Street Corner, Incorporated

Providing workers to do the dirtiest, riskiest jobs has become a big business. One corporation has cornered the market and is squeezing millions from its day-labor temps.

Keith savage survives day to day on sheer strength. "I specialize in hard physical labor," says Savage, a muscular man in his early 40s who makes his living in San Francisco knocking down buildings by hand. For years he got most of his jobs through Labor Ready, the nation's top employer of temporary manual labor, often sleeping across the street from the company's hiring halls so he could be first in line when the doors open at 5:30 in the morning. While most temp agencies deal in "white shirt" office work, as Savage puts it, "Labor Ready is the brutal jobs, the gut-busting jobs. I tell them to give me the hardest work they have." He prides himself on his technique for demolishing walls more efficiently: swinging two sledgehammers at the same time.

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Here at the very bottom of the American economy, Labor Ready makes a good living dispatching day laborers like Savage to perform the dirty, dangerous jobs that no one else will do. Founded 13 years ago in Spokane, Washington, the company rakes in $1 billion in annual revenues by recruiting workers from unemployment offices, homeless shelters, and drug-rehabilitation centers, and then peddling their labor to private companies and public agencies. Every weekday at dawn, workers line up outside more than 800 Labor Ready branches in the United States, Canada, and Puerto Rico for a chance to dig ditches, toss boxes, and scrub toilets for minimum wage. They have temped for Wal-Mart and Home Depot, cleaned up flood-damaged communities in North Dakota, and cleared rubble near the World Trade Center. Lured by the promise of "Work Today, Cash Today," some 700,000 workers pass through the company's doors each year-a workforce surpassed by only a handful of US firms. Many Labor Ready employees work for only a few weeks before moving on; but some, unable to land better jobs, wind up staying with the company off and on for months, even years.

The company's annual report brims with upbeat depictions of its "emphasis on worker safety" and how it "treats workers with respect," making it the undisputed leader in a day-labor market that now totals $16 billion a year. "What we do is put people to work," notes Tim Adams, the firm's general counsel. Workers earn enough money to "make a real difference in their lives," he says, "and that's gratifying."

But a raft of lawsuits brought by workers and government agencies, dozens of interviews with laborers and former managers, and thousands of pages of public records paint a far different picture. Workers are often sent out on dangerous jobs with little or no training; company records indicate that some 10,000 Labor Ready employees are hurt on the job each year. Nearly two dozen states are investigating whether Labor Ready has shortchanged taxpayers by underpaying premiums to state insurance funds that compensate injured workers. In addition, officials with the US Department of Labor have repeatedly fined the company for breaking minimum-wage laws and illegally charging workers for gloves, goggles, and other essential safety gear. The firm has even patented a machine to profit from cashing paychecks for employees. "If you take all the money they deduct and all the time they are not paid for, workers are definitely making below the minimum wage," says Mary McQuain, a West Virginia attorney who represents workers in a class-action suit against Labor Ready. "I've seen a lot of pay stubs, and people have ended up with $11 for a day's work after all the deductions."

But subsistence wages and risky jobs don't deter workers on the lowest rung of the labor market from filling Labor Ready's hiring halls in poor urban neighborhoods. "They prey on people who are low-income, homeless, drug-addicted-people who don't have things to get a regular job," says Fred Stevenson, a 54-year-old homeless man who had a brief stint packing boxes for

Labor Ready. Keith Savage finally stopped lining up for jobs with the company after five years, saying he pocketed so little he had to live off scraps from garbage dumpsters. "When you don't have anything, even crumbs seem like a meal," says Savage, who makes his home in a cardboard box. "You are so glad just to get a little bit."

At 5:30 in the morning on a trash-strewn corner of San Francisco's Mission district, 11 bleary-eyed men and one woman are waiting in the cold dark for the Labor Ready office to open. Affixed to the inside of the dirty windowpane is a flyer from a mayoral candidate promising to "clean up our streets" and "stop the homeless from stealing shopping carts." As the door opens, the job seekers shuffle across unswept concrete floors to the sign-in counter.

Moments later the customer service representative has a job order. "Okay," she announces, "now I'm going to call out names, and I don't want to hear any complaints at all." Many who get assignments spend another unpaid hour or two being transported to the job site, while those passed over continue to wait in the office for jobs-often punching in some five or six hours after reporting to Labor Ready for work. After they clock out at the end of the day, they return to the hiring hall, hand in their work tickets, then sit and wait again. "You're already off the clock, and you are still sitting there waiting to get paid," says Allen Yarborough, a former Labor Ready worker.

The company maintains that it has no obligation to compensate workers "for stopping by a Labor Ready office to see if work is available." But Yarborough and other workers in California are suing Labor Ready for failing to pay them for time spent waiting for job assignments and paychecks. The suit strikes at the heart of the company's promise to provide clients with "temporary labor on demand," available within one hour. "What they advertise is a workforce that's ready, willing, and able at your call," says McQuain, who represents workers in a similar suit in West Virginia. "Then they make these people sit there and wait so they can make good on their promise, and they don't pay them."

Serving up workers at a moment's notice was part of Labor Ready's business plan from the very beginning. The company got its start in 1989, when two small-time restaurateurs in Spokane hit upon the idea of selling blue-collar workers like fast food. Glenn Welstad and John Coghlan were running a burger joint called Dick's Hamburgers when the inspiration hit them: Couldn't the principles they had developed to manage the flow of burgers be applied to units of human labor? They decided to forget about food and focus on building a national chain that could supply manpower on demand-a strategy summed up by the local newspaper as "hold the pickles, hold the lettuce, hold the burgers." Welstad and Coghlan plunked down $50,000 to lease the firm's first hiring hall in Kent, a small city 20 miles south of Seattle. It was such a low-budget affair that Welstad didn't bother setting up a new corporate entity, but simply paid $50 to switch the name from Dick's to Labor Ready. "I don't think Glenn probably foresaw how large this company would get, or he probably would have spent the couple of hundred bucks that it takes to file a branch incorporation," says Adams, the general counsel.

From the outset, says Coghlan, the idea was to create a worker-friendly company that would profit while giving the unemployed part-time jobs, as well as a chance to impress potential employers. The philosophy, he says, was to be "legal, ethical, and moral. These people work hard, and all we do for those people is create an opportunity to get a full-time job by displaying their wares." Welstad put it more simply, vowing to build "the McDonald's of the temp industry."

The timing couldn't have been better. As Labor Ready came on the scene, temping was fast becoming an integral part of the economy, eventually growing by 150 percent during the 1990s. Firms like Manpower and Kelly Services were feasting on the bountiful white-collar temp market, but "no collar" day labor remained the province of street-corner hagglers and local firms. By going national, Labor Ready turned day labor-historically a seat-of-the-pants, off-the-books affair-into big business. Its success signaled the temp industry's expansion into the farthest reaches of the economy-squeezing profits from even the lowest-paid, most-hazardous work. "They've industrialized the low end of the temp business," says Norman Slawsky, a Georgia attorney handling one of the dozens of lawsuits filed against the company. The federal overhaul of welfare in 1996 also helped, flooding the market with thousands of low-wage job seekers. Labor Ready went public that same year, and by 1999 Fortune magazine ranked it as the nation's seventh-fastest-growing company; Kiplinger's Personal Finance rated its stock as the fourth best of the decade, with a stunning 17,669 percent return on investment.

Despite its initial success on the stock market and its huge annual revenues, Labor Ready has found it tough to turn a profit from blue-collar temps. The problem lies with the very nature of the business: In day labor, the cost of insuring poorly trained workers in hazardous jobs can quickly chew up revenue, leaving as little as one cent of each dollar for profits. That's why so many corporations and government agencies transfer the cost of hiring, insuring, and paying for workers to firms like Labor Ready.

According to billing statements obtained by Mother Jones, the company makes its money by charging its clients double what it pays out to each worker. To further bolster its precarious bottom line, Labor Ready has also developed a creative array of methods to take money away from its own workers. "Equipment checkout" receipts show the company routinely and illegally charges workers for protective gear required for the job, deducting the fees from their paychecks. Gloves, which workers say fall apart after a day or two, cost $2, and safety glasses cost $4. In addition, a ride to work in a company van can cost another $4, and drug tests, which Labor Ready often requires when an accident occurs, run $22. "Whatever it is to get some money from you, they will do it," says Earl Levels, who spent three years temping for the company. "It's modern-day slavery."

Workers aren't the only ones complaining about the payroll deductions. The Department of Labor has repeatedly fined Labor Ready for illegal deductions. Company records obtained by federal investigators show that hundreds of workers have been shortchanged on their paychecks, including one worker who was "not paid for final 16 hours due to deduction for drug testing." In an unusually stern letter, officials warned the firm that the deductions often violate minimum-wage laws. "It is our observation that the material sold or loaned is invariably required by the job," the letter noted. "To the extent that these deductions bring these employees below minimum wage ... they become violations. A spot check of several individuals indicated that violations such as those described were quite frequent." In August, labor officials in New Hampshire ordered four Labor Ready offices to pay $143,153 to compensate workers for illegal transit fees, a fine upheld by the state's Superior Court.

The company says it sells and rents equipment as a service to workers who could not otherwise afford it. "It is not part of our business model to have gloves be a profit center," says Adams, the company counsel, noting that Labor Ready charges workers "less than they can buy those gloves at Home Depot." But several former managers say that Labor Ready does make extra money from job-related materials, often charging workers two to three times what the items cost the company. "There's a definite profit on equipment," says John Young, who managed a Labor Ready office in Orlando, Florida. In a sworn statement, another former employee testified that "Labor Ready made a profit on the rentals."

The company's most profitable innovation, however, may be a machine it developed to make money from workers who are too poor to afford a bank account. In 1998, founder Glenn Welstad and his son Todd patented a special ATM they promoted as a perk for "unbanked" workers who want to receive their pay in cash. Rather than going to a check-cashing outlet, workers can simply put a voucher in the machine and receive their pay-minus a $1 fee and any change they earned. For a day's wages of $41.99, the machine pays $40-a tax of nearly 5 percent.

With roughly half of Labor Ready's temps resorting to the cash machine, all those nickels and dimes piled up to $8.3 million in revenues in 2000, according to documents filed with the Securities and Exchange Commission (SEC). After expenses for the machines, the company still had a gain of $5.2 million-representing more than half of the firm's net profits for the year. Labor Ready insists that because workers are not required to use the cash machines, the fees are both legal and ethical. "It is for their benefit, for their convenience," says Adams. But class-action lawsuits filed by workers in California, Georgia, and New York allege that the fee-for-pay arrangement violates state laws. Georgia's occupational code, for instance, requires that wages "must be negotiable and payable in cash, on demand, without discount." Other states are cracking down on the fees. In 1999, Massachusetts ordered Labor Ready to stop charging workers to receive their pay in cash. Arizona enacted a law the following year stating that labor pools "shall not charge a day laborer for cashing a check that is issued by the labor pool."

"This is an appreciable portion of their daily wages," says Elizabeth Lawrence, who represents California workers suing over the fees. "It's reminiscent in some ways of the old company store in the South."

In addition to taking money out of workers' paychecks, Labor Ready has forced the public to cover some of its costs by paying less than its share to state insurance funds that compensate injured workers. In the day-labor industry, those costs can add up quickly: Client firms, seeking to off-load their own insurance costs, often give temp workers the riskiest jobs, increasing the likelihood that someone will get hurt. Labor Ready says it inspects job sites to ensure safety and requires workers to report unsafe conditions-but many employees tell a different story. A worker in Alameda, California, says he was told to run a cable line in the attic of an elementary school that was "filled with asbestos." A worker in West Virginia who shattered his leg after he slipped in hot tar and fell off a roof is suing the company, saying it provided "no fall equipment, no scaffolding, no hard hats."

There is widespread evidence that Labor Ready has kept insurance premiums down by misclassifying its construction workers as janitors and maids-thus artificially lowering its rates for workers' compensation. Payroll records show clear evidence of repeated misclassification: One worker who was sent out on 126 construction jobs in West Virginia was coded 99 times in the company computer system as a "piano tuner/taxidermist." The cost savings: Construction insurance runs $13.15 per $100 of payroll, while piano tuner/taxidermist costs just $1.09.

Last March, the company was hit with a $734,000 bill from Washington state for underpaying premiums to the state-run workers' comp system. Labor Ready owed $383,000 alone for misclassifying construction laborers as grounds maintenance workers. The charges, under appeal by Labor Ready, are just for 1998; state auditors are now investigating company payments for 1999 and 2000. An investigation in Ohio also found misclassification totaling $48,000. More than 20 other states are now investigating the company's workers' comp practices.

Insurance industry documents also suggest a nationwide pattern of misclassification. Labor Ready, which promotes itself as a provider of manual labor, has told insurers in 33 states that 44 percent of its workers are clerical. But internal company computer files show only 20 percent of its workers categorized as "services and other," including clerical.

So far government investigators have found no intentional misclassification. But in an interview with Mother Jones, former Labor Ready manager John Young says he and other supervisors were trained to pad profits by misclassifying workers. "They referred me to the skills manual, which is coded to each specific type of job," Young recalls. "But yet they weren't following the job descriptions. They put ironworkers on codes that were indicative of just janitorial. I asked why they did that, and they said so they could save money. They told you that until you had a 32 percent profit margin, you just kept playing with the codes. This was taught right at their corporate headquarters. I was one of 29 managers in this class, and that is what they taught us all." The goal, Young says, was to "make more than the competition by lying about our insurance."

Indeed, others also allege that the company consciously shortchanges state insurance funds. Angela Sizemore, who worked for five months as a Labor Ready customer service representative in West Virginia, testified in a sworn affidavit that her district manager ordered staff "to alter records and destroy documents in the South Charleston Labor Ready office." Workers' compensation computer files were altered, she said, and employee sign-in sheets and work tickets were "shredded and trashed."

Company officials insist that any manager found misclassifying workers would be fired. "We don't instruct our managers to misclassify," says Stacey Burke, director of public relations for Labor Ready. "We don't allow them to." But when asked whether managers had ever been trained by the company to misclassify, she responded, "I can't say that they weren't."

Day laborers who face hazards on the job or illegal deductions at the pay window have little recourse. Workers say those who speak out don't get jobs-and are blacklisted throughout the company. According to Labor Ready's own filings with the SEC, the firm maintains a national computer database that "lists workers who were terminated ... to prevent rehire by other dispatch offices." If a temp "complains he has a bad back, that worker will never work again," says Young, the former manager.

Until recently, building trade unions offered little for day laborers. "We were inattentive to most of the rise of temp labor in construction in the '90s," acknowledges Will Collette, researcher for the afl-cio's Building and Construction Trades Department in Washington, D.C. "We weren't paying any attention, and we've paid the price." But Labor Ready's phenomenal growth began cutting deeply into union jobs, rousing organized labor to launch an intensive campaign against the company and to explore broader organizing possibilities among day laborers.

The company has fought back. In one instance, Labor Ready called police when workers tried to collect union authorization cards. In another case, a company office in Seattle refused to send union supporters to a job setting up stage equipment for a U2 concert. In September 2000, the National Labor Relations Board ordered the company to stop discriminating against workers who attempt to join a union.

Company executives argue that unions are singling out the day-labor industry to keep union wages high by limiting the number of workers in the building trades. But others in the industry acknowledge that workers may have legitimate grievances. "Unions have a bone to pick with industrial temp work," says Ed Lenz, general counsel for the American Staffing Association, an industry trade group. "There may be some valid issues there." Although Labor Ready continues to dominate the industry, its troubles have started to take a toll. Both of its founders have left the company, and the value of its stock has plummeted, forcing Labor Ready to curb its expansion plans and close some of its branches.

Despite the downturn, thousands of workers continue to line up at Labor Ready offices each morning in search of work. Yet in some cities, workers frustrated by the lack of alternatives have started to create their own community hiring halls that roll profits back into benefits and increased wages. For example, Primavera Works, a nonprofit labor hall in Tucson, Arizona, helps 300-plus temp workers find housing and drug treatment, and 40 percent transition out of day labor into permanent jobs each year. "If day labor were reframed to be transitional work, then it could be a valuable thing," says Karin Uhlich, executive director of Primavera. "Ultimately, it's got to lead to something better."

At corporations like Labor Ready, however, most workers remain trapped in day-to-day jobs, with little hope of full-time employment. A study of day labor in Chicago found that a majority of the city's homeless "work day labor on a regular basis. Yet because of the very low incomes they earn, and because of the instability and uncertainty associated with this type of employment, they have little hope of escaping homelessness."

That lack of hope permeates Labor Ready offices across the country. Robert, a 38-year-old man in a San Francisco homeless shelter, spent a year temping for Labor Ready. In the end, he concluded, the dead-end jobs were even worse than being unemployed. "I was making $34 a day working eight hours," he says. "It wasn't worth it. I can do that by panhandling."

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