This story originally appeared in ProPublica.
Ty Inc. became one of the world's largest manufacturers of stuffed animals thanks to the Beanie Babies craze in the 1990s.
But it has stayed on top partly by using an underworld of labor brokers known as raiteros, who pick up workers from Chicago's street corners and shuttle them to Ty's warehouse on behalf of one of the nation's largest temp agencies.
The system provides just-in-time labor at the lowest possible cost to large companies—but also effectively pushes workers' pay far below the minimum wage.
Temp agencies use similar van networks in other labor markets. But in Chicago's Little Village, the largest Mexican community in the Midwest, the raiteros have melded with temp agencies and their corporate clients in a way that might be unparalleled anywhere in America—and could violate Illinois' wage laws.
The raiteros don't just transport workers. They also recruit them, decide who works and who doesn't, and distribute paychecks.
And it's the low-wage workers—not the temp agencies or their clients, corporate giants like Ty—who bear the cost. Officially, the raiteros' fee, usually $8 a day, is for transportation. But, workers say, anyone who doesn't pay doesn't get work.
From this crowded barrio, raiteros ferry as many as 1,000 workers a day to warehouses and factories in Chicago and its suburbs. Many of these workers end up making about $6 an hour, well below Illinois' minimum wage of $8.25 an hour, because of the fees and unpaid waiting time.
"If you complain too much, they won't take you to work anymore," said Maria Castro, a Mexican immigrant who has worked on and off for Ty.
Like other workers, Castro said she has never been to Select Remedy, the temp agency that officially employs her. She knows Ty only as los peluches, Spanish for "the stuffed animals."
To Castro, her employer is Rigo, a raitero whose full name is Rigoberto Aguilar. He tells her and other workers whether they have a job and picks them up in a school bus in an alley at 4:30 a.m.
Ty is among a long list of brand-name companies that benefit from the raitero system. Workers report packing products for Sony, Frito Lay, Pampered Chef, Smirnoff, Marlboro and Fresh Express, a subsidiary of Chiquita Brands where workers cut vegetables for bagged salads and fast-food restaurants like Burger King and McDonald's.
The word "raitero" is a Spanglish invention that roughly means "a person who gives rides." In fact, the raiteros are effectively agents for Select Remedy and other temp agencies, which have grown steadily since the 1990s and are approaching new heights after the recent recession. While not a household name, the Select Family of Staffing Companies, which controls Select Remedy, posted $1.8 billion in revenue last year and employs nearly 100,000 people every week—about as many as Starbucks.
Select and other temp agencies maintain that the raiteros are merely van drivers hired by the workers. They say they have no contract or connection to the temp agency.
Yet the agencies provide applications so the raiteros can recruit workers. They call raiteros with the number of workers needed at each worksite. At the end of the week, the raiteros pick up the workers' paychecks from the temp agencies and bring them to check-cashing stores, where workers are charged $3 to $4 to cash them. In some cases, the raiteros say, the temp firms even provide the vans they use to drive workers to their jobs, or lend them money to buy the vans.
"Where there have occurred instances in which our well-established policies and protocols were not being followed, the appropriate corrective action was taken," Select Remedy wrote in a response to questions. "For some time now, we have instructed the managers who work at our branch offices that they are not to have direct contact with private van drivers, to reaffirm our policy that Select Remedy is to have no involvement in how our associates decide to get to work each day."
The company says it provides a valuable service to employers and employees: "In Illinois, Select Remedy puts thousands of people to work every year, and we are proud of that accomplishment."
Using raiteros, temp agencies and host companies like Ty can get the right number of workers to the right place at the right time. With such certainty, Ty can limit overtime as well as avoid paying benefits and the other costs of employing workers full time.
After dropping off about 50 workers, Aguilar leaves his big yellow bus in Ty's lot all day until he drives them back home.
Tania Lundeen, Ty's vice president of sales, said, "We typically don't do any kind of interviews." No one from Ty responded to a list of questions.
Key parts of the raitero system, especially the transportation fee, may run afoul of Illinois' temp labor law. But, ironically, that very law helped create the current system.
When he first started as a raitero, Aguilar said, he was employed directly by a now-defunct temp agency, Prime Staffing, which paid him $350 a week. In many cases, temp agencies recouped this cost by charging the workers, deducting ride fees from their paychecks.
Illinois changed its law in 2006, making it illegal for temp agencies to charge workers for transportation or to refer them to van drivers who did. The law already outlawed temp agencies from forcing a worker to pay a fee for cashing a paycheck.
As a result, temp agency managers say, most staffing firms did away with official, paid relationships with drivers. Instead, they developed informal arrangements with the raiteros, which insulated the temp agencies from responsibility.
In other parts of the country, the van systems have clearer ties to the temp agencies and the fees are legal, with some restrictions.
Throughout New Jersey, vans show up every morning right in front of the temp agencies. When hired, workers sign a waiver authorizing the agency to deduct the ride fee from their checks.
In Boston, vans sent by temp agencies pick up workers from street corners and shuttle them to fisheries and recycling plants throughout eastern Massachusetts. A new law that went into effect in January limits transportation fees to 3 percent of a worker's daily wages and mandates that the fees can't reduce pay below the state's hourly minimum.
A sign next to the punch clock at the Ty warehouse reads in Spanish, "Please do not punch in until 5:55 a.m. This measure will be strictly enforced, and measures will be taken with employees that don't follow the rule." Michael Grabell
According to labor and employment lawyers, whether Select Remedy and other temp agencies have violated Illinois law depends on how free the workers are to choose their own transportation and check-cashing store and whether the rides and long hours of waiting are for the benefit of the worker or the company.
Miguel del Valle, the former state legislator who sponsored the day and temp labor act in Illinois, said that in his view the new transportation system still violates the law.
"We didn't want to allow temp agencies to gouge people and take big chunks of money out of their paychecks," he said. "They're doing something that we tried to prohibit them from doing," he added. "It's abusive."
A Tennis Court and a Pool
While Castro struggles to make her rent, Ty Warner, the chief executive of Ty, owns an oceanfront estate in Santa Barbara, California. He is the 206th-richest person in the United States, according to Forbes, with an estimated net worth of $2.5 billion
D. Stephen Sorensen, the CEO of the Select Family of Staffing Companies, also lives in Santa Barbara. His 8,200-square-foot mansion features a tennis court and a pool.
Select was started in 1985. Beginning in the mid-2000s, it bought more than three dozen staffing firms, becoming a national chain. Its revenues skyrocketed from a little more than $300 million in 2002 to $1.8 billion in 2011, according to company press releases. In 2012, Staffing Industry Analysts, a research firm, ranked Select the 10th-largest temp agency in America and the fourth-largest in the industrial sector.