The Downsizing of Labor Rights

By Christopher D. Cook

Workers were a hot item in 1996. Born-again populists of both parties jostled for votes from the anxious and the downsized. Labor was Big again, elevating workers’ issues—at least ones that contrasted Democrats from Republicans—back onto the electoral stage. But the AFL-CIO’s $35 million pro-Democrat gambit did nothing to illuminate a massive legal crisis affecting some 30 million of America’s burgeoning class of contingent workers, who comprise nearly one-third of the U.S. workforce. Lacking union protection and political clout, these temporary, leased and "contract" workers are slipping through widening cracks in U.S. labor laws.

Numerous studies and court cases indicate a fundamental contradiction between contingent employment and labor rights which were scripted for full-time, permanent workers.

A groundbreaking study sponsored by the Department of Labor provides potent evidence of this disconnect—but it may never see the light of day. In an unpublished report scuttled by Congress, the National Commission on Employment Policy (NCEP) documented major failings in a wide array of labor statutes. "Frequently, Federal protections afforded full-time, permanent employees do not reach the contingent worker," the commission concluded, upon extensive analysis of federal civil rights, labor organizing, equal pay, and other laws.

From well-paid computer engineers and business consultants in contract jobs to temporary and leased workers, janitors, and taxicab drivers, contingent workers of all collars are discovering their legal rights are even less secure than their jobs. The list of exclusions encompasses nearly every aspect of U.S. labor law:

A 1995 Conference Board study found that contingent employment has become a primary, if not vital, ingredient in corporate downsizing. The management research firm’s survey of corporations concluded that contingent labor is "closely identified with continued downsizing, since headcount restrictions are often imposed on managers to keep the core employment down once the job cuts have been made." Eighty percent of the respondents said a just-in-time workforce "gives them the ability to add and subtract workers with little notice, a strategy that has become more urgent because of unpredictable conditions in the global marketplace." The business world aptly terms this "accordion management"—the inhaling and exhaling of workers according to peak production and marketing cycles.

One of America’s hottest yet lesser-known business trends, staff leasing, is cashing in on both ends of this accordion effect. "Professional employer organizations (PEOs)," as leasing firms prefer to call themselves, are making a booming business of liability outsourcing—assuming labor law obligations for their client companies’ workers. To avoid the headaches of personnel management and labor law compliance, more and more businesses are firing their staffs and renting their workers from a leasing company.

The Your Staff leasing firm, a 5,000-employee subsidiary of the Kelly Services temporary labor corporation, is one such company promising, as a promotional video puts it, to "provide your company with an extra measure of insulation against damaging litigation and inflated insurance costs...Your Staff becomes the employer of record for your employees, while you maintain day-to-day control over directing them."

The promotions are working. Leasing’s member group and lobbying arm, the National Association of Professional Employer Organizations (NAPEO), reports a staggering industry-wide revenue growth rate of 30-40 percent per year. According to the Bankers Trust Company, an investment analysis firm in New York City, this boom is likely to continue through the next five to ten years.

In the past 12 years, leasing has exploded from 98 firms leasing 10,000 workers in 1984, to 1,700 companies which now employ 2 to 3 million workers. Gregory Hammond, the former general counsel of NAPEO’s predecessor, the National Staff Leasing Association, predicts leasing’s exponential growth will "culminate sometime in the next 10 or 50 years at a point when no one will ever again be employed by the people for whom they perform services."

The industry advertises this detachment of workers from employers as the most efficient way to run a business in the global economy. Retired Air Force Colonel Regis Canney, a top industry executive, calls leasing "America’s secret weapon" in the global business battlefield. But leasing’s primary allure is that it exploits loopholes in family leave, pension, and worker health and safety laws. In order to qualify for Family and Medical Leave Act protection, workers must log 1,250 hours in a year for a single employer. But according to Cathy Ruckelshaus, a staff attorney with the National Employment Law Project in New York City, a business can "employ a worker for eleven and a half months and then switch over to a leasing arrangement to avoid the requirements."

Businesses also use leasing as a "secret weapon" against union organizing drives. When the Service Employees International Union attempted to organize janitors employed by Advance Building Maintenance, which cleans Toyota headquarters offices in Torrance, California, Advance opted to lease its workers. According to Jono Shaffer, organizing coordinator for the Service Employees International Union’s building services division, Advance "tried to take the position that they were no longer employing the workers, that our dispute was with the leasing company." Through aggressive corporate campaigning, SEIU forced Advance to settle collective bargaining agreements and numerous wage and hour disputes.

With such tantalizing loopholes, this risky business of liability outsourcing is expanding rapidly under minimal regulatory oversight. Only 13 states require PEOs to obtain a license or register their business. Likewise, the industry’s self-monitoring body, the Institute for the Accreditation of PEOs, reports that but 13 of the nation’s 1,700 leasing firms have met the group’s standards for ethical behavior and financial stability.

In their quest for cheap, hassle-free labor, more and more companies are finding creative—often illegal—ways to erase workers’ rights. As a condition of employment, taxicab firms now require drivers to sign "lease agreements" which, on paper at least, turn employee drivers into independent contractors, thus denying them minimum wage, unemployment insurance, workers’ compensation, and other protections.

Workers’ compensation is routinely denied to cab drivers, who, according to a recent study by the National Institute for Occupational Safety and Health, hold the most hazardous job in America. In 1994, 86 drivers lost their lives on the job, the study found. Thousands more are badly injured, and frequently these uninsured workers must pay enormous hospital bills out of pocket.

In a profession where knifings and beatings are part of the job description, signing away your rights to workers’ compensation seems suicidal. But drivers say that under the cab industry’s contracts—recently ruled illegal in a class-action lawsuit—it’s "economic suicide" to become an employee.

According to the industry-authored lease agreement, "lease-drivers"—those who sign as independent contractors—pay $85 to rent a cab for a 10-hour night shift, while "employee-drivers" must pay $103. For the extra $18 a night, employee drivers get workers’ compensation and unemployment insurance. Over the course of a year, access to these basic employment rights costs $3,500 to $4,000 a year—forcing drivers to choose between higher incomes and employment rights.

"It’s gangsterism," adds Paulsen, a driver for DeSoto Cab Company since 1976. "You either drive for these guys or you don’t drive at all. You have no control...The driver is kind of like an economic slave."

Spurred by the near-fatal, on-the-job beating of driver John Coleman, thousands of San Francisco cab drivers joined and recently won a class-action lawsuit against three major taxi firms. According to the original complaint, "Taxicab drivers who are injured in the course and scope of their service...are unable to obtain medical care for their injuries, lose employment, are denied unemployment insurance benefits, and in many instances are forced on welfare." If it withstands appeal, the San Francisco Superior Court ruling will force taxi companies to cover their drivers for workers’ compensation, unemployment insurance, and other employee rights.

But Ruach Graffis, a long-time organizer with San Francisco’s United Taxicab Workers, says major financial incentives still encourage worker misclassification. "This will keep happening forever, until we get national health care, because these companies don’t want to pay workers’ compensation," says Graffis.

Legal aid lawyer Christopher Ho, who represented the drivers and has handled similar cases involving strawberry pickers, agrees. "This whole independent contractor misclassification thing has really taken off. Employers are doing it with increasing frequency because it’s easy for them to avoid statutory obligations...The fact that it’s happening so far afield shows that employers are using this as a ruse to save money."

Low-wage and immigrant workers are not the only victims. Even highly paid independent contractors by choice are denied basic rights. Minnesota business consultant Caryn Wilde endured sexual harassment by a county development official for more than a year before filing a restraining order. Within two weeks of her complaint, the county agency, Wilde’s largest client, "voted to cease all communications" with her, Wilde testified in court. Two months later, according to Wilde, the agency terminated all its business with Wilde.

Meanwhile, Wilde’s legal and medical expenses related to the case soared to more than $30,000. After losing her biggest client and tens of thousands of dollars due to her sexual harassment complaint, Wilde also lost in Federal Court. The judge ruled that since Wilde was an independent contractor, she was not protected by Title VII of the 1964 Civil Rights Act; nor was she covered by the Minnesota Human Rights Act. When Wilde appealed to a Circuit Court, the EEOC took notice and, at first, offered its support. According to Wilde, the agency soon backed out, saying that "although they were very interested in the case, they were still living under the narrow interpretation of the term ‘employee’ as ordered by the Reagan/Bush Administration."

The EEOC’s about-face corroborates the National Commission on Employment Policy’s finding that Reagan-era Federal courts have narrowed the scope of employee status, often denying workers legal protection. "The breadth of...the legislative language is narrowing," the report stated. "Congress may want to expand coverage by extending the definition of employee to independent contractors." To date, this has not happened.

The ultimate challenge, says Anthony Carnavale, who headed the National Commission on Employment Policy, "is how to reconcile the need to furnish contingent workers protections in the workplace similar to those afforded permanent employees while continuing to provide employers with the work force flexibility they need to be competitive in a global economy." The commission warned that expanding contingent labor without extending labor rights promises dire results: "It is incumbent upon us to decide if, in the long-term, it is economically and socially viable for this country to sustain a large portion of the American working population in such a precarious and insecure employment status."

The commission answered its own question rather boldly, which may explain why congressional Republicans and the Clinton administration agreed to eliminate the group. "Our goal should be to provide all workers with the same level of protection to reduce the incentives to create a two-tiered labor market," the report said.

But as contingent labor proliferates, policy makers are ignoring this challenge. Only two members of Congress have proposed reforms, and both (Ohio Senator Howard Metzenbaum, and Colorado Representative Patricia Schroeder) have opted for retirement—effectively removing contingent labor from the national policy making map. The two congressional attempts to extend legal protections to contingent workers languish in archival obscurity.

Senator Metzenbaum’s "Contingent Workforce Equity Act," proposed in October 1994, remains by far the most comprehensive attempt to protect contingent workers. It proposed to "extend the protections of Federal labor and civil rights laws to part-time, temporary, and leased employees, independent contractors, and other contingent workers, and to ensure equitable treatment of such workers." Among other provisions, the bill would have made it illegal for companies to pay temporary and part-time workers less than regular employees doing similar jobs. The European Court of Justice has already taken a similar tack, ruling that unequal pay for part-time workers is discriminatory.

When Metzenbaum retired the measure was passed along to now-retiring Illinois Senator Paul Simon; it has since been forgotten. Nonetheless, the bill amply reflected attempts by advocacy groups and unions to write contingent workers into the law. The National Employment Law Project, a New York City-based group advocating for the unemployed and working poor, is urging the Equal Employment Opportunities Commission to include Workfare recipients and other contingent workers within its antidiscriminatory aegis. The aim, according to staff attorney Cathy Ruckelshaus, is to "make it clear in the definition of employee that they’re covered."

The Law Project and many policy researchers urge a complete overhaul of U.S. labor law, arguing that single-issue reforms "simply encourage the development of new forms of contingent status," a coalition of worker advocacy groups told the Dunlop Commission on the Future of Worker-Management Relations in 1994. "Mandating fair treatment for employees...gives employers a reason not to directly hire ‘employees,’ but instead to hire ‘temps,’ ‘lease’ workers or engage ‘independent contractors’ for whom they have no responsiblity."

Francois Carre and fellow labor experts Virginia duRivage and Chris Tilly, say the National Labor Relations Act needs to be re-framed to allow new forms of union association—enabling temps and other transient workers to join collective bargaining units based on their occupation or geographic location, rather than on the traditional NLRA model of employer-based unionism.

Proposals for reform pile up by the dozens at labor conferences and in congressional archives. What’s missing is government will and interest in discouraging unprotected work and expanding labor protections. If the silent slaying of NCEP’s report is any indicator, politicians of both parties would rather not even discuss it. And while some unions, most notably the Service Employees International Union and the United Food and Commercial Workers, have pressed hard to address the needs of part-time and contract workers, the labor movement has been slow to embrace contingent workers as the new frontier for organizing.

Even in seemingly labor-friendly circles, the legal problems of contingent workers are merely "a topic that merits further inquiry." Such was the conclusion of the Dunlop Commission, a Clinton Administration fact-finding panel that many saw as the best hope for progressive labor law reform. Contingent workers merited but 2 pages in the commission’s 200-page report, which failed to promote any reforms. According to one labor union source close to the commission, chair John Dunlop, the U.S. Labor Secretary under President Gerald Ford, "just didn’t want to talk about it. He didn’t think contingent workers were an issue that needed to be addressed."        

Christopher D. Cook is a freelance writer from San Francisco who has written for The Nation, In These Times, and The San Francisco Bay Guardian.