New federal court filings in Philadelphia provide details on Aramark’s $21 million settlement of lawsuits brought by managers who were denied their 2018 bonuses after the Philadelphia food-service and uniform giant changed the rules on how the incentive payments would be calculated without telling them.
The notice of settlement, which explains the calculation of individual payments, must be approved by U.S. District Court Judge John R. Padova, before payments can be made. A date for a hearing on the settlement has not yet been set.
The aggregate amount expected to be paid to an estimated 4,500 lower-level managers is $15.5 million after the four law firms involved in two separate proposed class actions get their cut. The settlement calls for the law firms to collect $5.25 million (about 25 percent of the total) plus $50,000 for expenses. In certain types of class-action settlements, the lawyers’ cut is 33 percent of the total payout.
The two lawsuits, both filed in U.S. District Court for the Eastern District of Pennsylvania, alleged that Aramark violated numerous state and common laws when it did not pay the bonuses. In agreeing to the settlement, Aramark did not admit that it violated any laws.
“We believe it is in the best interest of our employees and the company to put this matter behind us,” Aramark said in November when the outline of the agreement was announced.
In rough terms, the individual payments will amount to the difference between the manager’s expected fiscal 2018 bonus and the amount of the “special recognition award” the manager received. Those special onetime payments ranged from $5,500 to $27,500 for different management tiers. The money for those payments came from money that Aramark saved as a result of the corporate tax cuts under 2017 Tax Cuts and Jobs Act.
Managers in what Aramark calls bands 5 to 8 will receive an additional 6.5 percent of their anticipated fiscal 2018 bonus, the settlement says. All managers subject to the settlement, even if their onetime “special recognition award” was bigger than the bonus they thought they had earned, will receive an additional $250.
Special provisions were made for 41 managers who worked for Aramark’s health-care technology division, which it sold in November for $293.7 million. They will receive an additional $2,000 each to compensate for canceled stock compensation.
The settlement does not cover managers who were no longer employed by Aramark at the end of its 2018 fiscal year, Sept. 27, 2018.
The bonus controversy contributed to the abrupt retirement last year of Aramark chief executive Eric Foss, who decided not to pay 2018 bonuses to front-line managers because the company did not meet a profit target set by the board of directors. Employees found it especially egregious as Foss — who earned $16 million in 2018, including $2.6 million in incentive bonus — touted record revenues and profitability for the year ended in September.
Managers were furious at Foss because they were not told at the beginning of the fiscal year that a company-wide profit target would be a factor in their bonuses.