Saturday, September 28, 2013

Owner of Red Lobster & Olive Garden Sued for Back Wages

William (Bill) Darden founded the Red Lobster Inns of America and opened the first Red Lobster restaurant in Lakeland, Florida in 1968. By 1970 he had expanded to three locations in the state with two more under construction. While the locations were profitable, the company lacked the resources to expand further.

So just like many other successful small business all across America, that year Darden sold his company to a major corporation, who with their economy of scale, their political influence, their high-paid lobbyists and their army of lawyers and tax attorneys, could better manipulate wages, taxes, and regulations. (After monopolies, mergers and acquisitions was the next business model prior to offshoring.)

Darden had sold his business to food giant General Mills in 1970, and by 1995 Darden Restaurants was spun off from General Mills and became a fully separate corporate entity (not person) on May 31 when its shares went on sale on the NYSE.

As of 2013 Darden became the largest casual dining restaurant company in the world. It operates more than 2,000 restaurants in North America: Red Lobster, Olive Garden, LongHorn Steakhouse, Bahama Breeze, The Capital Grille, Seasons 52, Eddie V’s and Yard House --- and leads each of its market segments while employing more than 185,000 people.

Many of the restaurant workers at The Darden Restaurant Group earn wages below the minimum wage — with tipped minimum wages as low at $2.13 an hour and non-tipped wages as low as $7.25 an hour. In addition, many workers are not compensated for time that they work off-the-clock or are not paid appropriate overtime wages. A lawsuit provides Darden’s current and former servers an opportunity seek back wages owed to them for the time spent doing general maintenance or preparatory duties that they performed for less than minimum wage.

Saru Jayaraman, via MoveOn's public petition website, writes in a newsletter:

"We just got back from Darden Restaurants Inc. annual shareholder's meeting, during which Darden's CEO flatly denied that any of their employees earn the tipped minimum wage of $2.13 hour. As you know, Darden is the world’s largest full-service restaurant chain and parent company of the popular Olive Garden, The Capital Grille and Red Lobster eateries, among others and they've been actively engaged in fights to block minimum wage increases and paid sick day bills --- and show no signs of stopping. The corporate restaurant industry [and their lobbyist, the National Restaurant Association] has been speaking on behalf of restaurant workers for too long." --- Saru Jayaraman also wrote an excellent op-ed piece about Darden.

* Here is a list at the Department of Labor of all the States and what their minimum wage is for tipped employees in the Hotel and Restaurant Industry (e.g. bartenders, cocktail servers, food servers, room service waiters, bus persons, etc.) Also see Restaurants and Fast Food Establishments Under the Fair Labor Standards Act.

Clarence Otis Jr., who has been with the company for 17 years, has been the CEO of Darden Restaurants for the last 7 years. Forbes notes his 5-Year executive compensation as $23.11 million. Mr. Otis is also on the board of directors for Verizon Communications. Otis was named the 11th most powerful person in Central Florida by the Orlando Sentinel in 2010 where Daren has its corporate headquarters.

According to Darden's 2012 annual report, their effective corporate income tax rates for 2012, 2011 and 2010 were 25.3 percent, 26.1 percent and 25.1 percent, respectively. Net earnings from continuing operations for fiscal 2012 were $476.5 million.

The report says higher food and beverage costs were partially offset by lower restaurant labor and a lower effective income tax rate. As a percent of sales, restaurant labor costs decreased in fiscal 2012 primarily as a result of "sales leveraging, improved wage-rate management and lower manager incentive compensation".

"The decrease in our effective rate for fiscal 2012 is primarily attributable to an increase in federal income tax credits related to the HIRE Act, an increase in the impact of FICA tax credits for employee reported tips, partially offset by the impact of market-driven changes in the value of our trust-owned life insurance that are excluded for tax purposes. The increase in our effective rate for fiscal 2011 is primarily attributable to the impact in fiscal 2010 of the favorable resolution of prior-year tax matters expensed in prior years and due to the increase in earnings before income taxes in fiscal 2011, partially offset by the impact of market-driven changes in the value of our trust-owned life insurance that are excluded for tax purpose."

Regarding stock-based compensation (stock-options), Darden's report notes: "We recognize the cost of employee service received in exchange for awards of equity instruments based on the grant date fair value of those awards. We utilize the Black-Scholes option pricing model to estimate the fair value of stock option awards...The weighted-average fair value of non-qualified stock options and the related assumptions used in the Black-Scholes model to record stock-based compensation are as follows:" (See page 48 of the report for more)

Companies generally choose from one of two methods to value the cost of giving an employee a stock option: a Black-Scholes model or a lattice model. The millions of dollars in capital gains that corporate executives earn off their stock-options are taxed less as a percentage of their income than someone else who works for regular hourly wages and who earn between $36,250 and $87,850 a year.

So it should be noted that Darden's corporate executives only pay a 23.8% tax rate on their stock-options, when the top marginal rate for regular wage earners is 39.6%. Herman Cain, the Tea Party activist from Georgia who once ran as a Republican nominee for President, was also once the CEO of the National Restaurant Association (and Godfather's Pizza) and had proposed at capital gains tax rate of only 9% with his "999" tax plan (which would have primary benefited the wealthy).

Other Articles about Darden's:

The LIVING OFF TIPS CAMPAIGN of the Restaurant Opportunities Center (ROC) will raise the voices and lives of tipped restaurant workers to the national scale, letting policymakers, press, and the public know who they are and how they need a raise. If you’ve ever been a tipped restaurant worker, please share your story at their website.

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