Wal-Mart faces prosecution over use of illegal workers

Wal-Mart, the fast-growing global chain of discount superstores, is being investigated by federal prosecutors in America after the arrests of hundreds of illegal immigrants found working seven nights a week as cleaners in 60 outlets across the country.

The company, believed to be the world's biggest retailer, said yesterday it was not responsible for the illegal hiring of undocumented foreigners because its cleaning operations were handled by a web of independent sub-contractors.

Federal prosecutors disagree, and are expected to impanel a grand jury next month to establish what exactly the company knew and what it chose to ignore. Wal-Mart's critics believe the use of illegal immigrants, deliberate or not, is part of a pattern of exploitation of low-wage workers that has fuelled the company's rapid expansion and generated massive profits and rewards for senior executives.

Police in 21 states raided Wal-Mart stores two weeks ago and arrested 300 undocumented workers. All are being deported, but some have testified that they were forced to work seven nights a week without overtime, benefits or workers' compensation coverage in case of injury or health problems.

Wal-Mart uses 100 contractors to hire cleaning staff, and says it stipulates in advance that all workers should have valid working papers. The prosecutors, speaking off the record to The New York Times and other newspapers, say the use of sub-contractors is merely a smokescreen enabling Wal-Mart to enjoy the cost benefits of illegal cheap labour while providing a plausible excuse for denying responsibility.

Prosecutors are expected to argue before the grand jury that Wal-Mart must have known about the immigrant labour because its stores had been raided before, in 1998 and 2001, with illegal workers rounded up both times. Labour activists have expressed deep concern about the company for a long time, because of the use of immigrants unprotected by US labour laws and because of shockingly low rates of pay offered to shopfloor staff. Wal-Mart has been widely reported to have told new employees how to apply for food stamps so they could reach the end of each month without starving.

At the same time, Wal-Mart posted revenues of $245bn (£146.6bn) last year. The five children of Sam Walton, the company founder, were estimated by Forbes magazine to be worth $20.5bn each, making them the richest family on the planet. Wal-Mart, which is based in Arkansas and has spread particularly through middle-income suburban areas, has vowed to open stores in California. Some of the West Coast's more liberal cities, including Oakland, near San Francisco, have passed resolutions banning Wal-Mart from their city limits. The fear is that Wal-Mart's employment practices risk provoking a race to the bottom in which any employer wishing to maintain a competitive advantage is forced to cut corners on salaries and benefits. Lilia Garcia, executive director of a watchdog agency that monitors cleaning contractors, told The New York Times: "When you don't pay taxes, don't pay social security and don't pay workers' comp, you have a 40 per cent cost advantage. It makes it hard for companies that follow the rules."

Fear of "Wal-Mart-isation" prompted workers at three supermarket chains in southern California to strike three weeks ago because employers wanted to reduce existing benefits and stop paying them to newly hired shelf-stockers and check-out assistants.

Executives for the supermarket chains say they need to stay competitive in anticipation of a Wal-Mart onslaught. The workers say the chains' combined profits are 91 per cent higher than they were four years ago. The top 15 executives at Ralph's, Vons and Albertson's earned $70m between them last year.

The strike is continuing at two of the three stores, with passing motorists honking in support of the picket lines.