EEOC: "LA WEIGHT LOSS SETTLES NATIONWIDE SEX DISCRIMINATION LAWSUIT WITH EEOC"
December 7, 2008 by Sean Kelly
Filed under LA WEIGHT LOSS, PURE WEIGHT LOSS
Just about a year ago, a company named Pure Weight Loss (formerly known as LA Weight Loss) announced that it would be closing all 400 of its weight loss centers nationwide on January 4, 2008. The employees of its corporate office and hundreds of centers rang in the new year unemployed, many with bounced paychecks as a bonus and the good feeling one gets knowing that the members they signed up would be getting stiffed out of $500,000 of prepaid products and services.
Pure Weight Loss declared bankruptcy (see Pure Weight Loss Files Chapter 7 Bankruptcy Protection), claiming it had In a court document, the company said it had more than 100,000 creditors. It estimated its assets at $1 million to $10 million and its liabilities at $10 million to $50 million. It was subsequently sued (along with its founder, Vahan Karian) by the Attorney General of PA for fraud (see Pure Weight Loss Lawsuit Filed by PA Attorney General).
Now, a year later, the EEOC has declared victory on behalf of the male applicants who were deprived of the Pure Weight Loss Employment Experience.
Below, I have posted the December 2, 2008 EEOC press release in its entirety. I will write my commentary on this historic employment coup separately, when I am finally sure that I am neither dreaming this nor have been slipped some sort of hallucinogen (by myself or others). This is just a little too surreal:
The U.S. Equal Employment Opportunity Commission
FOR IMMEDIATE RELEASE December 2, 2008CONTACT: Jacqueline H. McNair Regional Attorney
(215) 440-2666/2670
TTY: (215) 440-2610Tracy Hudson Spicer
Supervisory Trial Attorney
(202) 419-0711M. Patricia Tanner
Program Analyst
(410) 209-2721
LA WEIGHT LOSS SETTLES NATIONWIDE SEX DISCRIMINATION LAWSUIT WITH EEOCCompany Refused to Hire Men into Weight Loss Counselor and Other Jobs, Agency Alleged
BALTIMORE – The U.S. Equal Employment Opportunity Commission (EEOC) announced today that it has resolved its pattern or practice sex discrimination lawsuit against LA Weight Loss Centers, Inc., (renamed Pure Weight Loss, Inc., in early 2007), for $20 million and other significant relief.
According to the EEOC’s suit (WDQ-02-CV-648), filed in the U.S. District Court for the District of Maryland, Pure Weight Loss had a nationwide policy of not hiring qualified males into the positions of counselor/sales, medical assistants, assistant managers, center managers, area supervisors, trainers, and other field positions. Former Area Trainer Kathy Koch was disciplined and fired in retaliation for complaining about the company’s policy of not hiring men and for interviewing male candidates, the EEOC also alleged.
Pure Weight Loss discontinued its business operations in January 2008 and filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code on January 11, 2008, in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania (Case No. 08-10315-JKF). The bankruptcy trustee has agreed to the terms of the consent decree, which was approved by the bankruptcy court.
Refusing to hire qualified applicants because of their gender, maintaining sex-specific job classifications, and retaliating against employees who protest unlawful discriminatory practices violate Title VII of the Civil Rights Act of 1964. Pursuant to the consent decree and as approved by the bankruptcy trustee, the EEOC will have a claim in bankruptcy court of $20 million — $16,842,656 in back pay and $3,157,344 in punitive damages — payable to men whom the EEOC determined were subjected to hiring discrimination because of their sex during the period January 1, 1997, through the entry of the decree. The portion of the settlement, if any, that the EEOC will be able to obtain through its pending bankruptcy court claim is presently unknown. Koch settled with Pure Weight Loss in November 2005.
Along with the monetary relief to the class members, the 10-year consent decree provides for significant injunctive relief. The decree applies to all Pure Weight Loss centers or to any successor resuming business operations. The decree:
- Prohibits Pure Weight Loss from discriminating against job applicants or employees because of sex and retaliating against any of its employees or applicants;
- Requires Pure Weight Loss to use an electronic applicant tracking system for each person hired and for any person who submits an application, and to provide specific information on applicants by sex and other categories defined by the EEOC; and
- Mandates that Pure Weight Loss create a discrimination complaint procedure, post its commitment to equal opportunity and a diverse workforce, and report compliance to the EEOC.
Additionally, the consent decree requires hiring of rejected male applicants and includes numerical benchmarks for hiring and/or promoting men to the positions from which they had been previously excluded; requires Pure Weight Loss to conduct quarterly reviews to assess attainment of its hiring goals; and, at the EEOC’s option, requires Pure Weight Loss to employ an outside expert to examine the hiring process to assist in achieving any unmet hiring goals.
“We brought this lawsuit to advance the legal right to a workplace free of sex discrimination and to remind employers that they must make employment decisions based on the applicant’s ability to perform the duties of the job,” said EEOC Philadelphia Regional Attorney Jacqueline McNair, whose jurisdiction includes Maryland.
“EEOC will strongly pursue employers who choose to flagrantly disregard federal law by engaging in systemic gender discrimination,” said EEOC Supervisory Trial Attorney Tracy Hudson Spicer. Added EEOC Senior Trial Attorney Ronald L. Phillips, “The EEOC’s systemic initiative was undertaken to combat company-wide discriminatory employment practices like this one.”
The EEOC’s Baltimore Field Office litigation team included EEOC attorneys Tracy Hudson Spicer, Ronald L. Phillips, Corbett Anderson and Cecile Quinlan. Applying the Commission’s national law firm model, the Baltimore team was also assisted in this case by attorneys from EEOC’s New York, Boston, St. Louis, Pittsburgh, Indianapolis, Dallas, and Chicago offices.
The EEOC enforces federal laws prohibiting employment discrimination. Further information about the EEOC is available on its web site at www.eeoc.gov.
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Obviously the EEOC has to toot its own horn and declare a victory of sorts for the EEOC —-if not for those citizens whom they represent. I only wish the FTC Franchise Enforcement people would get a horn to toot.
When you see how many “tax payer” provided “government” attorneys were involved, you understand that this moral victory for EEOC is all that is really important to the EEOC.
Where are they in Bankruptcy Court in terms of their standing as a Creditor? Laughable to think that any judgement could be collected.
Generally, in franchising, it would be the individual owners of the franchised units, the franchisees only, who would bear the responsibility for employment discrimination —unless the franchisor’s manual of operations promoted discrimination. Afterall, isn’t this why franchising is so attractive to franchisors —-who don’t generally bear the responsibility for operating the physical units that wear their brand names in compliance with state and federal laws!
Is this what happened?—There was proof that it was Corporate policy? I don’t really understand how these Centers were operated in the first place and it looks like there will be NO winners anywhere in this disgusting scenario.
This suit was not against the franchise company.
This suit was not against the franchise company.
Dexter’s right. At one point there was one LA Weight Loss. The franchised part of the corporation split off and became a separate corp (owned by Harold Katz). The non-franchised corp. (owned by Vahan Karian) is the one that changed briefly to Pure, ceased ops, and got hit with this judgement.
Carol cross wrote: Generally, in franchising, it would be the individual owners of the franchised units, the franchisees only, who would bear the responsibility for employment discrimination…
Well, it would be the employer who would be responsible for employment discrimination. The franchisor would be responsible for their employees, the franchisees for theirs. I don’t think this example bolsters your franchisors-r-evil platform, Carol.
Evil is in the eyes of the beholder, Sean!
But, it is true, isn’t it, that one of the greatest advantages for the franchisors is that the franchiSEES ARE responsible for the expense of building and operating many millions of franchised physical units that wear the brand names?
It is true also, isn’t it, that the franchisees do always bear the great expense and burden of complying with state and federal employment laws when the system is composed of franchisees and few or no corporate units. The franchisors paper empires survive nicely on the backs of their resources, the franchisees.
I understand now that the EEOC did not take action against a franchisor and took action against a Corporation that was not a franchisor.
I have not indicated that all franchisors have “evil platforms” and have been trying to indicate that the “evil” is in NOT disclosing the true risk of the investment in a franchise to new buyers, as known to the franchisor because of unit performance statistics that are not required to be disclosed under federal regulatory policy.
Carol:
Franchisees have the same costs and liabilities that all employers do. If one doesn’t want to be an employer, they shouldn’t own a business that requires employees. Or they shouldn’t start a business.
The risk is not all one-sided. The franchisor entrusts their brand - their greatest asset - to each franchisee. The papers are full of stories of franchisees damaging their brands through illegal, unethical and unprofessional behavior.
A few recent or current examples:
- A multi-unit tax preparation franchisee found guilty of fraud, fined $5M by the DOJ.
- A 176 unit restaurant franchisee files bankruptcy because of bad financial mgmt, not unit performance
- A sub shop franchisee convicted of sex crimes and now being held on suspicion of murder in the disappearance of a young coed
- Pharmacy franchisee convicted of selling drugs illegally over the Internet
- Franchisee and manager sued for disseminating nude pictures on a cell phone left in their franchised restaurant
With each franchise granted, the franchisor risks damage to the brand it may have built up over decades and spent millions of dollars to build.
The fact is, the risk of franchising - in general - is shared. If a particular opportunity is set up otherwise, with franchisee failure in large numbers part of the ongoing strategic plan, then that’s a scam operation, not a legitimate franchise company.
Yes! Sean! I understand and buy your point that there are unworthy franchisees —just as there are unworthy or “scam” franchisors, as you have indicated.
I understand that “franchising” as a business model does encourage franchisors, the entrepreneurs, to try to build a franchised chain business that will feed the economy and their profits —and that this does serve the “public good” in terms of business activity, jobs, revenue, and taxes — and competition that provides a wide selection for the consumer public.
However, the difference between the franchised chain system and the conventional chain store system is that the franchisees bear the expense of building and operating the physical units —-and this does greatly reduce the risk and expense of the franchisors who do not share in the risk of failure of the physical units in the system NOR the expense of operating these physical units in compliance with federal and state employment laws. Franchisors do, however, always profit from the arrangement because, of course, royalties are paid on gross sales, and commissions and fees are paid to the franchisors, even if there is NEVER any actual profit for the franchisees who operate the businesses that wear the brand names.
I understand that franchisors have to protect their Brand reputation, etc.. and that they must maintain strict control over their franchisees in order to protect their systems. They are able to do this with the adhesory contracts that permit termination of franchisees who do damage the brand name.
However, the point I am trying to make is that the franchisors CAN succeed even as a fairly good percentage of first-owner franchisees fail as long as they can “churn” and sell new franchises out the front door and discounted units out of the back door. Franchisors can succeed as long as franchisees sign long-term franchise agreements that become malicious legal traps when franchisees fail to thrive in their businesses.
Again! I agree with Robert Purvin and Susan Kezios! The failure of the FTC to mandate earnings claims or any disclosure by the franchisor of unit financial performance statistics is misleading by omission and cannot be justified as fair commercial practice.
This failure of regulation that permits franchisors to churn and turn and pump and dump UNITS out of view of new buyers of franchises and out of view of government regulators is a government subsidy of the franchisors.
Unfortunately, the UFOC/FDD, as produced by the FTC Rule, tends to provide cover for franchisors by implying legitimacy but many of these so called “legitimate” franchisors are “knowingly” selling unprofitable retail franchises to the public as a means of survival.
You indicate, Sean “The fact is, the risk of franchising - in general –is shared.” But, the fact is that the risk of the investment in the franchise is not shared with the new buyer of the franchise and therefore, the risk of franchising –in general –is not shared —from my point of view.
I am still really surprised that we have nto heard from any franchise owners or ex-franchise owners of LA Weight Loss. There has to be some people out there with horror stories of a money making brand going bad……