CONTRACTING WOES PLAGUE RETAILERS

DAVID GHITELMAN

A federal grand jury investigation into the alleged use of illegal immigrants as janitors by contractors hired by Wal-Mart Stores thrusts into the national spotlight an issue that has also bedeviled supermarkets in recent years -- the question of how much legal responsibility a retailer has for the misdeeds of a contractor.

Along with the Wal-Mart inquiry, a class-action lawsuit was filed earlier this month by several of the janitors.

Across the economy, contractors and subcontractors have committed widespread and frequent violations of state and federal labor laws, legal experts told SN.

"It's huge. It's just that there hasn't been a high-profile case," said John MacDonald, a Princeton, N.J.-based employment attorney. The situation at Wal-Mart Stores, Bentonville, Ark., is the first to gain national exposure, he noted.

MacDonald said the courts and state laws are increasingly holding clients liable for the actions of their contractors. He predicted that insurance may soon become available to help defendant companies pay settlements in such cases.

The mistreatment of workers who provide services on one company's premises but are the employees of a contractor or subcontractor has long been a problem, according to Catherine Ruckelshaus, litigation director for the National Employment Law Project, New York, a group that advocates for and offers legal support to low-wage workers.

"Even though the work is being performed on the premises of the company and the work is for the company's benefit, the workers are treated like independent contractors, so they don't get paid minimum wage or overtime," she said.

In the supermarket industry, the issue of corporate responsibility for the practices of contractors and subcontractors plays center stage in a class-action lawsuit originally filed in 2000 and still pending against supermarket companies in Los Angeles.

In this case, the plaintiffs are janitors who were working for contractors that had been hired by that market area's three largest supermarket companies -- Albertsons, Boise, Idaho; Ralphs Grocery Co., Compton, Calif., a subsidiary of Kroger Co., Cincinnati; and Vons, Arcadia, Calif., a subsidiary of Safeway, Pleasanton, Calif. The case was brought with the support of Service Employees Union International Local 1877 and the Mexican American Legal Defense and Education Fund, both of Los Angeles.

The workers alleged that the contractors hired by the supermarket companies committed multiple wage-and-hour violations, including not giving workers days off, not paying them overtime and not supplying them with workers' compensation coverage, according to Della Bahan, a Pasadena, Calif., labor lawyer who is on the teams of plaintiffs' attorneys in both the Wal-Mart and Los Angeles cases.

The Los Angeles plaintiffs have reached a settlement with Ralphs, Bahan said, the terms of which are still confidential. The case against Albertsons and Vons, she added, is expected to go to trial "early next year."

Unlike the Wal-Mart situation, the question of whether the Los Angeles janitors were in this country legally was not an issue of their case. Bahan declined to comment on whether the Los Angeles janitors were immigrants at all.

As a result of the Los Angeles suit, the three supermarket companies have either brought all janitorial jobs in-house or are using union contractors in their stores in Los Angeles, said Lilia Garcia, executive director of the Maintenance Cooperation Trust Fund, Los Angeles, a watchdog organization that investigates labor violations in the janitorial industry.

Elsewhere in the country, the three companies said they continue to use outside contractors for janitorial services and to hold those contractors responsible for obeying state and federal labor laws.

A Safeway spokesman told SN, "We do use outside contractors, and the expectation on our part is that they follow the laws in relation to wages and hours."

A Kroger spokesman said similarly, "Some of our divisions outsource janitorial and cleaning services, while other divisions handle the work themselves. In those divisions that outsource, we require the third-party suppliers to comply with all applicable laws and regulations."

In contrast, Albertsons has recently taken a somewhat different approach and consolidated its use of janitorial contractors in an effort to combat abuse, according to a company spokesman.

He explained that since June 3, Albertsons has gone from using more than 300 contractors to 14 "large, national-level" companies. "They are all quality companies that we can check on easily and that can handle the administrative burdens, which are pretty heavy," he said.

The contracts these companies sign with Albertsons "require them to comply with all federal and state laws, including wage-and-hourly rates, workers' compensation, Occupational Safety and Health Administration and immigration laws," the spokesman said.

Employment lawyer MacDonald explained that such assurances can play a key role in mitigating corporate liability. "Getting these representations from a third party is probably the best way to protect yourself," he said. Whether supermarkets are continuing to hire contractors that skirt the laws remains a subject of dispute. Labor watchdog Garcia told SN that supermarket companies and their contractors have been models of compliance in Los Angeles, Orange County and Oakland.

However, in Northern California and San Diego labor law abuse by the contractors used by supermarket companies "continues to be rampant," she said.

"The innate problem is that the client companies are soliciting the lowest bid instead of the most competitive bid within the parameters of the law," she explained. "Vons, Albertsons and Ralphs continue to solicit such bids."

The Sidewalks of New York

NEW YORK -- While the grand jury investigation of and class-action suit against Wal-Mart Stores shows that the alleged mistreatment of workers by contractors -- along with the potential liability of the contractors' retail clients -- may now be a national problem, it has been a bi-coastal problem for quite some time.

In January 2000, the same year that Los Angeles janitors filed a still-pending class-action suit against that city's largest supermarket companies, retailers here were hit with a similar suit filed by the men -- mostly West African immigrants, according to press accounts -- who deliver groceries for them.

Like the Los Angeles case, and unlike the Wal-Mart situation, the workers' immigration status was not an issue in New York.

Instead, the deliverymen charged that they were paid less than minimum wage for their work, were not paid overtime even though they regularly worked more than 40 hours a week and more than 10 hours a day and were subject to dismissal if they complained about their wages and hours, according to court papers. The retailer defendants in the suit were A&P, Montvale, N.J., and its Food Emporium subsidiary; Gristedes Foods here; and Duane Reade, also here.

Catherine Ruckelshaus, litigation director for the National Employment Law Project here, a group that advocates for and offers legal assistance to low-wage workers, was one of the plaintiffs' attorneys on this case. She told SN the best way mistreated contract workers can get their rights is to unionize. "The union would pay attention to any outsourcing either to prevent it or make sure that those workers are included in the bargaining unit," she said.

Or the workers can try to take the contractors and clients to court, as the deliverymen in New York did, but this, Ruckelshaus noted, is a difficult strategy. "That's a tougher row to hoe if you don't have workers that are willing to come forward, and a lot of times they won't because they are undocumented or scared or just happy to have a job, so they're not going to complain about what's going on," she said.

In the New York case, at least, coming forward appears to have paid off. In December 2000, A&P agreed to a settlement that called for it to pay $3.3 million in back wages and overtime to some 400 deliverymen, and to make them A&P employees, according to Ruckelshaus. She noted that bringing the workers in-house had not been part of the suit. "They just did it because it made economic sense for them," she said.

Now, three years later, she said she expects Gristedes will also settle shortly. She's probably right. In a filing of its quarterly results last month with the Securities and Exchange Commission, the company said in August it had entered into an agreement of settlement that called for it to pay $2.6 million to the deliverymen and up to $650,000 in legal fees, pending court approval.

Ruckelshaus said she expected the Gristedes deliverymen will also be brought in-house. "That's positive as far as we're concerned," she added.