Ralphs Agrees to $70M Settlement in Labor Fraud Case

July 6, 2006 (PLANSPONSOR.com) - Ralphs Grocery Company has reached a settlement with the US Attorney's Office for the Central District of California on charges that it improperly hired locked-out workers during a labor dispute in 2003 and 2004.

A press release from The Kroger Company, Ralphs corporate parent, says Ralphs will plead guilty to five of the 53-count indictment returned against it by a federal grand jury last December (See Federal Grand Jury Indicts Ralphs in Labor Fraud Scheme ). The five counts include violating Social Security and Internal Revenue Service record keeping laws, violating ERISA reporting laws, identity fraud and one count of conspiracy to violate federal law.

In addition, Ralphs has agreed to pay a fine of $20 million to the government and to create a $50 million restitution fund that will be used to pay restitution to Ralphs’ employees who were locked out during the labor dispute and to reimburse the unions for lock out benefits paid to Ralphs’ employees. According to the release, the company will also be placed on probation for three years.

If the plea agreement is approved by the US District Court for the Central District of California, all remaining counts of the indictment will be dismissed. The plea agreement will also resolve all pending and potential criminal claims against Ralphs related to this matter.

The December indictment alleged the company used false names and Social Security numbers to rehire employees locked out during a labor dispute. Ralphs concealed its illegal rehiring by assigning the employees to stores far from their normal workplaces, moving them from store to store and requiring them to wear name tags bearing their false names.

Additionally, the indictment said Ralphs issued thousands of weekly payroll checks under the false names that rehired workers used and allowed the paychecks to be cashed at Ralphs stores to conceal and promote the ongoing use of false identities.

“We believe in accountability,” said Dave Hirz, Ralphs’ president, in the press release. “Most of our managers followed the law and adhered to company policies. 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. It was against the law; it was against our Company’s policies; and it violated our core values of honesty, respect and integrity.”