The past three years have brought a slew of new challenges — most of which emerged from the rapid growth of digital commerce — that have taken a marked toll on retail.
But a recent wave of litigation — targeting a decades-old retail procedure — is proving that the industry’s trials aren’t linked only to new phenomena.
Since 2016 the upsurge in the filing of class actions by retail workers alleging that they have been wronged by employee bag searches has led to multimillion-dollar payouts by companies such as Tilly, Ulta Beauty Inc. and CVS Pharmacy.
“Employee bag check litigation is very prevalent — especially here in California,” said Jon Meer, a California-based attorney with Seyfarth Shaw LLP. “Every big national retailer has been hit with one.”
Although each case has its nuances, generally the employees who file these suits allege that companies owe them lost wages for the time they must spend going through mandatory bag inspections. (In many retail spaces, employees often “clock out” at the back of the store and then must walk through the store — however large or small — to the front for the back check. In some cases, if shifts aren’t appropriately staggered, some workers may have to wait in line or for a busy manager to be called to conduct the inspection — all while being “off the clock.”)
While Tilly, Ulta, CVS and others have opted to settle employee grievances rather than fighting in court, heavy hitters such as Apple Inc. and sportswear companies Nike and Converse have successfully defeated similar class actions.
Apple’s win came in 2015 while Nike and its owned-brand Converse scored separate legal knockouts in September and October, respectively.
The judge in the Nike and Converse cases granted summary judgment, determining that based on testimony and evidence, the overwhelming majority of exit inspections took less than one minute, and that the duration of the exit inspections were “de minimis.”
“We looked at video footage of thousands and thousands of bag checks and the average amount of time was less than eight seconds — from the time somebody clocked out at the time clock, walked up to the front of the store, waited for a manager to do a bag check and walked out,” said Meer, the lead attorney who represented Nike and Converse in the suits. “No matter what job you have, at some point you have to walk away from your workstation, open a door and walk through it. It’s impossible to pay for every second of time.”
While the rulings could give new hope to some retailers, Meer said the uptick in filings could present an expensive challenge for retailers who are already struggling with tepid brick-and-mortar trends. This is particularly true during the current holiday season when employers are hiring thousands of seasonal workers — “making these suits more appetizing” for law firms on the hunt for massive class action settlements, according to Meer.
“It’s very expensive to have somebody review 7,000 hours of videotape and write a report” as Nike and Converse did, Meer explained. “It can cost hundreds and thousands of dollars — so [some] lawyers file these cases [hoping] to settle them based on the fact that it’s going to cost [retailers] so much to prove that the time is de minimis.”
Meanwhile, retailers are grappling with the tough decision of whether to remove employee bag checks altogether.
“When they’ve been asked why don’t they eliminate these bag checks, retailers say it’s very rarely that they catch anyone actually stealing something but they think they need [bag checks] as a deterrent,” Meer said. “They believe that there would be a lot of theft if the deterrent didn’t exist.”
Likewise, Jeff Van Sinderen, an analyst with B. Riley & Co LLC said he is uncertain about the impact of employee bag check litigation on retailers’ bottom lines but he has found shrinkage to have a significant effect on profits.
“Theft derived from employees remains a margin-impactful element for the industry and it is challenging for retailers to prevent it,” Van Sinderen said. “While retailers need to consider the cases being brought, it would seem that the bigger issue at hand is still preventing employee-related shrink in the first place.”
Meer is currently representing Eddie Bauer and Columbia Sportswear in similar employee bag check litigation.