Jonathan Maze, Sept 18th, 2012

Darden Restaurants likes to tout its employee-friendly workplace. The company notes several times—in literature, press releases, and on the front page of its website—that Fortune Magazine recently called it one of the 100 best companies to work for. But it sure didn’t seem that way this morning.

Darden and its chairman, Clarence Otis, oversaw an especially tense annual meeting of shareholders this morning, after some employees took the occasion to complain about staff cuts. The complaints came less than two weeks after the Orlando-based company was sued over working conditions at its numerous chains. Many of the workers who spoke were affiliated with a controversial advocacy group, Restaurant Opportunities Centers United, that has targeted Darden over sick pay and other issues and has sued the chain for discrimination.

In one instance, David Nelson, a Capital Grille server, complained about a recent decision by the company to eliminate its food runner position, and have wait staff cover the task one shift per week—a move that led to a “significant pay cut” for waiters and waitresses. Nelson asked Otis and board members for a meeting, a meeting Otis wouldn’t grant. He said simply that the Capital Grill has the “highest employee engagement” in the organization and the lowest turnover. But when it came to a meeting, Otis simply said that employees would have to go up the chain of command. Nelson said the workers did that, and kept pressing for a meeting with the board.

“No you cannot” have a meeting, Otis said. “We run an organization with a lot of employees. We have a process. We want to treat every employee fairly.” After a further exchange, Nelson was cut off. And then Otis, oddly, complained that employees were only giving anecdotes and not data. “I will say, it’s very important in an organization with 180,000 employees, to move beyond anecdote,” he said.

Other tense exchanges would follow, including one with a union member that would prompt Otis to say, “Don’t put words in my mouth,” and another one in which he said, “I’m glad you’re an ex-employee” to a person who said that the company’s lack of sick pay led him to work sick during his time there.

Amid all the complaints, one shareholder got up to speak and started out with a quip: “I thought I was going to be the biggest pain in the neck today. Guess not.”

We were stunned when we first listened to the meeting, and our initial reaction was disbelief that Otis would dismiss employees to this extent. We’ve softened our tune somewhat since, given that the meeting was likely hijacked by workers and investors affiliated with a group with an outstanding lawsuit against the company. Still, Otis should have acknowledged the complaints, thanked them for coming and then shook their hands afterward to diffuse the situation and not let it get out of control.

And it’s not like Otis and Capital Grille don’t have good reasons for making the staff cuts, As Otis noted, the chain’s unit volumes have fallen from $9 million in 2004 to $6.5 million now (editorial note: wow, really?). The company’s move is a clear demonstration of the pressure that many restaurants with wait staff feel right now. They want to maintain service standards to keep customers from coming back, but sales declines make that difficult to accomplish. And most of Darden’s employee practices are common in the restaurant industry.

But some of the pressure Darden is under is of its own making. John Gordon, a restaurant consultant out of San Diego, noted that Darden feels pressure to get a return on its investment after overpaying in 2007 to acquire Capital Grille through its purchase of RARE Hospitality. Darden has continued overpaying for acquisitions into this year, with its purchase of Yard House.

http://www.restfinance.com/content/story.php?article=00937

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