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Article Excerpt
INTRODUCTION
Almost every growing sector in the bottom half of our economy--health care, child care, retail, building services, construction, and hospitality--is plagued by penurious employers who drag down working conditions for everyone. Common schemes emerge in jobs with sweatshop conditions: employers hide behind subcontractors, call their workers "independent contractors" not covered by workplace laws, and hire immigrant workers who are subjected to substandard conditions. Firms must adopt similar practices to stay competitive. Workers in many of these jobs make the minimum wage or less. Minimum wage for a full-time worker today translates into an annual income of only $12,168. Consequently, many important jobs cannot bring people out of poverty and workers across the socio-economic spectrum are impacted.
Far from ramping up enforcement to combat these unlawful practices, federal and state public agencies have reduced staffing and enforcement efforts. Private enforcement is hampered by rules against class actions under the federal minimum wage law. The labor movement has stepped into this void, partnering with community organizations and law-abiding employers, creating relationships with state departments of labor and attorneys general, and supporting private labor standards enforcement models to shore up the wage floor for all workers.
Part I of this Article describes the trends that result in bad jobs, including the U.S. Department of Labor's inaction, employer dodges including subcontracting and independent contractor misclassification, and the barriers workers face to protesting their unpaid and underpaid wages. Part II showcases some of the more exciting of these new labor standards enforcement models, including: (1) labor and management-funded "Taft-Hartley Funds" such as the Maintenance Cooperation Trust Fund in California and the national network of Foundations for Fair Contracting, which use union and employer monies to police wage and hour violators; (2) the American Federation of Labor and Congress of Industrial Organizations' ("AFL-CIO")' national worker center partnership, creating new collaborations with community organizing groups in the day labor and faith-based communities; (3) the Service Employees International Union's wage and hour project, supporting private and public agency enforcement of fair pay rights for janitors, security guards, and home health-care workers across the country; and (4) the New York Civic Participation Project, a union-community collaboration that promotes worker justice and civic empowerment for new immigrants. (1) Part III briefly assesses these new models and suggests possible directions for continued success.
I. TODAY'S TRENDS THAT MAINTAIN BAD JOBS
As we lose manufacturing jobs to overseas markets, the jobs left behind--health care, child care, retail, building services, construction, and hospitality--are not good jobs. In addition to providing paltry benefits, if any, employers in these sectors routinely violate bedrock employment rights like the right to be paid fully for work and the right to a safe workplace. (2) Employers in these industries maneuver to cut costs at any price: they hide behind subcontractors, call their workers "independent contractors" not covered by workplace laws, and hire immigrant workers who are vulnerable to exploitation. (3) As if that were not enough, workers face barriers to enforcing their basic job rights, including antiquated rules for bringing class actions in private litigation, and fear of reprisals that go unchecked when workers complain.
A. The United States Department of Labor ("DOL") Is Not Enforcing Its Laws, and Interprets Its Role Narrowly
Public enforcement of the Fair Labor Standards Act ("FLSA") and other baseline workplace standards is down, with some notable exceptions; federal and state agencies charged with enforcing baseline wage and hour laws are not having an impact. Employers know that there is little to fear from public enforcement of workplace violations, and so do not change their practices. (4) In addition, the DOL has interpreted laws to exempt large classes of low-wage workers from basic wage and hour protections, including professional home health-care companions? In general, despite the persistence of sub-par jobs, the DOL has not made it a priority to stem these abuses.
The Wage and Hour Division ("WILD") at the DOL enforces many laws, including the FLSA, which sets the minimum wage and overtime rules, prohibits retaliation against complaining workers, and restricts child labor. (6) The FLSA authorizes DOL lawsuits on behalf of employees, as well as lawsuits by individual employees. (7)
While public agencies are by their nature underfunded and understaffed, the DOL has been particularly undersubsidized in recent years. In addition, it has failed to use its resources strategically to have the broadest impact, as it has in the past with, for instance, targeted audits and affirmative task forces aimed at priority industries. (8)
From 1975 to 2004, the budget for DOL WHD investigators decreased by 14% (to a total of only 788 individuals nationwide), and enforcement actions decreased by 36%, while the number of businesses covered by the wage and hour law increased from 7.8 million to 8.3 million. (9) The DOL's overall budget to enforce wage and hour laws is now 6.1% less than before President George W. Bush took office. (10)
DOL legal resources have also suffered, impacting its ability to enforce the laws. In fiscal year 1992, the Solicitor's Office, responsible for enforcing all laws under the DOL's jurisdiction, had 786 employees, (11) an increase of 59% since fiscal year 1966. But, since fiscal year 1992, despite the fact that two additional laws have been added to the responsibilities of the Solicitor's Office, the Family and Medical Leave Act of 1993 and substantial amendments to the Mine Safety and Health Act in 2006, the number of employees of the Solicitor's Office has declined markedly; in January 2007, it was down to 590 employees nationwide. (12)
The DOL has focused its attention on employer compliance and education in the last eight years, and has deemphasized audits and affirmative investigations. (13) Some of the few enforcement actions it did bring have been challenged as insufficient. For example, a celebrated settlement with Wal-Mart over child labor violations in Connecticut aroused the wrath of Congress members, who demanded that the DOL explain its decision to permit Wal-Mart to have fifteen days to fix any worker complaints before the DOL would investigate. (14)
Because it has not emphasized its ability to conduct audits or investigations generated internally, the DOL conducts its current wage and hour law enforcement based almost wholly on worker complaints. (15) This is a problem for low-wage and immigrant workers in particular, who face serious barriers to complaining to the DOL. (16)
In 2001, the WHD conducted as many as 55% of its investigations by fax or phone, and it is five times more likely to find violations of recordkeeping requirements when it visits a workplace. (17) When the risk of enforcement is small, systemic violations of wage and hour laws become the norm in these sectors. (18) When the DOL does enforce its workplace laws, it makes a difference in the wage levels of workers in workplaces beyond those it chooses to bring enforcements actions against. (19)
In addition, in the context of fewer enforcement resources overall, the DOL has taken the unusual step of intervening in ongoing litigation on the side of employers. In one instance, the DOL supported the employer's argument in an opinion letter sought by a trade association during the pendency of litigation, (20) and in another, wrote an internal memorandum purporting to clarify the intent of its previously-enacted regulations regarding coverage of home health-care workers under minimum wage and overtime law, supporting the employer's argument while the case was pending before the U.S. Supreme Court. (21)
In another example of narrowly interpreting its own enforcement power, the current WHD administrator has stated on several occasions that it is not a violation of any of the laws enforced by the WHD to misclassify workers as independent contractors. (22) This is false, as the DOL can and should investigate any complaints by workers claiming unpaid wages, whether or not they are called independent contractors. If the DOL does not investigate workers who are called independent contractors, it will miss violations of the FLSA. In addition, it is a violation of the FLSA to fail to keep records of hours and pay for all workers. The WHD's view of its enforcement role is also unduly constricted, and sends a message to employers and employees that the WHD is not going to go out of its way to affirmatively seek out violations.
B. Employers Are Maneuvering in This Climate of Non-accountability
With increasing frequency, employers misclassify employees as "independent contractors," either by giving their employees an IRS Form 1099 instead of a Form W-2, or by paying them off-the-books and not reporting or paying taxes. (23) Businesses also insert subcontractors who are often undercapitalized, including temporary help firms and labor brokers, between them and their workers. This creates another layer of potentially-responsible entities and creates confusion among workers as to who is actually their employer. (24) While there are true independent business people not covered by labor and employment protections as "employees," and while there is nothing inherently wrong with firms subcontracting-out labor, these mechanisms create barriers to enforcing the baseline work rules such as minimum wage and overtime and cost the government billions of dollars in lost tax and insurance revenues. (25)
1. Subcontracting
Outsourcing employees to labor intermediaries such as temporary or leasing firms or labor brokers allows companies to argue that the intermediate entity is the sole employer responsible for pay rules, and allows them to dodge responsibility. (26) Often, the subcontractor lacks the resources to pay legally-mandated wages. (27) Wal-Mart and leading restaurant chains such as Outback Steakhouses have recently come under fire for hiring cleaning services through fly-by-night labor brokers who underpay janitors. (28) Microsoft shifted handling of computer software programmers' pay checks to a leasing company and then argued the programmers were not entitled to Microsoft's benefits because they were not "employees" of Microsoft. (29)
Many companies seek to shift all employment-related responsibility to labor contractors. (30) When workers are fired unjustly or fail to receive the pay they are owed, companies often claim that they do not employ the workers and that the labor contractor is solely responsible.
In many settings, labor contractors need not acquire significant capital or skills to operate a business. Contractors compete for business with low bids that depend on driving labor costs lower and worker productivity higher. Many contractors do not earn enough money to pay business expenses and comply with minimum wage, overtime, workers' compensation premiums, unemployment compensation, Social Security deductions, and other basic standards, much less make a profit. (31) In many cases, the labor contractor accepts this scheme as the price of becoming the middleman.
A July 2007 decision from the Seventh Circuit Court of Appeals held a seed corn company responsible for the unpaid wages of workers hired and recruited by a labor broker. The court explained:
If everyone abides by the law, treating a firm ... as a joint employer will not increase its costs.... Only when it hires a fly-by-night operator ... is [the firm] exposed to the risk of liability on top of the amount it has agreed to pay the contractor. And there are ways to avoid this risk: either deal only with other substantial businesses or hold back enough on the contract to ensure that workers have been paid in full. (32)
2. Misclassifying Workers as Independent Contractors
In independent contractor schemes, firms argue they are off-the-hook for any violations of rules protecting "employees." This deprives workers of essential rights, including: minimum wage and overtime premium pay, a healthy and safe workplace, family and medical leave, equal opportunity, and the right to join a union and engage in collective bargaining. (33) Workers also lose out on safety-net benefits including unemployment insurance, workers' compensation, Social Security, and Medicare. (34) For example, FedEx calls its drivers "independent contractors," while UPS treats its drivers as employees. (35) By misclassifying its employees, employers stand to save upwards of 30% of their payroll costs, including employer-side FICA and FUTA tax obligations, workers' compensation and state unemployment, and disability taxes paid for "employees." (36) Businesses that "1099" and pay off-the-books can undercut competitors in labor-intensive sectors like construction and building services, which creates an unfair marketplace.
Labeling employees "independent contractors" is a broad problem and affects a wide range of jobs. A DOL study found that up to 30% of firms misclassify their employees as independent contractors. (37) At least eleven states have studied the problem and found high rates of misclassification. As many as four in ten construction workers were found to be misclassified. (38) An Illinois study completed in December 2006 found that nearly 20% of audited employers misclassified their employees as independent contractors. This was a...
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