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Whole Foods may be liable for telling press that employees manipulated bonus program

By Nicole D. Prysby, J.D.

Whole Foods’ statements to the press that employees manipulated a bonus program and benefited from it at the expense of other store employees were sufficiently defamatory as to be highly offensive to a reasonable person, concluded a federal district court in the District of Columbia, denying in part the food retailer’s motion to dismiss. Although the employees were not named, the statements were directed at a specific group and they showed that their colleagues understood the statements to refer to them. The court dismissed some claims for lack of personal jurisdiction and dismissed the employees’ wrongful termination and breach of contract claims. The court held that the jurisdictions’ wage payment laws either did not contain sufficient public policy statements to meet the exception to the at-will rule, or had a statutory remedy that precluded use of the laws for a wrongful termination action. Finally, the Whole Foods handbook had extensive disclaimers and did not create a contract between Whole Foods and the employees (Vasquez v. Whole Foods Market, Inc., February 9, 2018, Mehta, A.).

Background. Former store team leaders for various Whole Foods stores in Virginia, Maryland, and the District of Columbia claimed they were fired in retaliation for blowing the whistle on the improper way Whole Foods conducted a bonus program. The program, known as “Gainsharing,” was designed to incentivize store departments to operate under budget by sharing cost savings with employees. Whole Foods allegedly undermined the Gainsharing program by shifting labor costs—if a department came in over budget corporate leadership had store management shift labor costs for that department to a department that had a budget surplus. Payroll specialists would then manually alter employee time records.

Following a complaint about the labor-shifting practice, Whole Foods launched an investigation and interviewed the employees who stated that it was a standard practice throughout Whole Foods stores and that they had been instructed by corporate to comply. After the interviews, the employees were placed on administrative leave and then fired, ostensibly for shifting labor costs and falsifying company documents. The employees also asserted that Whole Foods used published news stories to falsely accuse them of manipulating the Gainsharing program for their own benefit.

Personal jurisdiction. The court first considered whether it could exercise personal jurisdiction over a corporate spokesperson and certain Whole Foods entities for the claims brought by employees from the Maryland and Virginia stores. The court found problems with specific jurisdiction under the D.C. long-arm statute. The spokesperson was a resident of Texas and employed by a Whole Foods entity headquartered in Texas. In the court’s view, she did not have sufficient contact with D.C. because her actions there were isolated. She did not participate in the investigation; she merely received the results and reported on it. Personal jurisdiction was also lacking over the holding company headquartered in Texas, which did not own any stores in Maryland, Virginia, or D.C., and had no employees or tangible property in D.C. Merely being a corporate parent, without direct control, did not equal directly transacting business.

The court came to a different conclusion with respect to personal jurisdiction over the Delaware-based Whole Foods corporate entity that provided accounting, legal, and other administrative services to the regional stores. Because that entity provided legal services in connection with the investigation of the employees in D.C., it was plausible that the entity regularly did business in D.C.

Wrongful discharge. The employees were at at-will, but claimed their terminations violated the public policies of D.C., Maryland, and Virginia. The court found that none of the claims survived, but for different reasons. The D.C. employee claimed the D.C. wage payment law reflected a public policy warranting departure from the at-will rule. But because the District’s wage payment law has its own statutory remedy, the employee could not use it as a basis to recover under common law. The Maryland employees’ claims failed for a similar reason. The court found that the Virginia employees’ claims also failed because the Virginia wage payment law does not confer a right to receive payment, just a manner in which payment must be made.

Breach of contract and breach of the duty of good faith and fair dealing. The employees argued that their employment with Whole Foods was governed by the company’s “General Information Guide,” which applied to all stores and set forth a corrective action process. Failure to adhere to the process, they claimed, was a breach of contract and of the duty of good faith and fair dealing. But the court found the guide did not limit Whole Foods’ ability to terminate the employees without cause. It generally prescribed a corrective action process, but it vested substantial discretion in Whole Foods to carry out the process and reserved the right to terminate any employee without warning. The guide also contained sufficient disclaimers that it did not create any contractual rights; it stated that employment was at-will and could be terminated at any time and that it was not an employment contract.

Defamation and false light. The court found that the defamation and false light claims could proceed. The employees pointed to news statements made by Whole Foods asserting, for example, that nine store managers had been fired for manipulating a bonus program, and that the problem only occurred in nine stores. Whole Foods argued that none of the employees were named, but the court found that defamation can be established even where the individual is not specifically identified if the defamation is directed at a group. The employees were able to establish that their colleagues at Whole Foods knew about their terminations and would have reasonably thought the statements to have referred to them.

Whole Foods also argued that the statements were not defamatory and would not be highly offensive to a reasonable person. But the court found the statements to the press met that standard. Although one statement indicated that the employees had committed only a policy infraction, other statements asserted that they manipulated a bonus program and benefited from it at the expense of other store employees. Whole Foods argued that not all of the statements referenced by the employees were directly attributable to Whole Foods, but the court found it was sufficient that some of them were.