of Labor; or(B) if the Secretary has not issued a final decision within 180 days of the filing of the complaint and there is no showing that such delay is due to the bad faith of the claimant, bringing an action at law or equity for de novo review in the appropriate district court of the United States, which shall have jurisdiction over such an action without regard to the amount in controversy.(2) PROCEDURE- (A) IN GENERAL- An action under paragraph (1)(A) shall be governed under the rules and procedures set forth in section 42121(b) of title 49, United States Code.(B) EXCEPTION- Notification made under section 42121(b)(1) of title 49, United States Code, shall be made to the person named in the complaint and to the employer.(C) BURDENS OF PROOF- An action brought under paragraph (1)(B) shall be governed by the legal burdens of proof set forth in section 42121(b) of title 49, United States Code.(D) STATUTE OF LIMITATIONS- An action under paragraph (1) shall be commenced not later than 90 days after the date on which the violation occurs.(c) REMEDIES

(1) IN GENERAL- An employee prevailing in any action under subsection (b)(1) shall be entitled to all relief necessary to make the employee whole.(2) COMPENSATORY DAMAGES- Relief for any action under paragraph (1) shall include:(A) reinstatement with the same seniority status that the employee would have had, but for the discrimination;(B) the amount of back pay, with interest; and(C) compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorney fees.(d) RIGHTS RETAINED BY EMPLOYEE- Nothing in this section shall be deemed to diminish the rights, privileges, or remedies of any employee under any Federal or State law, or under any collective bargaining agreement.

Partial excerpt from Section 806 of The Sarbanes-Oxley Act of 2002.

According to the complaint, HR director Carlson ended the discussion abruptly. “After 45 minutes, Carlson essentially cut Armstrong off, telling him that he ‘had enough,’ and that he would look into the matters that Armstrong had raised,” the complaint alleges. Two weeks later, Armstrong was told by Lauther and Mike Broussard, a Wal-Mart loss prevention employee, that he had been suspended without pay. According to the complaint, when Armstrong asked for a reason, Lauther replied that there had been complaints about him, but declined to provide any additional information.

When Armstrong called Carlson’s office in Bentonville, Ark.—Wal-Mart’s headquarters—to ask for an explanation, Carlson told Armstrong that there were allegations of violent conduct in the workplace, and that he was being suspended until the matter could be fully investigated, according to the complaint. Armstrong also alleges that Carlson ignored his inquiry into the items that had been raised during their earlier conversation.

Armstrong later learned from others at the Lab that Lauther was conducting the investigation himself, the complaint notes. “Lauther’s methodology consisted of forcing various hourly Lab employees to sign statements (that had been drafted by Lauther) accusing Armstrong of threatening to ‘kill Lauther,’ ‘snap [Lauther’s] neck,’ and/or burn Lauther’s house down,” according to the complaint. “At no time were any of these employees asked about any of the issues raised by Armstrong.” It also asserts that Lauther “strenuously avoided” talking to anyone who might speak favorably of Armstrong or his conduct.

On March 10, in a meeting that lasted more than two hours, Lauther “interrogated” Armstrong non-stop about fabricated allegations of violent and threatening behavior, the complaint says. “The only one of more than 30 questions that Armstrong could answer in the affirmative was an inquiry as to whether he had ever served time in prison,” the document adds, noting that from 1992 to 1996, Armstrong was incarcerated for a non-violent offense related to trafficking in automobile parts. He has no record of violent behavior, it states.

Two days later he was fired. “Armstrong was told that his employment was terminated, effective immediately, for unspecified ‘gross misconduct,’ and use of ‘vulgar language’ in the workplace,” the complaint states. “Curiously, no mention was made of the workplace violence allegations that formed the centerpiece of Lauther’s inquiry.”

A Personal Matter

Interestingly, Lauther and Hyatt were ultimately terminated by Wal-Mart, “in part because of the conduct reported by Armstrong,” the complaint points out. “It is believed, however, that both individuals remain on the Wal-Mart payroll for reasons that are not clear,” it adds.

Marty Heires, a spokesman for Wal-Mart, would not confirm nor deny whether the two individuals are still on the payroll. “I can’t talk about it,” he says. “I can’t give detail on that. It is beyond where we can go on this because it’s a personnel matter.”

Addressing the complaint, he says Armstrong was terminated “for gross misconduct.” He is referring to allegations that Armstrong violated Wal-Mart’s workplace violence policy. “Specifically, he made threats of serious bodily harm to management,” Heires states. “A number of his co-workers heard these threats, including threats to break the necks of these managers and follow them home.”

He also says co-workers heard Armstrong say he spent time in prison. When asked what he served time in prison for, Heires says he was unsure, adding that Kardell, Armstrong’s lawyers, said his client is a convicted felon. The Wal-Mart spokesman also notes that this conviction was “not disclosed on Armstrong’s employment application. Asked whether Armstrong lied on his application, Heires responds it is “an error of omission.”

As for the issue of raising concerns within the company, Heires asserts that in general there are “multiple opportunities of all associates to express concerns about any situation.” He insists the company has an open door policy that allows any associates to raise any concerns with any supervisors or salaried members of management, adding that the company has an anonymous and confidential hotline. “There are multiple ways that an associate can raise these concerns,” he adds.

Heires also quotes the company’s Statement of Ethics, noting that, “Wal-Mart prohibits any associate from retaliating against anyone who in good faith raises or helps resolve an ethics concern.”

Asked whether there are similarities between the Armstrong and Bowen cases, he adds, “The only similarity is they have the same lawyer.”

Compliance Week will keep subscribers informed of developments in the case.