Taco Bell shells out $13 million in OT suit

Nation's Restaurant News, March 19, 2001 by Alan J. Liddle

Chain cuts deal, but Pizza Hut trial looms

SAN JOSE, CALIF. -- Taco Bell Corp.'s $13 million midtrial settlement of a class-action lawsuit over the company's alleged abuse of California overtime-pay laws ended a five-year distraction for the chain but not for its parent, Tricon Global Restaurants.

In the wake of a case that saw Taco Bell accused of pressing for "off-the-clock" labor and intentionally classifying employees as overtime-exempt managers despite their primarily hourly-worker duties, Tricon's Dallas-based Pizza Hut division remains embroiled in similar litigation.

"I can understand that Tricon might be feeling flush with their [Taco Bell's] settlement, but, likewise, we are feeling pretty good about our position," remarked attorney Edward Wynne of the Righetti Wynne law firm in San Francisco.

Righetti Wynne represents about 1,500 salaried workers in a lawsuit against Pizza Hut and a franchisee, PacPizza LLC of San Ramon, Calif., which stands accused of unlawfully withholding overtime. Pizza Hut also allegedly denied vacation pa improperly.

Wynne's firm, which earlier represented plaintiffs in a case involving the U-Haul rental chain, is the only one "that has already tried an overtime class-action case in California ... and we won," he said.

Wendy's International of Dublin, Ohio, settled similar California

overtime-pay litigation involving 80 assistant managers for $1.85 million in 1999, according to San Jose lawyer Diane Ritchie. She is the attorney of record in that case and the one involving Taco Bell, which was settled Feb. 25 in San Jose.

Trial attorneys for Irvine, Calif.-based Taco Bell and lawyers representing about 3,100 of the chain's California restaurant managers and assistant managers agreed to end the lawsuit initiated by some of those workers in 1996. Lawyers for both sides said the proposed settlement calls for the chain to pay $3 million to the restaurant managers, $6 million to the assistant managers and $4 million to the plaintiffs' attorneys.

Taco Bell "is in the food business, not the litigation business," company general counsel Richard Smith said of the chain's reasons for settling. He characterized the agreement as "a fair outcome."

The settlement was reached in the fourth week of a jury trial expected to last eight weeks in Santa Clara County Superior Court. Trial judge Jamie Jacobs-May is expected to review and validate a written copy of the settlement this month.

If she approves the terms, then they will be communicated to the plaintiff managers and assistant managers, who would have to submit claims to win a portion of the award.

The managers also could raise objections, in which case the court "will have to decide how to hear and resolve them," Taco Bell's Smith said.

A major basis of the lawsuit, which was certified as a federal class action in 1998, was a California labor-code provision requiring that employers provide overtime pay daily to any workers who spent more than half of their eight-hour shifts performing the duties of hourly staffers. The plaintiffs charged that Taco Bell violated that rule for a number of years before the filing of the lawsuit and that the chain fostered a culture that encouraged or pressured assistant managers to "work off the clock"--allegations that were denied by the company.

Litigation cases against restaurant companies based on that overtime rule, such as those against Taco Bell, Wendy's and Pizza Hut, might become historical footnotes, however. That's because the state's Industrial Welfare Commission approved changes to California's overtime laws last year.

Those changes brought the state's test into line with more flexible, federal rules, officials of the California Restaurant Association said.

Both sides in the Taco Bell case put a positive spin on its outcome.

"Taco Bell has done some things differently" related to payroll, "and we believe the awareness [the company] had of the lawsuit contributed to that," remarked James Caputo, an attorney for the plaintiffs.

Caputo heads up the San Diego office of Philadelphia-based Spector Roseman & Kodroff. The San Diego firm of Milberg Weiss Bershad Hynes & Lerach also furnished the Taco Bell plaintiffs with trial counsel, including lead lawyer Steve Crandall.

The chain's trial attorneys, from the firm of Pillsbury Winthrop LLP, deferred comments about the case to Taco Bell corporate counsel Smith. He acknowledged that the company made "major changes in the way we paid people and the way we tracked their hours" in 1997. Those alterations "mostly" had to do with fixing "a problem of not being able to verify" that employees had been paid properly, he said.

"When the judge saw how [the new system] worked, she said the plaintiffs didn't have much of a case following 1997," Smith said. That observation by the judge, he maintained, "brought the plaintiffs' expectations back to earth" and made the settlement possible.

The settlement amount in the earlier Wendy's case yielded an average payment-per-platintiff of about $23,125, compared with an average of about $2,903 in the Taco Bell case.