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Contingencies
9 Months Ended
Oct. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Contingencies

Labor and other contingencies in Brazil

As disclosed in our periodic filings with the SEC, we agreed to make certain payments in connection with ongoing labor litigation involving our former Brazilian subsidiary (“Lakeland Brazil”). While the vast majority of these labor suits have been resolved, there are two (2) labor cases that remain active, and in which Lakeland was named as a co-defendant.

 

The first case was filed against Lakeland by a former officer of Lakeland Brazil, in Labor Court in 2014 claiming Lakeland owed USD $300,000. The Labor Court ruled that the claimant’s case was outside of the scope of the Labor Court and the case was dismissed. The claimant appealed within the Labor Court system, which was dismissed by the Labor Court of Appeal on November 27, 2019. The claimant may still further appeal to the Superior Labor Court.

 

The second case was filed by a former Lakeland Brazil manager, in 2014, was ruled upon in Labor Court and awarded the claimant USD $100,000. Lakeland was removed by the court from the case in February 2017 and no appeals were filed in respect to such removal. Both the claimant and Lakeland Brazil have appealed the award and The Labor Court of Appeal has ruled in favor of Lakeland Brazil to annul the first decision and re-open the case. The claimant has appealed from the latter decision to the Superior Labor Court, which is yet to rule on the matter.

 

A former officer of Lakeland Brazil also filed a civil claim seeking approximately USD $700,000 that he alleges is due to him against an unpaid promissory note. While Lakeland may be sought as a party, Lakeland has not been served with process and no decision on the merits has been issued in this case yet. Management firmly believes these claims to be without any merit and does not anticipate a negative outcome resulting in significant expense to us.

 

Lakeland Brazil may face new labor lawsuits in the short term as a result of the recent commencement of the winding down of its operations in our first quarter. In order to mitigate this risk, the management of Lakeland Brazil has been proposing settlement agreements to employees dismissed due to the winding down and to the extent possible seeking confirmation of Labor Courts. The Company has no obligation under the 2015 Shares Transfer Agreement pursuant to which Agreement, the Company eliminated its interest in Lakeland Brazil to make any additional payments in connection with these potential new labor lawsuits. The Company also understands that under the labor laws of Brazil, a parent company may be held liable for the labor liabilities of a former Brazilian subsidiary in the case of fraud, misconduct, or under various theories.

 

Although the Company would have the right of adversary system, full defense and due process in case of a potential litigation, there can be no assurance as to the findings of the courts of Brazil. 

  

There are additional cases in Labor and Civil courts against Lakeland Brazil in which Lakeland is not a party, and other outstanding monetary allegations of Lakeland Brazil.

 

In FY19, the Company recorded an accrual of $1.2 million for professional fees and litigation reserves associated with labor claims in Brazil. During the nine months ending October 31, 2019 the Company recorded an additional expense of $0.4 million and paid $1.4 million in professional fees and labor claims.. The accrual on the balance sheet at October 31, 2019 and January 31, 2019 is $0.2 million and $1.2 million, respectively.

 

Other litigation contingencies:

The Company is involved in various litigation proceedings arising during the normal course of business which, in the opinion of the management of the Company, will not have a material effect on the Company’s financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these matters. As of October 31, 2019, to the best of the Company’s knowledge, there were no outstanding claims or litigation, except for the labor contingencies in Brazil described above.

 

Officer severance payment

The Company entered into a separation agreement with a former officer effective July 22, 2019 and recorded a severance charge of $260,000 in connection with this arrangement.  The severance amount will be paid through June 5, 2020 pursuant to the terms of the separation agreement.