Circuit City Sued by Three Fired Workers

The employees are using a California law to dispute their termination, a week after the retailer laid off 3,400 workers.
Stephen TaubApril 5, 2007

Circuit City’s announcement last week that it will replace 3,400 highly paid employees with lower-paid individuals stunned even the most hardened free-marketers. And now, the lawsuits have begun.

Three of the workers who were terminated allege that the move, designed to save money for the struggling electronics retailer, violated a California law prohibiting age discrimination, according to the Associated Press.

“The workers terminated were those with greater seniority and length of service (and most) likely the older members of the workforce,” the lawsuit states. AP reported that the suits cite a law stating that “the use of salary as the basis for differentiating between employees when terminating employment may … constitute age discrimination.”

According to the report, one 66-year-old worker had 17 1/2 years of service, while a 57-year-old employee worked at Circuit City for 11 years and a 59-year-old worker was employed there for 4 1/2 years. Filed in Los Angeles County Superior Court, the wrongful termination lawsuit seeks class action status. Jackie Foreman, a Circuit City spokeswoman, told the AP the retailer does not comment on pending litigation.

When Circuit City announced the layoffs it said it would remove workers who were earning “well above the market-based salary range for their role.” It did not provide details about the pay rates for each group

Consumer electronics retailing is historically a cutthroat, price-competitive industry that has spawned numerous bankruptcies of well-known chains. Circuit City is trying to avoid becoming the latest.

On Wednesday, it reported a fourth-quarter loss of $12.2 million, although that included pretax charges totaling $144.6 million. The pretax amounts reflected an impairment charge of $92 million at the company’s international unit, $21.4 million in store-closing charges, and $21.3 million in other restructuring costs. Without the charges the company would have recorded earnings of $51.1 million, or 68 cents a share, above the consensus earnings pre-charge estimate of 63 cents.

Sales rose by a mere one percent, to $3.93 billion, however, well below analysts’ consensus estimate of $4.04 billion.

In a note to clients, Bank of America analyst David Strasser blamed “competitive pressure” from Best Buy for “a big part of the issue,” AP said.

On Wednesday, Best Buy announced that earnings during the quarter ended March 3 rose 18 percent, and were above Wall Street analyst expectations.