Middlemen in the Low-Wage Economy:
Critics of business-contractor ties insist that companies know exactly what they are getting when they hire outsiders to supply them with labor.

"They're doing it for the same reason they've always done it, to save money," said Della Bahan, a lawyer who helped bring the suit against the California supermarket chains on behalf of hundreds of janitors from Mexico. "These companies are pretending they're not the employer. The contractor is willing to work people seven days a week, not pay payroll taxes, not pay workers-comp taxes. The companies don't want to do that themselves, but they're willing to look the other way when their contractors do it."

Contracting out is steadily increasing, business experts say. Some supermarkets turn to outside contractors to help deliver groceries and run cash registers, as well as to clean floors. Many hotels use them to handle laundry, catering and housekeeping. Real estate companies rely on contractors for cleaning and security, while the forestry industry uses them to plant seedlings.

Historians say labor contractors were first used in Philadelphia in the 19th century when builders needed more workers and turned to some enterprising Italian-Americans who knew where to find newly arrived countrymen. Those contractors, like the Mexican immigrants of today who are farm labor contractors in California and Florida, also used their language skills to manage their work crews. In the late 19th century, garment manufacturers often turned to smaller jobbers to help with production. The contractors often submitted low bids and then violated wage and other laws to squeeze costs, helping to create sweatshops.

Today, using contractors makes sense, business strategists say, because it allows managers to concentrate on doing what they do best, instead of worrying about cleaning bathrooms. Companies frequently save money by using contractors, who often do not provide fringe benefits, like health insurance and pensions, that companies usually offer direct hires. And labor has difficulty unionizing contractors' employees because many are temporary hires, and legal disputes often develop over who their employer is.

Probably the loudest complaints involve farm labor contractors, who are being used increasingly as illegal immigration has soared. Often, they provide dilapidated housing, do not pay overtime and make migrant workers pay for their tools and rides to work. Over the past three years, five contractors in Florida have been convicted of enslaving farm workers.

Phillip Martin, a professor of agricultural economics at the University of California at Davis, said using contractors gives employers the ability to deny knowledge that people working for them were illegal immigrants or were not paid overtime. "Increasingly the purpose of contractors is to be risk absorbers," he said.…

… problems are reported in many sectors. Some contractors trick immigrant workers into believing they are not covered by minimum-wage laws, telling these workers that they are independent contractors, not regular employees. A contractor working for a Manhattan grocery chain was accused of using this rationale to try to justify paying just $2 an hour to African immigrants who delivered groceries. The federal minimum is $5.15. Two weeks ago, the state attorney general, Eliot Spitzer, announced a $3.2 million settlement in which the chain, Gristede's, agreed to compensate the deliverymen for the contractor's minimum-wage and overtime violations. Gristede's had maintained it was not the employer and was thus not responsible for the violations.

There is a growing effort to make companies responsible when their contractors skirt the law. A California law now makes apparel companies that use contractors joint employers. In Florida, farm worker advocates recently sought a law to make orange and tomato growers liable whenever labor contractors violated minimum-wage laws, but the growers blocked it.



Like Wal-Mart, thousands of American enterprises rely on labor contractors to help hold down costs, and those industries - from New York apparel makers to California's vegetable growers - have given similar 'I had no idea' responses when their contractors have been accused of cutting corners.

But American companies are facing increasing legal challenges to hold them accountable for their contractors' practices. "