Wage Law

A proposed settlement between California retail workers and Gap Inc., the operator of The Gap and Banana Republic clothing chains, could pay almost 55,000 employees a total of $1.8 million to settle a 2-year-old lawsuit. The payout is proposed to be given in the form of gift cards worth anywhere from $40 to $260 per employee.

The employees alleged that Gap compelled its workers to patronize its stores to satisfy dress codes that only allowed the wearing of Gap apparel while workers were on duty. The company denied that its policies violated the law, claiming that employees are "encouraged to wear brand-like merchandise, but it's absolutely not mandatory," according to Kimberly Terry, a spokeswoman for the chains.

nThe settlement is believed to be just the second of its kind. In 2003, Abercrombie & Fitch paid $2.2 million to settle similar wardrobing claims involving even more employees. "Wardrobing" is a term used in the retail industry to describe policies under which retail workers wear the same fashions that their employer is selling to customers. When the employees are forced to buy their work clothes from the employer, however, companies can run afoul of California Labor Code § 450, which prohibits employers requiring their workers to purchase from them "anything of value."

The practical effect of a policy that merely "suggests" or "encourages" workers to wear their employers' fashion is often to make employees believe that they need to buy the clothing to be considered a good employee. However, the potential that an employee could disregard the policy without consequences presented a challenge for the attorneys for the class, Patrick R. Kitchin and Daniel Feder. To prevail, the class would have needed to prove that the company's practices had the effect of "compelling" workers to follow the suggestions at the risk of losing their jobs and/or opportunities for advancement. This, Kitchen argued, violated both Labor Code § 450 and the Industrial Welfare Commission's wage order number seven (mercantile industry), which provides that "[w]hen uniforms are required by the employer to be worn by the employee as a condition of employment, such uniforms shall be provided and maintained by the employer."

As "coupon settlements" go, this might be one of the better ones, although there is a distinct irony in paying employees with Gap clothing gift cards as compensation for forcing them to buy Gap clothing in the first instance. However, employees need not return their clothing purchases giving rise to the claims, and they can use or sell the gifts card, which routinely sell on eBay for 70-95% of their face value. We haven't seen all of the terms of the settlement, but assuming that the compensation is rationally based upon the expected amount of clothing purchases necessary to meet the suggested wardrobe standards, it should be approved by the San Francisco Superior Court, and gift cards could be paid to the employees within three or four months.