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When Employment Laws and Loss Prevention Policies Collide

Posted on 10/5/10 9:10 AM

Recently, a substantial settlement was reached between a well known high end clothing retailer and its employees (past and present).   The lawsuit, which was settled out of court for a reported $4 million, was based on a class action lawsuit in California claiming that employees were not being paid for their time when subjected to certain employment required processes, such as employee belonging checks (bag checks).  In this settlement, employees who were employed with the company between mid 2002 and January 2010 will have the opportunity to claim part of the lawsuit settlement dollars (1). 

As we learn of new legal decisions or proceedings that may affect employment or employees, we must review policies, procedures, and practices that directly correlate to the effectiveness of our loss prevention initiatives. The filing of the class action suggests that retailers evaluate their bag check policies and procedures to reduce the threat of a potential claim.

Compensable v. Non-Compensable Time

Under the Fair Labor Standards Act, “if the activity is necessary to the business and is performed by the employees for the primary benefit of the employer, it is generally compensable time, unless it is deemed to be de minimis”.  It is de minimis when “the unpaid time is short, occurs infrequently and is difficult for the employer to track”(2). The Supreme Court has explained that “when the matter in issue concerns only a few seconds or minutes of work beyond the scheduled working hours, they may be disregarded” (de minimus)(3). However, California law has determined, “with certain limited exceptions, hourly employees are entitled to be paid for all the time they are ‘subject to the control of an employer’.”(4) 

Although the retailer defended itself under the “federal de minimis” defense, one of the attorneys representing the plaintiffs in the suit challenged that the primary matter is whether the worker is under the employer’s control.  According to the attorney, if control is present, then the worker is entitled to be paid for the time they are under that control. 

As this case was settled out of court, there is still no determination as to whether or not the “de minimus defense” will be upheld in California or if the “control” of the employer will bear more significance.  It is most probable that this defense will again be challenged in the future.  If an employee or attorney can show that bag checks occurred regularly, over the course of employment, the time taken to perform the checks was substantial, and that it would have been possible for the employer to track said time, it is very possible that the de minimus defense may not be a plausible defense at all.

The Unspoken Benefit of Polices

Often times, employee bag checks are portrayed solely as the retailer’s way of protecting themselves from employee theft.  There is another side to the employee bag check procedure that often goes without mention.  While it is crucial for a retailer to protect itself against internal theft, the bag check can also protect the employee from accusations of theft.

Most of us, throughout our careers, have had a scenario where we receive information regarding an employee stealing merchandise that, once investigated, is unfounded.  Two of the most common reasons behind these accusations are either 1) the reporter is trying to deflect suspicion from themselves, or 2) the reporter is disgruntled with the employee and makes false accusations against them.  Employee bag checks can help protect innocent employees from being falsely accused and/or investigated and interviewed.

Policy Effectiveness

Bag checks are not fool proof, and may not even be effective in some cases if not performed properly.  With this in mind, it is impossible to measure the deterrence such a procedure brings, therefore, it is difficult to defend, whether in court or within the company, with statistics or a proven ROI.  It is however plausible to believe that bag checks, when conducted properly, not only deters but can often identify thefts by employees.  For these reasons it is imperative that if a retailer has an employee bag check policy, they should:

  • Have a written policy signed by all employees that includes how and when they are to be conducted
  • Enforce the policy 100% - This should include ALL associates of the company, regardless of title, visitors granted access to secure areas, etc.
  • Train employees on how to conduct an effective and thorough bag check without violating any rights of the employee
  • Conduct the bag checks in a consistent and efficient manner without exception


As we are all aware and taught in almost every seminar we attend regarding internal theft, the most noted reason employees steal from their employers is opportunity.  Employee bag checks are just one of the many procedures retailers put into place to limit/reduce the opportunity for internal theft.  With this is mind, we should do our due diligence to ensure this measure is effective and efficient.  There are many challenges facing retailers today and employee bag checks have become another of those challenges. 

So, what should retailers do? 

  • Should all employee bag checks be halted?
  • Should all employees be “given” an additional set amount of time each day regardless of the length of time the bag check took to conduct?

            -Is that amount of time too little or too much?

  • Should retailers continue as they are and hope there is not a lawsuit in their future?

At this point, there does not appear to be a global answer or resolution to these questions.  With this in mind, it is more crucial than ever to ensure management teams are expediting the employee bag check process.  Employees of multiple sectors (not just retail) have complained over the years that they often have to wait (even up to 30 minutes) off of the clock for a manager or other designated person to become available to perform their bag check.  In today’s environment, this is not acceptable.  Not only is it unfair to the employee, this lack of concern for an expeditious process may increase the risk of a lawsuit. describe the image


Although many points and unknowns have been examined here, there are a couple of key points to consider regarding all policies and procedures related to employees.

  1. Make certain that your policies and procedures are written, including updates and revisions. Have structured communication protocols for all employees so that they understand them completely.
  2. Consistency in policies and procedures is a must. Proper training and some form of measurement and compliance should be maintained.
  3. Should there be a concern regarding employee bag checks or any other policy/procedure, your company’s legal counsel should be consulted to ensure that your current processes and actions best suit your company.

This article is intended as informational purposes only and does not provide or constitute legal advice.  Readers should consult with their own legal counsel for legal advice.

Written by Shannon C. Hill, CFI – National Client Services Manager

This article was written based on the blog post, Capturing Wages for Off-The-Clock Work in California Retail Stores from the website,


  1. Otsuka, et al. v. Polo Ralph Lauren Corporation, et al 
  2. Lindow v. United States, 738 F. 2d 1057 (9th Cir. 1984)
  3. Anderson et al v Mt Clemens Pottery Co 328 U.S. 680 (1946)
  4. Bono Enterprises, Inc. v. Bradshaw (1995) 32 Cal. App. 4th 968

Topics: policies and procedures

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