Published On: Wed, Jun 6th, 2012

Report: Walmart’s Domestic Outsourcing Spawns Rampant Labor Violations

By the National Employment Law Project

Pay and Safety Abuses in Nation’s Largest Warehouse Distribution Centers Affect Low-Wage and Immigrant Workers

Oakland, CA—A new report released today by the National Employment Law Project shows that the subcontracting practices of retail giants like Walmart are contributing to rampant workplace violations—including health, safety, and wage-and-hour abuses—affecting thousands of workers who load and unload consumer goods at the nation’s largest distri­bution hubs.

The report presents the latest evidence that Walmart, facing increasing scrutiny from federal lawsuits and government investigations, bears direct ties to and control over the subcontractors and third-party employers that handle much of the company’s domestically outsourced work.

“In the service of low prices and large profits, Walmart has become infamous for squeezing its suppliers and contractors, so that the contracted workers at the bottom of the supply chain are forced to accept poverty wages and harsh working conditions,” said Christine Owens, executive director of the National Employment Law Project.  “The problem goes far beyond Walmart, however.  Domestic outsourcing, or subcontracting, is on the rise across the U.S. economy, and without fair ground rules that are respected by all players and rigorously enforced, the quality of many more jobs in America will spiral downward.”

The report comes as new developments emerge in a federal class-action lawsuit filed in October by warehouse workers in Mira Loma, California, which charges that Walmart contractor Schneider Logistics—one of the largest third-party logistics providers in the nation—and  two temporary staffing agencies that supply workers for the facility, are violating workers’ basic rights.  Schneider Logistics’ Mira Loma distribution center is exclusively devoted to Walmart goods and is one of the largest Walmart warehousing facilities in the nation.  (Other reports have documented labor violations by Walmart warehouse subcontractors in New Jersey and Illinois.)

There is no precise measure of the number of workers in the United States today who are contracted out, according to the report, although earlier government-commissioned studies have estimated that as much as 30 percent of the U.S. workforce was in some sort of “contingent,” or non-standard, employment relationship.  Long a standard structure in construction, garment, and agriculture, domestic outsourcing is becoming increasingly common in many of the largest and fastest-growing U.S. industries, including janitorial and building services, home health care, warehousing and retail, high-tech, delivery and trucking, and hospitality, to name a few.  Many of these outsourced jobs employ largely immigrant workers and pay significantly less than their counterpart in-house positions—in some cases, nearly 50 percent less.

The labor violations alleged by the Schneider Logistics’ Mira Loma warehouse workers include a confusing “piece rate” pay scheme under which workers were paid only for unloading and loading containers, not for other work performed, that often resulted in workers receiving less than minimum wage; lengthy working hours with no overtime pay; illegal and falsified pay records; and hazardous workplace conditions, including dangerously high temperatures, constant pressure to speed up work, and unstable storage stacking.  A climate of fear pervaded the mostly Latino workforce, who were threatened with termination after complaining about the conditions.  Such practices are not limited to Schneider’s Mira Loma facility.  Warehouse workers in other key Walmart distribution hubs—in Illinois and in New Jersey, for example—report similar subcontracting and temporary staffing arrangements and labor violations, according to the report.

Recent court filings, described in the report, illustrate how Walmart maintains tight control over day-to-day operations at Schneider Logistics’ Mira Loma warehouse facility:

The only goods loaded and unloaded at the facility are those destined for Walmart stores.

  • Walmart security guards maintain a constant presence at the warehouses.
  • A Walmart representative is located on-site, and meets with warehouse managers every morning.
  • Walmart staff frequently communicate directly with the temporary staffing firms, providing instructions on staffing levels, productivity, and worker misconduct.
  • Contracts between Schneider Logistics and its subcontractor temporary staffing firms require that workers receive orientation materials that comply with Walmart policies.
  • Walmart has created a multiple-choice test for the temporary staffing firms to administer to ensure that warehouse workers are properly trained.
  • Walmart sets productivity standards for warehouse workers, and when productivity has declined, Walmart has cut compensation to Schneider.

Walmart’s policy of extracting ever-lower costs from its supply-chain providers is well known.  The company’s “Plus One” bargaining strategy requires all suppliers and contractors to reduce the prices of their goods, increase quality, or speed up delivery—every year.  This continuous pressure squeezes contractor’s margins and encourages low-road employment behavior like cutting corners on safety and violating wage laws, according to the report.

“The story of Walmart’s aggressive outsourcing and no-holds-barred cost-cutting, without regard to the consequences for our nation’s workers, is a cautionary tale for all who care about the quality of jobs in our nation.  When these kinds of deplorable wage violations and harsh working conditions are forced from up top, it shouldn’t just be the contractor and subcontractor left holding the bag,” said Owens.  “We need to hold major corporations accountable for the workplace abuses that stem from their outsourcing policies.”

The report calls for reforms that include:  (1) aggressively enforcing existing laws that hold multiple entities jointly responsible for labor violations; (2) adopting laws that create greater transparency in contracting relationships and hold controlling entities accountable for contactors’ abuses; (3) securing adoption of strong codes of conduct by supply-chain controllers; and (4) further documenting the scope of contracting-out and its impact on U.S. workers.

The report is available for download here:  Chain of Greed:  How Walmart’s Domestic Outsourcing Produces Everyday Low Wages and Poor Working Conditions for Warehouse Workers

The National Employment Law Project is a non-partisan, not-for-profit organization that conducts research, education and advocacy on issues affecting low-wage and unemployed workers. For more about NELP, visit www.nelp.org.

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