Contractors and Temporary Workers Are Not Scapegoats

The National Labor Relations Board just released a ruling that, according to Forbes, “could end contract labor as we know it.” The board essentially decided that two (or more) companies could be considered “employers” if they jointly determined the terms and conditions of employment. The prototypical case would be a company that hired workers through a temp agency. Both the temp agency and the company where the people actually worked could be considered to be their employer for purposes such as organizing a union. Another example could be hotels owned by investors, but managed by a hotel management company (like Hyatt, InterContinental) or restaurants owned by investors under franchise agreements where the franchisor makes all decisions about work rules (like McDonald’s).

The case at hand had to do with a vote to form a union that was held in April of 2014 at a company that gets almost all of its workers through an agency.  They had claimed that the first company could not be unionized because it did not have employees and the other could not be unionized because it was simply an agency and had nothing to do with determining what the workers did or how much they are paid.  Forbes claims that that will be a bad thing for employers and for workers.  Forbes is wrong.

This really gets us to how our society works here in the United States.  Anytime I have taken a job it has been at a big company, and included health insurance for me and my family, a retirement savings plan, several weeks per year of paid vacation time, etc.  I’ve never even thought about those things, I just know that if a family member or I get sick, that I don’t have to worry about any financial repercussions.

That is not the case for many Americans. Even the large companies that offer benefits to employees are finding more ways to have people working for them, without taking on the responsibilities of being their employer. Simply dropping benefits would be inconvenient, because certain provisions in the tax code encourage offering the same benefits to all employees, including the executives.

Companies often do this by:

  • Designating people doing work as independent contractors
  • Having separate legal entities to employ the executives which do not employ the workers.
  • Organizing the business as many small companies, all with the same name and a very standard business model, so the public thinks of it as one big company (franchise businesses, like McDonald’s).

That is one of the main drivers for the plethora of janitorial service agencies, temp agencies, etc.  Yes, sometimes there really is a need for temporary workers, but in the overwhelming majority of cases, workers are employed to fill permanent positions through a temp agency. The agency will of course charge well more than the person gets paid (to make a profit), it is still less than the full cost of hiring an employee with benefits.

Let’s look at franchises, like McDonald’s. The contention that the franchisees are independent, or that their labor practices are outside of McDonald’s control is false. Court proceedings in New York, in Michigan and in California have exposed the extent to which McDonald’s and the franchisees are so intertwined that they cannot possibly be truly independent businesses.

According to court records (In California’s Alameda County, Hughes, Ochoa, Salazar, and Sanchez, in the federal court for the Eastern District of New York, Beard, and in federal court for the Eastern District of Michigan, Pullen).

The plaintiff’s filings include:

  • McDonald’s franchisees are required to use a McDonalds computer system that compiles data about sales, inventory, and labor costs. The system calculates how many people the franchisee must hire and is used to set work schedules for individual employees and it keeps track not only of when each employee goes on and off the clock but even how long it takes each to fill every customer order.
  • McDonald’s give the individual franchisees targets for labor costs.
  • McDonald’s monitors franchisees doing wage reviews and supplies forms to use.
  • McDonald’s centrally recruits and screens job applicants in aggregate for the franchise restaurants and the company owned restaurants.

The main argument on the other side seems to be that any restraints on what employers do is bad policy, so evading the rules should be encouraged.

We could have a debate about labor regulations. I happen to believe that because employers have much more bargaining power than the employees, some regulation is necessary. Most of all, I believe that some respect for the rule of law is also required for our society to operate properly and am pleased at the outcome of this recent ruling.

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