Mini-cast 94: The Wawa ESOP Settlement



Bret Keisling discusses a recent $26.1 million settlement of a class action suit between convenience store company Wawa and its ESOP and former employees and ESOP participants.


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Mini-cast 94 Transcript

Bret Keisling: 00:05 Hello my friends and thank you for listening to the ESOP Mini-cast. My name is Bret Keisling and as it says on my business cards, I'm a passionate advocate for employee ownership.


Bret Keisling: 00:14 I'm going to spend a couple of minutes discussing a recent settlement of a class action suit entered into by Wawa, a Pennsylvania based convenience store chain and its ESOP. Approximately 10,000 former employees of Wawa, or participants as they're called in the ESOP context, will share in the proceeds of a $21.6 million settlement.


Bret Keisling: 00:38 For some background on Wawa, including the origins of its name, you can listen to Mini-cast Episode 80 where I discuss Wawa and a major competitor named Sheetz that's also an employee owned company. You can find Episode 80, as well as the more than 200 other episodes, in our archives www.theesoppodcast.com.


Bret Keisling: 00:56 This is actually the second lawsuit that Wawa has settled in the last few years over its handling of its ESOP, bringing the total amount that Wawa has agreed to pay to approximately $50 million. As laid out in the legal proceedings from approximately 2014 to 2018, Wawa required former employees who left the company to divest their shares, even though the ESOP plan document and summary plan description promised participants could hold their shares until they reached retirement age even if they left Wawa and continued working elsewhere. In my experience, this is an unusual provision. Normally, ESOP companies would not want a former employee who left the company at let's say age 50 to hold shares for another 15 years. Generally the shares would be returned to the company and often become available for distribution to current employees.


Bret Keisling: 01:57 In approximately 2015, representatives of Wawa's management and its founding family informed participants that they would have to trade in their shares. Plaintiffs alleged this was specifically aimed at allowing the founding family to maintain at least 50% ownership of all of the outstanding shares, ensuring their control of the company well into the future.


Bret Keisling: 02:18 As to the allegations and settlement, I haven't seen anything that suggests to me that the company knew changing its plan would violate the law. It's alleged, as I said, that the plan amendments were designed to keep majority control for the founding family and although this seems to go against the spirit of employee ownership and contradicts what EO advocates hope to see from companies, it's not unusual for founders or their families to try and maintain control. As a matter of fact, if you Google some of the top ESOP transactionists and practitioners be they lawyers or M&A [Merger and Acquisition] advisors, et cetera, you'll find they often promote the selling shareholders staying control of their company as a real selling point to establishing an ESOP. For reasons I've talked about many times on different podcasts I don't like this approach and I wish it wasn't used so often, but it's not an inherently illegal approach. And if Wawa's approach hadn't run afoul of the law by inappropriately changing its ESOP plan then it would have been a perfectly appropriate business strategy, regardless of whether I or anyone else likes it.


Bret Keisling: 03:26 Media coverage of the settlement made reference to the fact that thousands of employees leave Wawa before they vest or have earned any shares in the ESOP. This is presented as a way to fuel skepticism about ESOPs, but the fact of the matter is that Wawa as a convenience store with 850 locations has an awful lot of turnover. From high school students working after school or summer jobs to others who just don't find the employment suitable for them. There are currently lots of Wawa employees who will not work enough to qualify for the ESOP. To me, the correct focus should be on the tens of thousands of employees who do qualify from corporate staff to store managers to full time store employees, Wawa has created lots and lots of employee owners. Although other forms of employee ownership, such as co-ops and collectives, may do a better job of including part time or temporary workers, in the ESOP context the minimum hours required to participate makes sense to me.


Bret Keisling: 04:27 The final point: I happen to live right outside of Wawa's corporate footprint and before the pandemic I'd often traveled to where Wawa has a strong presence. Even with these ESOP settlements and in light of the fact that I think Wawa's actions might've been misguided, but not evil, I'll have no problem as a fierce proponent of employee ownership in patronizing Wawa in the future. By all accounts, it's a really well run company and it stands to do very well in the future and then hopefully in time, its ESOP management will have as stellar a reputation as the rest of its company's operations.


Bret Keisling: 05:07 With that, I'll bring this episode of the Mini-cast to a close, thank you so much for joining me today. As our country and world continue to scramble from all of the effects of the pandemic, I hope that you stay safe, take care of yourself and those around you and remember we're going through this together and that's how we'll get through it; together. This is Bret Keisling have a great day.


Bitsy McCann: 05:33 We'd love to hear from you! To contact us, find us on Facebook at KEISOP, LLC and on Twitter @ESOPPodcast. To reach Bret, with one "T", email Bret@KEISOP.com, on LinkedIn at Bret Keisling, and most actively on Twitter at @EO_Bret. Again, that's one "T". This podcast has been produced by The KEISOP Group, technical assistance provided by Third Circle, Inc. and BitsyPlus Design. Original music composed by Max Keisling, archival podcast material edited and produced by Brian Keisling, and I'm Bitsy McCann.


Standard Disclaimer: The views expressed herein are my own and don't represent those of my own firms or the organizations to which I belong. Nothing in the podcast should be construed as guidance or advice of any kind in any field and the fact that I mentioned an organizational website or an advocate or a company on a podcast does not reflect an endorsement, but if you've heard your name or your group's name mentioned on this podcast, I'd love to have you come on and talk about it yourself.


A note on the transcript: This transcript was produced by Temi, an automated transcription service. While it has been reviewed by The ESOP Podcast, we can not guarantee the accuracy of the transcription. Please refer to the original audio when citing sources.

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