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.

NLRB decision – McDonald’s and other corporations, not lovin’ it

NLRB decision – McDonald’s and other corporations, not lovin’ it

 

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By Alexis S. McKenna

For decades now, corporate franchisors have been able to have the best of both worlds with the franchise business model — exerting increasing control over their franchises’ operations in order to increase their own profits, while distancing themselves from the unlawful employment practices of the franchisees.

Take McDonald’s Corp. for example.  McDonald’s exercises a great deal of control over its franchisees and their employees through their franchise contracts.  This control includes partly setting wage levels, work rules and scheduling, requiring franchisees to use proprietary labor management software, and providing labor guidance to increase profitability. In fact, modern technology has made it easier over the years for corporations to increase its control and monitoring of the franchises, which in turn has increased profitability for the franchisees and the corporate franchisors.  But, increasingly, corporate franchisors wish to reap the benefits of the franchise industry while disavowing any responsibility for labor practices inside the restaurants.

That may be about to change.  Through a brief administrative decision on July 29, the National Labor Relations Board (NLRB)’s General Counsel, Richard Griffin, announced that McDonald’s could be treated as a “joint employer” (along with the franchisees) in labor cases.  In other words, McDonald’s could be legally responsible if its franchisees engage in unlawful employment actions, such as improperly paying workers or terminating them for union organizing.  In addition, treating McDonalds and its franchisees as “joint employers” would make it easier for fast food workers to unionize.  Instead of the time-consuming and expensive process of unionizing workers at each franchise location, company-wide organization may be feasible.  Perhaps more importantly, this decision could set a precedent not only for other franchisors, but for businesses that use temporary workers, subcontractors or so-called independent contractors as part of their business model.

The decision set off a firestorm in the industry, prompting a chicken-little-the-sky-is-falling response from franchisors and their proponents.  For example, in a quote in the Wall Street Journal, the chief executive for the International Franchises association said this opinion will “threaten the sanctity of hundreds of thousands of contracts between franchisees and franchisors.”  An editorial in the Chicago Tribune opined that “the new liability would invite a plague of lawsuits, while forcing corporations to drastically alter their operations.”  Numerous corporate leaders, such as the CEO of CKE Restaurants, which includes Hardee’s and Carl’s Jr., claim this change to the system will “destroy” it.

The industry’s reaction is totally out of proportion to the potential impact of the decision.  Virtually no one wants the franchise system to shut down.  Yet, business proponents bombard us with rhetoric that contracts are downright holy and lawsuits are a disease.  They lament that forcing corporations to take responsibility for the franchisees will kill the entire system.

We’ve heard this sort of fear-mongering from the business community before.  Take, for example, the 40 hour work week, which union leaders pushed for and business owners fought against in the early 19th Century.  Study after study has since shown that a 40 hour work week has not destroyed our economy, but in fact made businesses more productive and profitable.

It is good to have corporations on the line for all it its franchise workers – it creates incentives for the corporations to keep the franchisees in line and treat their workers better.  While corporate leaders fight to protect the status quo, joint responsibility will help ensure that workers in these jobs have their rights protected, and can collectively bargain for fair wages.  A study by the National Employment Law Project shows that post-recession job market is weighted heavily toward work in the fast food industry.  Over 8 million people work at fast food restaurants, amounting to 15 percent of all private sector jobs in the United States.  Given the increase in these kinds of job in the modern economy, we must make sure these jobs can support the economy.

In the end, corporate liability for franchise misconduct will force corporations, who benefit significantly from their franchises, to take responsibility for working conditions that really are under their control.  And that is a system that benefits everybody.

 

Alexis McKenna

About Alexis McKenna

Alexis McKenna is a partner at Winer, McKenna & Burritt, LLP, where she specializes in harassment, discrimination, wrongful termination and other employment claims on behalf of plaintiffs. Alexis is the immediate Past President of the Alameda/Contra Costa Trial Lawyers Association (ACCTLA), is on the Board of Governors of Consumer Attorneys of California, and is also a member of the San Francisco Trial Lawyers Association and American Association for Justice. A former editor of The Verdict for ACCTLA, Alexis has also published several articles and been a frequent lecturer in the area of employment litigation.

Is franchising the new frontier for wage theft? 1

Is franchising the new frontier for wage theft?

http://www.dreamstime.com/royalty-free-stock-photography-headline-franchise-opportunities-image24730347

By Monique Olivier

The woman who empties your trash in your office, moving quietly around you at your desk as you finish that late night project – did you know there is a good chance she “owns” her own cleaning business?

At least that is what companies like Jani-King, Coverall and Jan-Pro would have you believe, and want the courts to believe as well.  Their business model relies upon the fiction that these janitors — having paid thousands of dollars in cash up front to buy the right to clean — will reap the rewards of being entrepreneurs.

In fact, these janitors do not even control their own wallets, let alone their professional destinies.  A key distinction between a “janitorial franchise” and, say, a McDonald’s is that the janitors have no right to control the stream of income they recognize.  Franchisors like Jani-King hold all of the cleaning contracts and grant or refuse permission to franchisees to clean particular accounts.  They also dictate the terms of the accounts – when a janitor will clean, what a janitor will clean and how much the janitor will be paid for each cleaning job.

Sound suspiciously like the janitors are employees?  Several courts and experts think so, and cases decided in the realm of cleaning franchise litigation are being closely watched by business and workers alike.

A case against Jani-King currently pending in the federal Ninth Circuit Court of Appeals, Juarez v. Jani-King International, may provide guidance as to whether these so-called “franchisees” are, in fact, employees under California law.  In Massachusetts, a federal district court already ruled in favor of similar workers, deciding that classifying them as independent contractors instead of employees was against the law.  Another Massachusetts court, in a case filed against Coverall North America, not only concluded that its cleaning worker “franchisees” were employees  under the Massachusetts Independent Contractor Law, but pointed out the similarity between its self-described “franchising business” and a Ponzi scheme.

Boston University’s David Weil agrees.  According to his excellent research, janitorial franchisors’ profitability (which can be upwards of 40%) depends on a steady stream of fees from new “franchisees,” regardless of whether there is sufficient work to sustain the ones it already has.

Recently, the National Employment Law Project weighed in on other widely recognized abuses by so-called “franchise” cleaning companies in the commercial cleaning industry. In a friend-of-the-court brief filed in the Juarez case on behalf of a coalition of workers’ rights organizations, NELP reviews the janitorial industry’s abysmal scorecard on fair pay and working conditions, arguing that janitorial franchising schemes enable rampant non-compliance with basic labor standards.

Even the U.S. Department of Labor has gotten into the act.  Its 2012 proposed budget targets misclassification of workers as an important enforcement priority, noting that the janitorial industry has a higher rate of violations than many other industries.

What it comes down to is this – sophisticated corporations, dissatisfied with earning money the old-fashioned way, are tricking unskilled low-wage workers into paying  thousands of dollars for the privilege of cleaning America’s office buildings in the futile pursuit of a fake American Dream.  The time is now for the courts and the government to rein in these abuses.

Monique Olivier

About Monique Olivier

Monique Olivier is a partner at Duckworth Peters Lebowitz Olivier LLP where she represents individuals and classes in employment, civil rights and consumer cases at the trial and appellate levels. She frequently speaks on and writes about class action and employment issues. She also makes a mean pulled pork.

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