Houston One of the largest and best known ways that workers are ripped off is known euphemistically as “classification,” meaning whether a worker is classified as an employee or an independent subcontractor. The Department of Labor has largely failed to police this area effectively which has led to an accelerating rate of casual or contingent employment in recent decades under the rubric of the self-employed or independent subcontractors or freelancers or whatever you may want to call them. Some are now arguing there may be hope for some of these workers because there is a new sheriff in town because of the heightened scrutiny forced under the mandatory coverage provisions of the Affordable Care Act, and, big drum-roll, it’s the IRS to the rescue of workers. Who would have ever thought it? Is this hope or hype though?
The reason and wherefore is straightforward. Employers with more than fifty (50) workers have to provide health care. Not surprisingly a lot of employers would just as soon noodle around that magic number and many have talked plainly about how they might be able to reclassify enough of their workers as part time or subcontractors to put their direct workforce to below the fifty worker requirement.
It goes without saying that employers have a lot of incentives to cheat their workers, not just on health insurance. As contractors, a worker is responsible for their own social security, Medicare payments, and regular taxes. As direct employees, a worker matches only half of such payroll based taxes and their bosses pay the other half.
The IRS told the New York Times though that they were going to handle this classification concern through their “employment tax examination program” and a form, the SS-8. Frankly, that doesn’t sound like a new sheriff at all. That sounds like a rent-a-cop driving around the neighborhood that never gets out of their cars in an urban fake policing security scheme. It reminds me of when the IRS had the responsibility of making sure that household domestic workers were actually paid the federal minimum wage beginning in 1978 and had social security paid for their labor. Our Household Workers Organizing Committee in New Orleans successfully sued the IRS for enforcement of the minimum wage at least for the few brave souls paying social security taxes, but even that was a fight to win in the settlement. And, decades later it’s still honored more in the breach as millions of informal workers are paid less than the minimum with no benefits.
This problem urgently needs to be solved, but so far the IRS as the solution sounds more like hope than it does a plan.
New Orleans More than a thousand fast food workers rallied at a convention center near O’Hare Airport in Chicago in a boisterous, morale boosting event sponsored by the Service Employees International Union in the on-going campaign for a living wage. More interesting is the ongoing effort by the union to define the employer for many of these workers, determine whether there is a co-employer status between the parent companies and franchisees, and puzzle out a real organizing strategy across thousands and thousands of different locations.
Having been there and done this before, let’s start with the obvious. It is incredibly difficult to win a co-employer case before the NLRB! Some years ago Local 100 had Waste Management, the garbage company, by the short hairs as a joint employer employing the “hoppers” or manual laborers working the business end of the truck loading the garbage into the hopper and recruited and paid by their subcontractor on a cost-plus agreement. We endured a lengthy and expensive hearing and had the company cold, but we were missing a “smoking gun,” which we later found incidentally, that would have established the co-employer status in correspondence on company letterhead, so we narrowly lost, took the election and won, rather than going through another five or six years of court appeals.
SEIU had success with this legal strategy several decades ago at the dawn of the Justice for Janitors campaign when they won a ruling in a Pittsburgh building service campaign that the building owner was a co-employer with the cleaning subcontractor, allowing the union to pressure the owner to settle a contract on more favorable terms, since they had the power in the contracting relationship. That NLRB decision was a shot heard across the property service industry, and higher and stronger walls were immediately built in markets throughout the country between ownership and their janitorial subcontractors, making it virtually impossible to win similar decisions, though still allowing the union to target ownership and large contractors more successfully in winning campaigns to organize janitors in other cities. I should quickly add that this does not make that campaign a model for fast food, no matter how many superficial similarities, since cleaning and labor costs are a minimal part of a building’s expense, but are the most significant part of a restaurant’s expense.
McDonald’s runs about 19% of its locations, somewhere over 6000 stores as corporate locations, while almost 30000 are franchised. More than 850,000 workers of the 1.7 million worldwide are employed in the USA by the company. Other fastfood operations are similarly organized. Yum, the operator for Taco Bell, KFC, and Pizza Hut is about 25% corporate, while Burger King is only about 8% corporate. Pushing operations over to franchisees has been the increasing trend for all of these companies in recent years. When the United Labor Unions organized fastfood workers in Detroit in the early 1980s under the NLRB with organizers, Danny Cantor, Keith Kelleher, and Mark Splain, driving the program, we were constantly tripping over the problem of which stores were corporate and which franchise, as we filed representation petitions with all of these companies. It was a nightmare!
SEIU and its allies have appealed to the NLRB Division of Advice and the General Counsel for a determination on whether or not the McDonald’s Corporation is a co-employer with its thousands of franchisees and arguing that they are. Reporters seem to believe that a decision is imminent. They must have very good inside sources, because there is no time limit on how long the Division of Advice can chew on a case, and it can as easily take years as months, and the lawyers that do the looking for the General Counsel are not political appointees.
Nonetheless, Steven Greenhouse, the labor reporter for the New York Times speculates that “if the labor board agrees, that would open the door for the SEIU to try to unionize not just three or five McDonald’s at a time, but dozens and perhaps hundreds.” I doubt it. If they wanted to move that way, they already could have done so since in major markets franchisees already own dozens and in some cases scores of locations in places like Houston, as does the corporation. Organizing under the NLRB would mean an additional fight on unit determination, as we often found to our peril, since such ownership patterns could lead to “an appropriate unit” being defined as every store in a geographical area owned by an individual franchisee or by the parent corporation. Furthermore, if the NLRB did advise that there was a potential joint employer status, an army of corporate and franchise lawyers would be revising the contracts and operating agreements at all hours of the day and night to build higher, stronger walls between the parties to prevent such a definition at the point an actual representation petition might be filed. And, then once it were filed, start the clock ticketing on the six or seven years to get the issue to the US Supreme Court.
This is a great SEIU tactic to give a hard poke to the company’s eye and try to pry open another front in its campaign, but as an organizing strategy winning or losing the co-employer case is not a game changer for actually unionizing the workers, , nor does it provide enough leverage to cause the companies to change their willingness to be neutral towards unionization.