A $189,000 nightmare

The 800 Waffle House employees whose paychecks bounced two weeks ago will get the money they are owed. But it may take a little while for the payments to come through.

The hang-up is the unintended result of a legal battle between Waffle House's corporate office and Freeway Foods, a Greensboro com pany.

Freeway was a Waffle House franchisee and until recently operated 36 Waffle House restaurants from Hickory to Raleigh.

On April 7, Freeway Foods gave control of all 36 stores over to Waffle House, which is based in Georgia.

Waffle House closed two stores, one in Winston-Salem and one in Greensboro, because the company couldn't negotiate better terms with the landlords, said Waffle House general counsel Jon Waller. But 99 percent of the Freeway employees were hired by Waffle House, he said.

Unhappy parting

The Waffle House takeover was less than friendly. In late March, Freeway and its president, Gary Fly, filed a lawsuit in Georgia Superior Court asking for millions of dollars in damages and accusing Waffle House of fraud and breach of contract.

That lawsuit is unresolved, but in the meantime, the change in ownership of the stores caused the payroll problem.

Freeway attorney Lee Lloyd said his client began taking money out of his company's operating expenses because of fears that Waffle House would try to seize the cash.

The company then transferred $189,000 - enough to cover the payroll - back to the account and instructed Waffle House that the money be used to pay employees, Lloyd said.

"Early Friday morning, BB&T officials called Gary and said there were $108,000 in checks written overnight," Lloyd said. "Within minutes, $108,000 had come out of the account, apparently."

When employees were issued their paychecks the following Sunday and Monday, there was not enough to cover the checks, Lloyd said.

Documents filed in court included affidavits from 19 workers claiming they were owed amounts ranging from $61.17 to $931.08.

Waffle House general counsel Waller said that the Freeway account of what happened was "inaccurate."

The decision by Freeway to take cash out of the account meant that there was a shortage when the payroll checks were issued, he said.

"The simple story is that there was $450,000 that's supposed to be used to pay wages and their other creditors and their other bills, and it's gone," Waller said.

Now and later

For employees like Wendy Smith, the bad check was more than an inconvenience. Smith, 42, lives in Hillsborough and relies on her job waiting tables to pay her bills.

"Our business went down to begin with when the smoking [ban] went into effect," she said. "So that hurt my tips. And then when you're only paid $2.50 an hour, you don't get very much of a paycheck. ... I had to go cash these two checks to pay my light bill to keep my light bill from being cut out."

Smith's checks - two that totaled $183.66 - were denied at her own bank. She finally took them to a check-cashing business, where she paid $5 to get her money.

"I feel like they've done us all wrong - dirty," she said. "Because in my eyes, when Waffle House corporate sent those checks out to us, they knew what was going on. They knew we were not going to be able to cash those checks. They should not have, and they did."

On Monday, a Georgia judge denied Waffle House's request to have a "receiver" appointed to oversee the handling of the $450,000 Waffle House says Freeway Foods took inappropriately. But the judge did order that Freeway pay the money due to its employees.

Workers want wages

Freeway is working with the N.C. Department of Labor to ensure that the payments are distributed correctly. The department had received 100 complaints from Waffle House employees by Monday, department spokeswoman Dolores Quesenberry said.

But, she added, the payments will be distributed to all 800 affected Waffle House employees as soon as possible.

"Both parties have indicated that they intend to pay the employees," she said. "At this stage they are still trying to iron out the details, so I can't give you an exact timeframe."

In the meantime, the affected workers should have received their first checks from Waffle House Inc., this week, Waller said, and those payments should be fine.

Lloyd said Freeway will be amending its lawsuit to reflect the dispute over the payroll, adding fraud, conversion (civil theft) and intentional infliction of emotional stress charges. It will also increase the amount it is asking for in damages to account for the additional payroll payment ordered by the court.

For employees, the primary concern right now is simply getting paid what they are due. But many are also concerned about the future.

"We're waiting to see what happens," Smith said. "There's a lot of us. There's a lot of things going on right now that's got all of us wondering what's going to happen."