Wawa agrees to pay $21.6 million to settle case brought by ex-workers forced to sell shares

In Wawa’s latest settlement with aggrieved former workers, the firm has agreed to pay $21.6 million to as many as 10,000 retirees and their lawyers to settle a complaint that the chain unfairly forced them to sell shares they had been promised as retirement savings.

The proposed settlement, reached earlier this month in the case of Cunningham v. Wawa, follows a similar pact in 2018 in which Wawa agreed to pay $25 million to a different group of more than 1,200 former managers and other senior Wawa employees.

Those earlier ex-Wawa employees, in a case called Pfeifer v. Wawa, said they, too, were forced to sell their private Wawa stock when the company, amending the plan in 2014 and 2015, canceled a promise they could keep it until retirement, allegedly violating federal law.

In sum, Wawa has now agreed to pay almost $50 million to resolve complaints from former employees that it forced them to sell their lucrative stock in a maneuver designed to make sure the founding Wood family kept control of the firm. The stock has tripled in value since and the lawsuits say the tactic costs the workers a fortune.

According to the Cunningham lawsuit, the departed workers were told that Wawa needed their shares for new workers, even though they had more than enough shares set aside for that purpose.

According to the suit, Wawa leaders forced them to sell their stock in Wawa Employee Stock Ownership Plan (ESOP) after a law passed under President Barrack Obama made it easier for Wawa to convert from a typical C-corporation into a family-business-style S-corporation. This ended its federal income tax obligation and made the company more profitable.

Wawa veteran John J. Cunningham and three others who launched the case in 2018 could collect $25,000 each under terms of the settlement. Others will average a little more than $2,000, minus legal fees and costs totaling up to 21% of the payout.

» READ MORE: Wawa founding family accused of cheating former workers out of millions in company stock

Wawa has more than $12 billion in yearly sales and 900 stores with 36,000 employees in the states around Philadelphia and Washington, D.C. and in Florida. It does not disclose profits.

Wawa did not admit wrongdoing in the Cunningham suit. It said in a joint statement with the workers’ lawyers that the company “reached a settlement to prevent further legal costs, disruptions and uncertainty caused by the case.”

Lawyers for the workers called the proposed settlement “fair and reasonable.” If U.S. District Court Judge Paul Diamond and state and federal labor regulators approve, ex-employees who qualify for payments will be notified and given time to challenge the settlement.

The deal works out to a payment of $500 a share, which falls fall short of the thousands of dollars a share that some employees said they had lost.

About 20,000 Wawa employees are enrolled in the Wawa ESOP, besides those who were forced to sell. Although some senior and long-serving employees have accumulated $1 million or more worth of shares, many participants are hourly workers who have only begun to accumulate shares, which are rewarded based on hours worked and type of service. Every year, thousands of workers leave without qualifying for shares.

According to the Cunningham complaint, buying back the shares gave members of the Wood family control of more than 50 percent of the company (the ESOP has most of the rest).

» READ MORE: Wawa to pay $3 million to family of 3-year-old scalded by hot water

The suits contended that the George Wood Family Trust, which controls a large block of family shares, is scheduled to terminate in 2030, “which will likely put pressure on Wawa to consider a possible sale or IPO” public stock offering. Controlling a greater share of the company could give the family a greater say over any such potential sale of the company.

However, Wawa officials have said there is no plan to take the company public, though past CEOs have considered doing so as Wood family members divided over whether to keep control of Wawa or liquidate their shares and invest elsewhere.

Shares appraised by a firm hired by the Wood family members who control the board of the Wawa ESOP estimated each share’s value at $12,744 in the spring of 2019, up from $4,544 in 2013.

Although they are not traded on any stock market, Wawa shares have gained value faster than the major U.S. stock market indexes because Wawa is a growing and profitable company, and because of its change in tax status.

The workers were represented by a group of law firms led by California-based Feinberg, Jackson, Worthman & Wasow LLP and by Block & Leviton LLP, Washington, D.C. Wawa was defended by lawyers at Morgan, Lewis & Bockius LLP of Philadelphia.