The Wet Seal Inc. agreed to pay $7.5 million to settle a class action lawsuit that alleged managers were told to fire African-American employees and hire and promote white workers who fit the Wet Seal brand image.

This story first appeared in the May 10, 2013 issue of WWD. Subscribe Today.

Under the settlement, Wet Seal agreed to “post open positions, implement new selection criteria and interview protocols, revamp its annual performance reviews and compensation structure, add regional human resources directors, implement more diversity and inclusion communications and training for field and corporate office employees, and enhance its investigations training and processes.”

Wet Seal said it is committed to using diverse models in its marketing.

Lead-plaintiff Nicole Cogdell filed the suit in Santa Ana federal court in July, charging that the company had a general policy and practice of discriminating against nonwhite employees, which included lower pay rates, limited promotion opportunities and the firing of African-American store managers based on their race.

The suit alleged the company insisted on “a ‘brand’ or ‘image’ of its employees that predominately reflects a white image, an image reinforced by Wet Seal’s advertising.”

Plaintiffs cited an e-mail from Barbara Bachman, former senior vice president of store operations, who after a store tour wrote, “Store teams — need diversity African-Americans dominate — huge issue.”

Cogdell, an African-American store manager, who was told she would be laid off after the store visit, filed a complaint with the Equal Employment Opportunity Commission in 2009.

She was ultimately not fired and brought her case to federal court last year, at what was a time of significant turmoil for the company. Comparable-store sales fell 15.6 percent that July, the same month chief executive officer Susan McGalla was fired. Activist shareholders were pressuring the retailer and ultimately succeeded in rejiggering its board.

The Equal Employment Opportunity Commission determined that the company’s managers openly stated they wanted employees who had “the Armani look, were white, had blue eyes, thin and blonde in order to be profitable.”

It is illegal for employers to base hiring decisions on race, but image-conscious retail might be especially prone to pushing the line.

Cogdell’s attorney, Nancy DeMis, said fashion is an industry where “people are accustomed to making judgments based on people’s looks” and that some companies are beginning to “really push back on letting that slide into discrimination.”

“You have to be vigilant,” DeMis said. “You have to be introspective, and you have to keep in mind that the law does not allow you to make that kind of decision about your workforce. Unless you show that it’s a bona-fide occupational qualification, those are not the kinds of distinctions that you are allowed to make.”

DeMis said Wet Seal has committed to making real change and should be a model for other companies. The retailer also worked with the Equal Employment Opportunity Commission to create a diversity program last year.

“From the moment I became [ceo] of Wet Seal in January, I made clear that we value a diverse workforce and believe that a dynamic and representative employee base allows us to best serve all of our customers,” said John D. Goodman. “We are pleased to put this matter behind us.”

Money from the settlement could go to as many as 1,600 people who have worked at Wet Seal.

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