Newegg ‘Rampantly’ Violated Labor Laws, Ex-Employee Alleges

Newegg, which filed for an IPO last fall, makes it “virtually impossible” for non-Chinese speaking employees to succeed at the company, the suit said. Chinese is used in “key documents” and during business meetings, according to the complaint filed Feb. 8 in California Superior Court in Los Angeles by former internal auditor Scott Curry. Many Chinese employees were hired under the “false pretenses” that Newegg would help them get green cards and U.S. citizenship “when they would not,” the lawsuit said. Curry, and another former employee, Mary Lynn Peterson, are suing Newegg for wrongful termination.

Newegg is aware of the allegations in the lawsuit, the company said in a statement. It “strongly” denies Curry’s accusations and will vigorously defend itself against the charges, which have “no basis in fact,” the company said. Newegg “has always taken pride in the fairness” of its labor and hiring practices, the company said. The retailer uses “ethical business practices” in its dealings with competitors, vendors and customers and is “fully committed” to complying with “all applicable laws and regulations, the company said.

Curry, who brought possible violations of California labor law to the attention of Newegg executives in 2007 and 2008, alleged Chinese employees in the IT department were “profoundly overworked,” with some falling asleep at their desks, the lawsuit said. Newegg executives told Curry the employment practices were “common” in China and gave the company an edge on its competition, it said. When Curry reported the practices to Rick Quiroga, Newegg’s vice president of finance, he was threatened with being fired, it said. Curry was hired in July 2007 to “identify inappropriate practices” and was fired two years later, it said. Non-Chinese employees were fired short of two years employment when “key benefits” vested, it said.

Newegg “literally imported” Chinese nationals to work in California for “inappropriate reasons,” including violating state wage and hour laws, the lawsuit said. Non-Chinese employees who objected to company policies were “retaliated against” and cut off from e-mail and office and staff meetings, it said. “Needless to say, this made it difficult, if not impossible, for non-Chinese personnel to be successful in the workplace,” it said. Curry filed a complaint with the Equal Employment Opportunity Commission (EEOC) in February 2009, alleging race and age discrimination, it said. The California Department of Fair Employment and Housing and the EEOC gave Curry a “right to sue” letter in February 2009, the suit said.

To secure government contracts, which require compliance with federal equal employment opportunity laws, Newegg made “misrepresentations” that it met the guidelines, the lawsuit said. While Newegg encouraged “concerned employees” to report violations to its legal department, it also would develop a “dossier” to use against those that complained, it said.

Newegg also “manipulated” profits and earnings to “avoid taxation,” the lawsuit said. It didn’t use standard accounting for transactions and “manipulated” deferred revenue and inventory values and mis-classified assets to avoid taxes and cheat employees of pay, it said. It also hired employees to “hack” into competitors’ databases to gain an advantage and “intentionally cheated” Visa, it said. While Visa was to be paid a fee per transaction, Newegg “misrepresented” the number of them, the suit said. The retailer also used customer data to bill them for products “never ordered or received,” it said. “Newegg knew that in a significantly high percentage of these instances that the customer would not complain,” it said.

Curry thinks he was hired to help Newegg complete its IPO and to gain certification with the federal Sarbanes-Oxley Act, the lawsuit said. Instead, Newegg took a “clear, but false official position that it was interested in going public,” it said. By airing IPO plans, Newegg sought to lure “coveted” potential employees with a promise of “valuable stock,” it said. But such employees would be fired before the shares vested, it said. Newegg “refused” to hire the extra personnel needed to achieve Sarbanes-Oxley compliance before the IPO, which was filed in September, it said. Though Newegg was “very familiar” with the Sarbanes-Oxley certification process, “it attempted to create a record whereby Curry would be held responsible for irregularities,” it said. Newegg worked with its legal department to “establish this false record and approach,” it said.

Newegg also failed to address employee complaints in “a timely manner,” the suit said. For example, “many of the locations of Newegg in which employees were required to work were environmentally unhealthy,” it said. “Several of the locations were contaminated by mold or overrun by rats and vermin,” it said.