$11M W-Mart Fine??

Don D · March 2005

Help me understand. Wal-Mart contracts out its floor cleaning services to various private contractors across the country. Wal-Mart, not being the employer of the workers, has no responsibility for viewing work-authorization documents, has no personnel files on these workers and no I-9 responsibility. Nor does Wal-Mart pay these people. Yet Wal-Mart "escapes criminal charges by agreeing to pay" the United States government eleven million dollars in fines because some of the contract workers were found, upon investigation, to be illegal aliens.

A Mr. Garcia, asst secty for US Immigration and Customs Enforcement said in the AP report, "We plan to use this settlement as a model for future cases and efforts in work-site enforcement'. God help us all.

Work-site enforcement? What about border-site enforcement by the same US government? What about a contractor's responsibility to ensure that his employees are legal?

If I hire a company to clean the windows or carpet at my office, am I going to be responsible for ensuring that the guys in the truck have the proper papers? Or for that matter, the cleanup crew that comes in at midnight, some of whom I've never even laid eyes on? Is the government going to suggest I profile them and "check them out" because some of them appear to be Mexican?

Peyton Irby MS · March 2005

Don: Good questions you pose. I don't think anyone has the answers. This case got everyone's attention because it was Wal-Mart and because it was a widespread issue covering a lot of geography. In general, an employer has no duty to investigate whether a subcontractor has done its I-9 homework. There will be exceptions especially where there is a "blurring" of the lines between a true subcontracting relationship and whether the employees are, in reality, your employees.
Peyton Irby
Editor, Mississippi Employment Law Letter
Watkins Ludlam Winter & Stennis, P.A.
(601) 949-4810
[email]pirby@watkinsludlam.com[/email]

marc · March 2005

The difference between a contractor and an employee is often indistinct and this decision blurs the line(s) even more. I did scan an article a few months ago that indicated this contract was particularly blurry but I do not remember much about why.

Just a facial examination does make one wonder how far this could go.

Don D · March 2005

"The difference between a contractor and an employee is often indistinct".

I disagree. The difference is never indistinct, unless the parties don't know what they are doing. It may be 'invisible' to the untrained eye; but, it is not indistinct to the parties involved.

The point should be, legally, that the worksite, in this case Wal Mart, had no obligation to satisfy the government's requirement of document examination, regardless. Unless there is some smoking gun where there is some evidence that Wal Mart management made comments such as "Hey, we don't give a hoot who you hire to do this work. Why not charge us less and bring in some illegals." And I assume surely there must be that smoking gun out there or the government would not have said "If you agree to the fine we will not prosecute you criminally", which was included in the AP story.

Hunter1 · March 2005

Can't say I know much about the case, but with the way Wal Mart vigorously defends, especially labor law cases, I'd say there must be something for the government to hang their hat on. I agree it would be a horrible precedent, but Wal Mart just doesn't pay out millions of dollars for the fun of it.

LarryC · March 2005

Actually, Marc and Don, you're both correct.

The DOL uses 6 factors in determining a contractor relationship. The IRS uses 20 factors. There is no pass, fail, or clear, spelled out procedure as to how the factors are weighted or applied by either department. Each case is determined on its own merits and to what degree the factors are met.

It's similar to grading an essay test or judging a beauty contest. It's all fixed, but a good bribe will fix it in your favor.

TN HR · March 2005

The IRS stopped using the 20 question test some time ago. They have a simplified 11 question guideline. In my opinion it still very disjointed as Larry pointed out.

Gene

E Wart · March 2005

I understand the co-employment situation when you use "temporary agencies" for obtaining "fill in " employment. I could see this happening if this was the situation. However, let's take a step back. The government would have never "ear marked" this company except it was big bad Walmart. As much as people may disagree with what they do and how they do it, they were picked out because they have money and we all know it. I am not saying they should have or shouldn't have been fined, but just makes me wonder how our governemnt is working and how they are using our tax dollars. (Same thing with Martha Stewart... she should have just said talk with my lawyer, instead of telling a "white lie". However, she too was used as an example. If it had been anyone else, it wouldn't have happened and I am no Martha Stewart fan. ) How much money is our government spending on these "examples" and are we getting our money's worth?
E Wart

mushroomHR · March 2005

Is this ruling setting a precedent that all of us who use agency temporary help must check the status of the people they send us? Could we ultimately be held responsible if the agency isn't checking the documentation for their employees? Gives me a warm, fuzzy feeling about using agency temps.

TN HR · March 2005

The issue with the Walmart fiasco, as I understand it, is that they were knowingly farming-out the cleaning services under the fallacy that as long as the illegals were technically "contractors" then they would avoid penalty.

I agree with Don that it is not up to us to verify credentials of contractors, however, Walmart, or at least someone withing their organization, was aware and was playing the "see no evil hear no evil" game.

The reality of this whole thing is that it is a charade, nothing more, nothing less. Walmart was punished to the tune of $11 million. Big deal. They had revenues last year in excess of $280 BILLION! Talk about a slap on the wrist!

Gene

Don D · March 2005

I'm sure the eleven million will be spent on the border. More likely it will be spent on seminars at casinos.

Dasher · March 2005

Well, I am no lover of Wal-Mart's labor practices, but this outcome is not consistent -- a company is not required to verify I-9s of the businesses (employees)it hires as subcontractors (insurance, yes, I-9s, no). And, yes, I might settle a case for $11 million rather than spend $22 million in legal fees. This system's selective enforcement/penalties of changing rules is getting to me.

HR Hat · March 2005

>The reality of this whole thing is that it is a
>charade, nothing more, nothing less. Walmart
>was punished to the tune of $11 million. Big
>deal. They had revenues last year in excess of
>$280 BILLION! Talk about a slap on the wrist!
>
>Gene

I agree that the fine won't hur Wal-Mart. I think that they were mostly "targeted" (bad pun, I know) because they are Wal-Mart.

And, the ruling does imply that an employer might be "targeted" for use of contractors.

Jim

TN HR · March 2005

>Is this ruling setting a precedent that all of
>us who use agency temporary help must check the
>status of the people they send us? Could we
>ultimately be held responsible if the agency
>isn't checking the documentation for their
>employees? Gives me a warm, fuzzy feeling about
>using agency temps.

That's an excellent question and one that I am sure will get the spotlight. Here's a disturbing quote from Michael Garcia, assistant secretary for U.S. Immigration and Customs Enforcement:

"This case breaks new ground not only because this is a record dollar amount for a civil immigration settlement, but because this settlement requires Wal-Mart to create an internal program to ensure future compliance with immigration laws by WalMart contractors and by Wal-Mart itself," said

Boy-oh-boy! "create an internal program to ensure future compliance with immigration laws by WalMart contractors".......This sure looks like a precedent setting requirement.

Gene

Don D · March 2005

Sort of related....I heard on the news some figures over the weekend. Wish I had jotted them down. The story gave the figure (thousands) of employers who had been cited (fined) for immigration violations in 2002, and I think it was 2003, the last year for which figures were available, NOT A SINGLE EMPLOYER CITED. The focus of the story was the 'blind eye' that the government turns in this regard.

This whole bizarre Wal Mart thing gives a new definition to the word 'shakedown'.

pork1 · March 2005

DON: I have been watching this thing unfold with interest, the one aspect that makes this I-9 issue a Wal-Mart concern was the fact of "locking the contractor down", the purpose of which was to "control shrinkage". That act made them closer to the issue of 'employer vs contractor'. They now have that function internalized with their own employees doing the cleaning. If they were wronged, then you can bet they would have continued doing the contracting, but would not be "locking them down".

If we "lock down" any contractor for any employer purpose within our facility to accomplish physical task that could be accomplished by a US Citizen, then we would best serve our company purposes to get a statement from the contractor that his/her employees are all legal workers.

In my case, I would do a 10 second on-line verification of all employees and be done with it.

PORK

TN HR · March 2005

Pork, I'm sure you raise an interesting perspective, however, your post makes absolutely no sense to me. Perhaps you could clarify.

Are you saying that had Walmart not "locked-down" the contractors (which by the way only happened in a few stores, primarily ones without 24 hour service) then they would have been absolved of all this?

Thanks,

Gene

pork1 · March 2005

TN HR: Had they not locked down the cleaning crew, they would not have had the visibility that they had and the Feds would not have had the strength of case to say, "Hey not us, they belong to the contractor". This was their initial defense and the Feds were able to use the "lock down" principle to connect the action to the arm of Wal-Mart. It goes back to the basic points in the FLSA where the employer/employee relationship is established, which set out the "control factor over a persons ability to be free in the work place". Wal-Mart felt secure in their actions and could defend the attachment with the "shrinkage issue" as a simple reason for the "lock down". It did not work. From what I have been reading and hearing from Wal-Mart employees on this case, their defense begins to come apart when a reasonable person begins to look at the freedom of the contractor and its employees to "come and go", thus the settlement. In retail and other product oriented businesses shrinkage is a killer for management, like wise expense is a killer. Thus, the contractor employees had to be controlled and the cheaper labor was in place with contractor employees working hard and earning income on which to live and send home for the family. It appeared that Wal-Mart had beaten the FLSA for their profit purposes and at the expense of US Citizens who were available to do the cleaning work.

I hope this is more clear. Having been in the retail discount store arena for several years, before we knew about the strong work ethic of the Hispanic, I understood. When I first learned of the contract for cleaning, the principle on which Wal-Mart had acted. I discussed the situation with our retained attorney for sanitation cleaning crews under contract within our own company, like Wal-Mart. He advised me against it for the reasons stated above. If we could not lock them down the "baby pigs" would be getting out the doors as fast as they could pick them up. We do not take an inventory daily by nose count, it is done once a week. Without "lock down" we would not know, we had been ripped off by someone over night until shipment date. If the "baby pig" makes it to day 18, they will go out the back door in route to another growing phase location!

Bottom line the FLSA is the key, the definition of employer/employee is the answer for all of us.

PORK

Don D · March 2005

[font size="1" color="#FF0000"]LAST EDITED ON 03-22-05 AT 08:15AM (CST)[/font][br][br]I have not been inside a Wal Mart in, ohhh, a day and a half maybe and I frequent at least five of them, sometime one or two daily. I've never seen one of them with the doors locked in the past 20 years. I would want to see that legal analysis, however, offered up by the profession, PORK1, rather than one of us. Every facility that has daytime hours and pays a contractor to clean up their building issues a key to the contractor who locks the door and shines the floor. You can bet your ass that the independent contractors at the Stennis Space Center in South Mississippi and the various Air Force training bases in Mississippi are also 'locked down' in many of the buildings where they work, not to mention the independent contractors cleaning up every federal building in your state; but, I doubt seriously if that obligates the employer to verify their right-to-work status. In fact, the whole point is that the employees at the worksite never even have to lay eyes on the contract staff. And, as to the '10 second verification' that you would do Pork, you would have no legal right to ask for or obtain those social security numbers. But, your point is an interesting one.

pork1 · March 2005

DON: The Federal Government contracts for "locked Down" buildings will also have the legal immigrant and/or a US Citizen doing the work. The situations are not at all the same. The contractor would be required to show proof of not being in violation of any Federal Law and most likely must live with Affirmative Action clauses as first priority for hire.

Now state contractors may not be so closely watched. There are a large number of foreign workers working for large construction contractors building bridges and roads. I would love to go seek a SSN number verification on these individuals.

Bottom line from my view Wal-Mart was wrong and they knew it. Not all stories are open 24 hours and "Lock Down" was essential to the cleaning operation in those that did have the cleaning operation. Additionally, it was not just the hourly rate of pay that Wal-Mart was concerned about, the benefit package for contract workers is normally $0.00, that alone saves big bucks for Sam and the gang of retailers. Bucks that they have now agreed to pay to a US Citizen or a "legal Alien" with a work permit and SSN to get the cleaning work accomplished. They now feel a "hiccup" weekly when they sign the pay checks and recognize the benefits for these new employees.

PORK

DeidreFR5 · March 2005

When the big raids happened, one of our local stores was included. The local news (?reliable) made it appear that the cleaning company was a subsidiary of Walmart (or at least only worked for Walmart). Don't they own on of the largest construction companies in the country?

Whatever · March 2005

Wal-mart is being targetted (there's that non-intended pun again) because there are so many charges against them. There's a class action suit because they discriminated against women (as an aside, the first female board member was Hillary Clinton). They have been charged with asking people to work off the books. Many of the foreign factories they use have horrendous working conditions. Maybe, just maybe, they wouldn't have had this fine if they weren't so clearly in the government radar at this time.

Don D · March 2005

"Many of the foreign factories they use have horrendous working conditions."

Well, that's certainly a new phenomenon with US based companies.

Dutch2 · March 2005

Excellent points. We regulary hire outside vendors to clean our buildings, cut the grass, remove snow and on and on... We have no way of know who this person actually sends to do perform these tasks.
Back in my days at Wal-Mart, we would have regular CSR (Serious Case Review)meetings. We would decide at these meetings which cases we would take to court and fight and which ones we would just settle. It would make us HR folks so mad at how many of these cases were voted to be settled out of court instead of fighting in court. There were so many times when we knew we were in the right and could win the case but the decision would be made to settle out of court because it would actually save the company "several" thousands of dollars to just settle out of court rather than go to the trouble of taking the case through the court system.

Don D · March 2005

It's been my observation, however, that typically when such a settlement is reached, the company will make a public and published comment to the effect that "XYZ has agreed to settle this issue, however NO ADMISSION OF WRONGDOING IS MADE." But, in this case, if I'm not mistaken, Wal Mart admitted wrongdoing and agreed to change its procedures and on and on. This does not seem to fall into the category of the 'agreed to settle to avoid legal costs'.

This thread is full of speculation, including that of yours truly. It would be good if some attorney with intimate knowledge of this particular case would chime in and educate those of who care to know.

$11M W-Mart Fine??

Comments