The buck starts here: Living wages and sustainable employment

The buck starts here: Living wages and sustainable employment

Large furniture warehouse

By Anne Richardson

The massive push toward subcontracting and supply chains I wrote about in my prior post didn’t happen overnight, and it certainly won’t be fixed overnight either. There are many pieces to this puzzle, all in the service of one big overarching principle: Lead companies must take their fair share of responsibility for the pain and misery that is generated when they squeeze too much from their suppliers and subcontractors. Here are some of the pieces:

1.  Challenge Payroll Fraud.  What used to be called “misclassification” of employees as independent contractors is really the practice of defrauding employees out of social security, overtime, worker’s compensation, health and safety protections, family and medical leave, unemployment insurance, protections against discrimination, and the right to bargain collectively, among other things. In addition to losing these protections, employees who become “independent contractors” have to cover their own costs.  

Cases challenging bogus “independent contractor” status have been multiplying as more and more businesses adopt this practice in order to cut their payroll costs. Last August, the Ninth Circuit held that thousands of FedEx truck drivers were employees, even though FedEx called them independent contractors.  Recently, the judge in a misclassification case against Uber ruled that a jury should decide whether the drivers employees of the company, and noted that “many of the factors in that test appear outmoded” in the “context of the new economy.” 

Former Secretary of Labor Robert Reich has proposed that, instead of waiting for the courts to decide these cases one-by-one, the IRS and Department of Labor adopt a new, simpler test: “Any corporation that accounts for at least 80 percent or more of the pay someone gets, or receives from that worker at least 20 percent of his or her earnings, should be presumed to be that person’s employer.”

2.  Treat Lead Companies as Joint Employers. Every federal circuit and many state courts have their own version of the “joint employer” test to determine when one company should be liable for the wage and hour violations of another – including subcontractors or franchisees. Some of these tests are being re-examined to take into account the ways in which “lead companies” maintain control.

In December 2014 the National Labor Relations Board issued complaints naming McDonald’s Corp. as a joint employer of workers at its franchises. In another case, the NLRB has proposed a “totality of the circumstances” test that would impose joint employer status on any company that wields sufficient influence over the working conditions of the other company’s employees, to make meaningful bargaining impossible in its absence. A similar rule in state and federal courts would recognize the significant power and control that is exerted from the top.

3.  Enforce Supply Chain Liability. Regulators and legislators are also coming to recognize the need to affix responsibility at the top of an industry.  California Labor Code Section 2810.3, which became effective January 1, 2015, provides that an employer must share responsibility for wages, taxes, and workers compensation with the middlemen who provide the labor to the employer. In a similar vein, a provision of the Fair Labor Standards Act known as the “hot goods” provision, prohibits the selling or transporting in commerce any goods produced in violation of the FLSA’s wage and overtime provisions.

Decent wages and safe working conditions are not just an idealistic goal. The lack of a healthy middle class hurts all of us. Public health researcher Richard Wilkinson has reported that the average well-being of modern societies — including health, lifespan, literacy levels, crime levels, and so on — is no longer correlated with national income or economic growth, but with the extent of income inequality. The Center for American Progress has just issued an exhaustive report on “inclusive prosperity,” concluding that nations succeed when their middle class is secure in the expectation that those willing to work are able to work and that standards of living will increase.

Clearly, more work needs to be done. It is time to invest in living wages and sustainable employment, instead of pioneering ever more ways to create dead-end jobs that benefit only those at the very top.

Anne Richardson

About Anne Richardson

Anne Richardson is the Associate Director of Public Counsel Opportunity Under Law, a project aimed at eliminating economic injustice on behalf of underrepresented workers, students, and families throughout California and nationwide. Previously she was a partner at Hadsell Stormer Richardson & Renick representing plaintiffs in all varieties of employment discrimination and civil rights matters for over twenty years. A graduate of Stanford Law School, she has been named to the Top 100 Lawyers in Southern California and has received numerous honors for her work.

Will the “real” employer please stand up? The consequences of the global shift to subcontracting, franchising, and outsourcing

Will the “real” employer please stand up? The consequences of the global shift to subcontracting, franchising, and outsourcing

By Anne Richardson

A fundamental change has taken place in the American workplace, and we are only now beginning to realize just how monumental it is.

A new book, The Fissured Workplace: Why Work Became So Bad for So Many and What Can be Done About It, by David Weil, makes the case that in every corner of the employment world, companies are increasingly shedding their employees, while maintaining control over the ultimate product or services to be provided under the “lead” company’s logo and brand. Beginning with peripheral services such as janitorial and security, and gradually including ever more central services, such as receptionists, truckers, and even lawyers, large employers are deliberately subcontracting out their work.

warehouse

Here’s how it works: A member of a loading dock crew is paid by one company, which is in turn compensated by another company, for the number of trucks loaded. That company, Schneider Logistics, manages distribution centers for Wal-Mart. Wal-Mart sets the price, time requirements, and performance standards that are followed by Schneider, which in turn uses those standards to structure its contracts with its subcontractors.

Why do they do it? Employers can reduce costs by pushing many of the responsibilities connected to being the employer of record down the chain to someone else. Yet by controlling the quality and price of their goods and services, they do not lose their reputations and the goodwill of their brands.

But should lead companies be allowed to have it both ways? Should they be permitted to control the production, delivery, and cost of goods and services, without sustaining any liability for the manner in which their contractors provide them? To take a real world example, if a company like Wal-Mart sets a price that is so low that the only way for suppliers to meet it is by underpaying their employees, isn’t that really Wal-Mart’s responsibility?

This new “fissuring” model has drastic consequences for employees who have been forced to trade in traditional jobs at a lead company, with benefits and a pension plan, for part-time temporary positions with no benefits. Pushing responsibilities down the chain often means that the direct employer is less well capitalized and less capable of maintaining wage and hour standards, or enforcing health and safety rules. Since the company on top sets the price, often as low as the market will possibly bear, the company on the bottom is forced to cut to the bone. Many of the subcontractors are small businesses that go under, and then reemerge as a different company, which results in there being no responsible party  to foot the bill when legitimate claims are made.

Fissuring also negatively affects the health and safety of   the broader public. Weil argues that a significant contributing factor of the devastating environmental oil spill caused by the BP Deepwater Horizon accident in 2009 was the extent of BP’s use of contractors. In order to shield itself from liability by maintaining less control over its subcontractors, BP did not sufficiently oversee the safety component of the operation. Other authors have similarly noted the increase of injuries and fatalities that have accompanied the rise of contracting in, for example, coal mining, construction, and trucking, among others.

To be sure, there are some who benefit from the practice. The third consequence of “fissuring” is to shift the surplus generated by businesses away from the workforce and to investors. This helps to explain why the operative trend in the American workforce is the widening income gap between the rich and the working poor. The gap between the wealthy and the poor is at a hundred year high.  For example, in 1965, the average CEO made about 20 times what the average worker made at any given company. By 2013, the ratio had grown to approximately 331 to 1. What’s fascinating is that a recent study found that not only did people worldwide grossly underestimate the ratio of CEO to worker pay, but that people across all backgrounds preferred a smaller pay gap.

Weil, who was appointed the Administrator of the Wage and Hour Division of the United States Department of Labor in May 2014, argues that since “[t]he modern employment relationship bears little resemblance to that assumed in our core workplace regulations,” laws and judicial decisions need to adapt current rules about workplaces to the realities of the modern world.

In every corner of the American workforce, the pressures to cut costs and improve the investor’s return have resulted in a worsened standard for the middle-class worker, as well as a worsened standard of health and safety. What can be done about it? Stay tuned for my next post.

Anne Richardson

About Anne Richardson

Anne Richardson is the Associate Director of Public Counsel Opportunity Under Law, a project aimed at eliminating economic injustice on behalf of underrepresented workers, students, and families throughout California and nationwide. Previously she was a partner at Hadsell Stormer Richardson & Renick representing plaintiffs in all varieties of employment discrimination and civil rights matters for over twenty years. A graduate of Stanford Law School, she has been named to the Top 100 Lawyers in Southern California and has received numerous honors for her work.

What you need to know before you blow the whistle 2

What you need to know before you blow the whistle

By Anne Richardson

Can a public employee be terminated because he testified truthfully that another government employee was defrauding the government?   That is the question in the case of Lane v. Franks, argued in front of the United States Supreme Court earlier this week.

Edward Lane was hired as interim director of an at-risk youth program for Central Alabama Community College.  Shortly after he started working, he audited the program’s finances, and found that Sue Schmitz, an employee who was also a  member of the State Legislature, appeared not to be performing her community relations job, even though she was collecting a paycheck.

Representative Schmitz’ “no show” job performance was investigated by the FBI, and eventually she became the subject of a federal prosecution by the United States Attorney for the Northern District of Alabama. Lane was subpoenaed by the U.S. Attorney to testify before a grand jury and in two criminal trials.

Lane testified truthfully that Representative Schmitz was on the payroll for his program –  one of its highest paid employees — but had never reported for work.  When he attempted to get her to carry out her job duties Schmitz refused, and  warned him not to mess with her.  He fired her despite the threat because he believed that allowing her to continue taking money for a “no show” job would make him complicit in her dishonesty.

Schmitz was convicted in federal court of taking $177,000 in public funds.  The Alabama Attorney General called the case “one of the most egregious public corruption situations in Alabama’s history.” It led to a total rewrite of its public corruption laws and ethics laws. But instead of being rewarded for his part in bringing her to justice, Mr. Lane was fired from his job.

Hey wait a minute, how could this happen?  Government whistleblowers are protected by the First Amendment, aren’t they?  Well, not always.  The Supreme Court has long held that government employers have greater latitude to discipline whistleblowers than employers in the private sector.  It created a balancing test to ensure that public employees cannot simply say whatever they want, to whomever they want.

In Pickering v. Board of Education, the Court ruled that the subject of the employee’s speech must be of public concern; the employee’s comments cannot be false; and the employee’s conduct must not interfere with the regular operations of the employer.  In Garcetti v. Ceballos, the Court ruled that if the employee’s speech is part of her official responsibilities, she is not protected from retaliation by the First Amendment.

The Lane case gives the Supreme Court its first opportunity to clarify what it meant in Garcetti.   The attorney representing Lane’s employer argued that since Lane’s testimony was based on information that Lane learned in carrying out his job duties, he is not protected by the First Amendment. Lane’s attorney responded that since testifying in response to a federal subpoena in a corruption investigation was not part of his job duties, he is protected.  Lane is supported by numerous groups, including the National Association of Police Organizations, whose “friend of the court” brief argued that permitting retaliation against officers who testify would “promote obstruction of justice.”

California law provides more protection to whistleblowers, both public and private. In 2013,the Legislature amended the California Labor Code to make it clear that employees are protected against retaliation “regardless of whether disclosing the information is part of the employee’s job duties.”

California’s approach is better because whether or not reporting misconduct is a whistleblower’s job, society loses if he is not protected. If you can terminate someone who fulfills his responsibility by testifying truthfully, you are creating a perverse incentive to lie under oath.  As a society, we should encourage whistleblowers who bring corruption to light, not punish them.  A decision from the high court should be announced this summer.

Anne Richardson

About Anne Richardson

Anne Richardson is the Associate Director of Public Counsel Opportunity Under Law, a project aimed at eliminating economic injustice on behalf of underrepresented workers, students, and families throughout California and nationwide. Previously she was a partner at Hadsell Stormer Richardson & Renick representing plaintiffs in all varieties of employment discrimination and civil rights matters for over twenty years. A graduate of Stanford Law School, she has been named to the Top 100 Lawyers in Southern California and has received numerous honors for her work.

ENDA: Is there an end to LGBT employment discrimination? 1

ENDA: Is there an end to LGBT employment discrimination?

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By Anne Richardson

At present, employers in 29 states are legally allowed to fire an employee for being lesbian, gay, or bisexual. In 33 states they can fire a transsexual employee based only on gender identity without fear of repercussion. At the same time, 37.7% of ‘out’ LGBT employees report being discriminated against at work, and 9% reported losing a job because of their orientation. Though federal laws forbid workplace discrimination based on race, religion, sex, age, national origin or disability, no such protections exist for LGBT workers nationwide.

The extent of discrimination against LGBT workers was chronicled in A Broken Bargain, a recent report from the Center for American Progress, Human Rights Campaign Fund and Movement Advancement Project.  These organizations, along with many others are calling for Congress to pass the Employment Non-Discrimination Act of 2013 (ENDA – SB 815).

This week, the Senate Health, Education, Labor, and Pensions Committee passed ENDA out of committee.  If it goes on to become law, ENDA will extend to gay, lesbian, bisexual and transgender employees the same workplace protections guaranteed to other groups. Specifically, it would forbid discrimination “because of such individual’s actual or perceived sexual orientation or gender identity.”

A story on the blog Policymic titled 5 People Who Were Fired for Being Gay, and the 29 States Where That is Still Legal, profiles a lesbian soccer coach in Tennessee, a management analyst with the Library of Congress, and others who have faced employment discrimination because of their LGBT status.

Many feel the time has come for Congress to pass ENDA, including groups like the Human Rights Campaign Fund that are calling for public action.  Without ENDA, LGBT workers around the country will continue to endure workplace discrimination and be excluded from the promise of a free and fair workplace for all Americans.

Anne Richardson

About Anne Richardson

Anne Richardson is the Associate Director of Public Counsel Opportunity Under Law, a project aimed at eliminating economic injustice on behalf of underrepresented workers, students, and families throughout California and nationwide. Previously she was a partner at Hadsell Stormer Richardson & Renick representing plaintiffs in all varieties of employment discrimination and civil rights matters for over twenty years. A graduate of Stanford Law School, she has been named to the Top 100 Lawyers in Southern California and has received numerous honors for her work.

Italian Colors decision shows Supreme Court’s true colors on arbitration agreements

By Anne Richardson

Many people don’t realize that when they start working at a new company the papers they sign often contain agreements to give up their right to go to court if their rights are violated.  Too often, it is only when a company has fired that worker, refused to pay her overtime, or subjected her to harassment that a person turns to a lawyer and discovers that the employment dispute will be decided by an arbitrator, not a judge or a jury.

Even if the prospective employee reads and understands that what they are signing requires them to arbitrate, their “agreement” is hardly a voluntary one — most employees are powerless to alter the terms of an employment agreement.  For many, the need to pay bills outweighs the concern that someday that employee may have a dispute with the employer.

The downsides of arbitration to employees and consumers are many.  Employers and large corporations are more likely to be “repeat players” in arbitration, and it is well known that arbitrators tend over time to become partial to those that employ them regularly.  In addition, an arbitrator who does provide a large judgment to an employee is subject to being blackballed by the employers who may refuse to agree to use that arbitrator in the future.  According to a 2007 survey conducted by the non-profit Public Citizen, consumers had lost more than 94 percent of cases handled by the debt collection arbitrator National Arbitration Forum.  The Supreme Court’s June 20 decision in American Express Co. v. Italian Colors Restaurant continues an aggressive run of cases by this Court that take the side of big business against the little guy.  In Italian Colors, owners of a small restaurant tried to challenge an arbitration agreement that was forced upon them by American Express.  The restaurant owners claimed that American Express violated federal antitrust laws that affected small businesses as a class, but the arbitration agreement prohibited any class action claims.

Unfortunately, the restaurant’s individual claim was only worth $38,549.  The cost of arbitrating the case was estimated to be between $100,000 and $1,000,000.  Unless the restaurant could bring a class action, there was no way it could recover its loss.  The restaurants argued that the class action prohibition in the arbitration agreement prevented the enforcement of federal antitrust laws.

Justice Scalia, writing for the majority, upheld the class action prohibition in the arbitration agreement.  In her sharply worded dissent, Justice Kagan called the decision a “betrayal of our precedents,” wherein “[t]he monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”

Employee arbitration agreements may still be challenged on grounds that they are unconscionable if the employee was forced to accept the agreement and the terms of the agreement are overly harsh or one-sided in some respect, then the arbitration agreement will not be upheld.

But the Italian Colors case demonstrates that the Federal Arbitration Act, which was passed in 1925, needs to be amended.  Congress must respond to the Supreme Court’s extreme interpretation, which threatens to undermine important legislation protecting consumers, employees and other vulnerable citizens.

Anne Richardson

About Anne Richardson

Anne Richardson is the Associate Director of Public Counsel Opportunity Under Law, a project aimed at eliminating economic injustice on behalf of underrepresented workers, students, and families throughout California and nationwide. Previously she was a partner at Hadsell Stormer Richardson & Renick representing plaintiffs in all varieties of employment discrimination and civil rights matters for over twenty years. A graduate of Stanford Law School, she has been named to the Top 100 Lawyers in Southern California and has received numerous honors for her work.

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