Inspector General's Report Critical of Way Labor Dept. Handled Wal-Mart Deal

A report issued by the Department of Labor's inspector general scolds the agency's Wage and Hour Division (WHD) for reaching a Jan. 11 compliance agreement with the retailer that promised Wal-Mart 15 days' written notice before any WHD inspections of Wal-Mart stores for child labor law violations.

The agreement, which stemmed from a WHD investigation that found Wal-Mart had allowed teenage workers in three states to operate hazardous equipment, revealed "serious breakdowns" in the way WHD crafts such agreements, according to the report.

"These breakdowns resulted in WHD entering into an agreement that gave significant concessions to Wal-Mart advance notification of future investigations and ability to avoid civil money penalties (CMPs) in exchange for little commitment from the employer beyond what it was already doing or required to do by law," the report says.

Among the report's conclusions:

  • Lack of a formal WHD process for developing agreements with employers resulted in Wal-Mart lawyers writing important provisions of the Wal-Mart/Labor Department agreement. The inspector general's office expressed concern that, despite the "extensive involvement" of Wal-Mart's lawyers, the Labor Department's office of the solicitor was not consulted or asked to be involved.
  • Giving Wal-Mart 15 days' advance notice of WHD child labor inspections was a breach of WHD's own guidelines.
  • A provision in the agreement that called for Wal-Mart and the Department of Labor to jointly issue press releases about the settlement violated the agency's press policies. (The Department of Labor issued a press release more than a month after the Wal-Mart agreement was finalized, and the news release omitted mention of the agency's promise to give Wal-Mart 15 days' notice of any child labor inspections.)
  • One provision of the agreement may allow Wal-Mart to avoid being cited and fined for child labor violations as long as the retailer brings its facilities into compliance within 10 days of a WHD formal notice of a violation.
  • WHD did not have policies and procedures in place that would have provided guidelines for its employees to negotiate, develop and approve agreements with employers.

Under the terms of the Jan. 11 compliance agreement, Wal-Mart agreed to pay $135,540 in fines, provide training on child labor laws to store managers and post warning signs indicating age restrictions on all company-owned hazardous equipment.

The Bentonville, Ark.-based retailer was accused of allowing 16- and 17-year-old employees in Arkansas, Connecticut and New Hampshire to operate heavy machinery such as scrap paper balers and forklifts. However, under the terms of the agreement, Wal-Mart was not required to admit any wrongdoing, and the retailer, consequently, has denied the Labor Department's allegations.

U.S. Rep. George Miller, D-Calif., who requested the inspector general's investigation of the Wal-Mart deal, said the report only confirms his suspicion that "the Bush administration was doing a favor for a powerful friend by making the deal."

Miller interpreted the report as saying that "the agreement has brought significant benefits to Wal-Mart while weakening future federal oversight of labor practices at Wal-Mart."

"Instead of looking out for all Americans, the Bush administration took care of one of its closest friends Wal-Mart," Miller said.

Wal-Mart: Agreement Was 'Appropriate Course of Action'

While the report describes a settlement agreement that flies in the face of Labor Department policies and practices, the inspector general's office found that the Wal-Mart agreement did not violate applicable federal laws or regulations, nor did the agreement appear to be the result of undue pressure from Wal-Mart or from other sources.

A Wal-Mart spokesperson said those findings are "important to note."

"We continue to believe that the agreement was the appropriate course of action," Wal-Mart Senior Communications Manager Marty Heires said. "Our goal is to make sure that our stores are in full compliance and that our associates are fully informed of all policies, regulations and laws that apply to the employment of workers who are 16 and 17 years of age. We do not employ workers under the age of 16."

Victoria Lipnic, head of the Employment Standards Administration which oversees WHD says in a letter to Labor Department Inspector General Gorden Heddell that "we strongly disagree" with the report's characterization of the effectiveness of the Wal-Mart deal.

According to Lipnic, WHD was able to compel Wal-Mart to conduct more than 9,000 facility audits, train more than 160,000 managers and supervisors on child labor laws and incorporate additional information on child labor laws into its training programs and new-hire materials all as a result of the settlement agreement.

"Most of these measures never would have been implemented in the absence of the agreement," Lipnic says in her letter.

Lipnic adds that the inspector general's report "misinterprets and mischaracterizes" other key components of the Wal-Mart deal. She says advance-notice provisions such as the one in the Wal-Mart agreement have been approved "in nearly 20 settlement agreements dating back to the previous administration and are expressly incorporated into WHD's Field Operations Handbook."

The inspector general's report, though, contends that the agreement between Wal-Mart and WHD "was significantly different from other agreements entered into by WHD."

"Specifically, the Wal-Mart agreement had the most far-reaching restrictions on WHD's authority to conduct investigations and assess CMPs," the report says. "In our view, the Wal-Mart agreement may adversely impact WHD's authority to conduct future investigations and issue citations or penalty assessments, and potentially restricts information to the public."

Lipnic in the letter says she does agree with the report's conclusion that WHD's previous processes for negotiating settlement agreements "required greater control and oversight." Lipnic points out that WHD conducted an internal review of its settlement negotiation process earlier this year and on June 27 issued a new set of procedures and guidelines for developing, negotiating and reviewing settlement agreements.

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