Contract workers: Who’s the boss?

Courts and regulators turn the screws on firms that use irregular workers

September 4, 2014

FEDEX, Walmart and McDonald’s are among America’s largest employers. Yet many of the people who drive FedEx’s delivery trucks, staff Walmart’s warehouses and serve McDonald’s hamburgers are not their employees. Instead, they work for subcontractors, franchisees or themselves.

Flexible work arrangements have long been a hallmark of America’s ever-shifting economy. Lately, though, they have drawn more criticism. Earlier this year David Weil of Boston University published “The Fissured Workplace”, which argues that many employers have met competitive pressures by splitting off functions to subcontractors, vendors and franchisees, where workers’ wages and benefits stagnate. On September 3rd the OECD, a club of rich countries, fretted that a divide is opening between secure, permanent jobs and insecure, ill-paid temporary ones.

Measuring irregular work is hard. Data are spotty; definitions vary. The OECD reckons more than 10% of workers in Japan and most of Europe are on temporary contracts. No comparable data for America exist, although a 2005 tally suggested that 1.8% to 4.1% of workers were on “contingent” arrangements.

Nonetheless, Barack Obama has targeted such arrangements for extra scrutiny. In May, he installed Mr Weil at the Department of Labour to enforce federal wage laws. Opponents and supporters alike assume he will hold businesses responsible for how their subcontractors and franchisees treat their workers.
A potentially deeper change came in April when the National Labour Relations Board (NLRB), which oversees relations between unions and bosses, signalled that it might henceforth consider companies and their contractors as one if “industrial realities” made the company’s presence essential at the bargaining table. On July 29th NLRB staff said McDonald’s should be jointly responsible with franchisees for allegedly retaliating against workers demonstrating against the company. Unions are delighted: they would rather deal with a single big firm than many small ones.

There is some logic to the idea: McDonald’s does not hire and fire franchise workers, but it exercises tight control over what they do, how they dress and their working conditions. If enacted, the proposal could reshape the business landscape. Franchising is immensely popular: it enables companies to expand with limited capital and gives entrepreneurs, in return for a fee, access to an established brand with the supporting know-how and marketing. More than 10% of America’s roughly 4m business outlets are franchises, employing nearly 8m people (in 2007, the latest year available). If the brand owner is responsible for all of a franchisee’s employment decisions, what is the point of franchising? Neither party may see value in the arrangement, says Michael Lotito of Littler, a San Francisco law firm.

In a similar vein, FedEx considers its drivers independent contractors who must supply and maintain their own trucks, rather than employees, who typically receive hourly wages, overtime, meal breaks, and compensation for work-related expenses. But on August 27th a federal court in Oregon concluded that FedEx so closely governs the contractors’ working conditions that they are in fact employees. For example, FedEx requires trucks to be painted “FedEx white” and be marked with the FedEx logo, requires drivers to wear a FedEx uniform, and checks whether they meet performance standards: such as placing the keys on the “pinky finger” of the “non-writing hand” after locking the vehicle. For now the ruling affects only California and Oregon (FedEx is appealing). But Beth Ross, a lawyer for Leonard Carder, which represented the California drivers, thinks it will affect countless other businesses that have copied FedEx’s model, in delivery, appliance installation and limousine services.

Regulatory and court actions may force firms to recraft their relationships with contract and franchise workers, but probably not to scrap them. Obamacare has raised the costs of permanent full-time staff, even as technology such as online task markets and scheduling software offer more flexible ways to hire temporary and part-time workers. America’s labour market is not as polarised as Japan’s or Europe’s, but may be heading that way.

The original article is linked here.

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