HR Intel: Chipotle Struggling with the Whole HR Enchilada


It’s been a rough year for Chipotle, but sadly for the broker of burritos, there’s no end in sight to the bad press. Last August, an outbreak of E. coli bacteria and norovirus forced Chipotle to close dozens of stores around the country as their “fresh” ingredients had been contaminated. That culminated with a February 2016 company-wide shut down for a few hours to conduct food safety audits and a food safety meeting involving all of Chipotle’s 1900+ stores around the country. Wall Street restaurant analysts say that the food crisis alone knocked about $11 billion off of Chipotle’s market value.

Fast forward to the present, when Chipotle is now dealing with allegations of widespread “wage theft” from employees and declining confidence in the company’s upper management. At least one industry analyst – the same one who predicted a restaurant recession that we referenced in the last edition of HR Intel – says Chipotle’s management has “displayed immense hubris” in its handling of the various crises that have befallen the company in the past 12 months.

The most alarming and immediate crisis, however, is not the damaged food safety reputation – which can certainly recover over time – but instead, a 10,000+ current and former employee-strong class action lawsuit against Chipotle, currently pending in a Colorado federal court. The lawsuit claims that Chipotle workers were routinely asked to “clock out” by their managers at the end of shifts, but to continue working after they had done so to help Chipotle achieve their goal of trimming costs. Chipotle has faced lawsuits of this kind before, but this is – by far – the biggest, and it claims that wage theft issues are a “systemic problem” at Chipotle, rather than the misdeeds of a few rogue managers.

Despite their strength in numbers, the members of the Chipotle class action will face an uphill battle in proving that the wage theft strategy came from the top. Assuming that Chipotle is smart enough to not put such instructions into official publications like the employee handbook, the plaintiff class members will have to recreate either a paper trail of such directives or establish that there was an “unwritten rule” in favor of post-clock-out work. In that regard, it’ll be a bit like proving that a “Code Red” happened, which proved exceedingly difficult for Tom Cruise’s Lieutenant Kaffee in “A Few Good Men.”

Chipotle will be looking for a few good lawyers in the near future, both to defend the company against this lawsuit, but also to help it shore up compliance exposures. One example of that is the Chipotle handbook, which was recently “red-lined” by the National Labor Relations Board. In particular, the NLRB ruled that Chipotle’s confidentiality policy, its prohibition on discussion of politics and religion, its restriction on soliciting coworker support and its ethical communications policy all violated the National Labor Relations Act by “chilling” employees from exercising their collective bargaining rights. Too bad they didn’t chill the lettuce instead, eh?

Of course, it’s almost impossible to diagnose the root of these issues from the outside looking in. When companies are subject to such immense scrutiny, pressure from shareholders, shrinking margins and declining performance, things like wage and hour compliance tend to get moved to the back burner. Only time will tell if Chipotle can regain its reputation, the trust of its employees and the billions in revenue that evaporated in only 12 months. Given how quickly things can spiral out of control, however, perhaps there’s no excuse for moving HR issues like these to the back burner, ever.

At the Intersection of Politics and HR

Two different bills have recently been proposed in Congress to either overturn the Department of Labor’s new overtime rule or to delay its implementation for several years. Interestingly, the GOP has not pressed the issue, perhaps due in part to the popularity of the DOL’s new rule in some of the key battleground states. According to the National Employment Law Project, at least three quarters of voters in seven key battleground states support the new overtime rule, so attacking it might not be considered politically tenable until after November’s monumental election.

You probably heard about Colin Kaepernick’s anti-police protest, but from an HR perspective, it’s tremendously intriguing to watch this dance between free speech and employment unfold in real time. First Kaepernick sat through the national anthem, then he was encouraged to take a more thoughtful approach by the league and military veterans and now he’s kneeling. Well in that case!

There is actually precedent for this in pro sports – former NBA commissioner David Stern once suspended Mahmoud Abdul-Rauf for his refusal to stand for the national anthem – but the key thing to remember here is that free speech works both ways. Kaepernick is free to protest and to say how he feels about the police, but his team and the NFL are free to disagree with his opinion in any way that the NFL collective bargaining agreement allows them to.

Currently, Kaepernick is the backup quarterback to Blaine Gabbert, so ask yourself how much of a distraction you’d be willing to put up with for an employee who is – frankly – not all that valuable to his team at the moment. That could change, for sure, but it would be naïve to think that the 49ers won’t consider Kaepernick’s protest – and the distraction it causes – as relevant insofar as his value to the team.

Compliance Carousel

Is this the beginning of the end of North Carolina’s anti-LGBT “bathroom bill?” A federal judge recently blocked the University of North Carolina from enforcing the law against three transgender individuals either enrolled at or employed by the college. The judge’s ruling doesn’t overturn the bill, but it could be the first sign of “chipping away” at what the plaintiffs in this case call “an injustice” that is “harming thousands of other transgender people who call North Carolina home.”

The EEOC is suing a Scottsdale, Arizona car dealership for disability discrimination based on the company having rescinded an offer of employment due to a candidate’s “lawful prescription drug use.”

No word on the substance in question, but the EEOC’s guidance on medical examinations and inquiries about prescription use indicates that asking employees about their use of prescription medications is a really bad idea unless the question and answer are job-related, and the need for the information is consistent with business necessity in preserving public safety. Employers who ask these types of questions must be able to demonstrate that an employee (or applicant) would be unable to perform essential functions of the job due to their use of a prescription medication.

HR Quick Hitters

Wal-Mart is cutting an additional 7,000 back office jobs across the US, but despite the mass exodus of staffers, Wal-Mart is actually doing quite well in trying to modernize its retail offering to compete with Amazon. Wal-Mart’s most recent earnings report – delivered right after we reported that everyone except for Home Depot is “shrinking” – indicated that third quarter sales grew by 3% compared to 2015.

While the DOL’s new overtime rule remains the law of the land, DOL enforcers continue to target the big fish. That means McDonald’s, Subway and Dunkin’ Donuts should expect no respite from the DOL, which has targeted this particular trio of fast food companies 2,023 times for investigations since President Barack Obama took office in 2009. That’s more investigations than the next 17 biggest fast food companies experienced in the same period of time, combined.

Hershey just doesn’t want to be acquired. The company has seen many suitors come and go over the years, the latest of which was Mondelez International, which sought to purchase Hershey and wrap it into its portfolio of snack foods, but bailed on the deal when Hershey insisted on at least $125 per share. In addition to the stock price, some of the sticking points that brought down the Mondelez-Hershey merger were perceived cultural differences between the two companies, Hershey’s reputation for spurning shareholder interests in favor of company stability and the involvement of the Hershey Trust Co., the nonprofit that controls the company.

How is this song related to HR?

In the last edition of HR Intel, we asked you how “People Are People” by Depeche Mode is related to HR. This song is one long rhetorical question regarding the difficulties some people have cooperating or working with other individuals that they perceive as different. It’s a heavy-handed suggestion that we shouldn’t judge books by their cover, that we should get to know each other beyond skin color and creed and that we should find common ground in decency and thoughtfulness before acting rashly.

We leave you with The Star Spangled Banner, performed here (incredibly, I might add) by Whitney Houston right before the 1991 Super Bowl.

Tell us how you think this song is related to HR in the comments section below.

Originally posted on the XpertHR blog



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