By The Center for Public Integrity and The Center for Investigative Reporting
updated 11/30/2012 5:45:47 PM ET 2012-11-30T22:45:47

MIRA LOMA, Calif. – Lawyers alleging that a Southern California warehouse complex cheated mostly Latino contract workers out of pay took steps Friday to add Wal-Mart as a defendant in an ongoing lawsuit.

The move is expected to draw the nation’s largest retailer into a case in which it had, heretofore, been tangentially involved – and raises questions about the human cost of Wal-Mart’s tightly controlled supply chain, which relies heavily on contractors and subcontractors.

“Walmart employs a network of contractors and subcontractors who have habitually broken the law to keep their labor costs low and profit margins high,” Michael Rubin, one of the lawyers for the workers, contended in a written statement to the Center for Public Integrity and the Center for Investigative Reporting. “We believe Walmart knows exactly what is happening and is ultimately responsible for stealing millions of dollars from the low-wage warehouse workers who move Walmart merchandise.”

Wal-Mart spokesman Dan Fogleman declined to comment on the move by the workers' lawyers. Instead, he said that an emailed statement he made to the news organizations on Thursday still applied.

"We disagree with [Rubin's]  characterization. While we have a set of quality standards that must be met, the third party service providers we utilize are responsible for running their day-to-day business. They manage their people completely independent of us," the emailed statement said.

Court documents filed Friday in Los Angeles claim, "Recent discovery has established that Wal-Mart bears ultimate responsibility for the violations of state and federal law committed against plaintiff warehouse workers," who "perform hard physical labor for long hours with little pay under hot, hazardous, and dust-filled conditions, unloading and loading trucks destined for Walmart stores and distribution centers throughout the United States."

The class-action lawsuit, filed in October 2011, accuses the owner of the Mira Loma warehouse complex, Schneider Logistics Transloading and Distribution, and two staffing agencies of cheating contract workers out of pay.

In a statement earlier this month, Fogleman said “some workers at third party logistics facilities that we use have raised some concerns about their work environment.

“Even though the workers aren’t employed by us, we take these types of allegations very seriously,” the statement said. “The fact is, we hold our service providers to high standards and want to ensure that workers throughout our supply chain are treated with dignity and respect.”

Wal-Mart officials planned to begin audits of warehouses such as Schneider “within days,” according to the statement. “In the meantime, company representatives have made multiple visits – including some that were unannounced – to the facilities where the bulk of the concerns have been raised.”

Wal-Mart said in its email that it is Schneider's customer. "We have a set of business needs that we pay them to meet, just like any company might hire an accounting firm to do taxes or an advertising firm to help launch a new product."

Failing to keep records
The lawsuit alleges that Schneider and staffing agencies Premier Warehousing Ventures LLC and Impact Logistics Inc. conspired to “cover up the extent of their wrongdoing by failing to keep mandatory payroll records, falsifying records of hours worked and compensation owed, and concealing, denying and/or misrepresenting to the workers the amount of their earnings and on what basis these earnings were calculated.”

The staffing agencies have agreed to pay a collective $450,000 in fines and back wages to settle citations issued by California labor officials, who raided the warehouse the same month the lawsuit was filed last year. Schneider, which was not cited by the state, said in a statement that it “played no role in determining the rate or method of pay” that led to the violations.

By seeking to add Wal-Mart – the warehouse’s only customer – to the lawsuit, lawyers for the workers are trying to prove that the company pressured Schneider to hold down costs by underpaying subcontractors who loaded semi-trailers with goods destined for Wal-Mart stores. As many as 1,800 workers in Southern California could receive back pay and damages as a result of the case, and the impacts could be felt in other warehouse centers as well.

One Wal-Mart employee has an office in the Schneider warehouse and participates in daily operational meetings and audits, court documents allege. The employee was deposed Tuesday by the workers’ lawyers; the decision on whether to try to add Wal-Mart to the lawsuit hinged partly on that deposition, according to Elizabeth Brennan, a spokeswoman for Warehouse Workers United, an advocacy group funded largely by the labor consortium Change to Win.

The Mira Loma warehouse has been on regulators’ radar for more than a year.

Responding to worker complaints about inaccurate pay stubs, investigators with the California Division of Labor Standards Enforcement raided the complex Oct. 12, 2011. The agency cited Schneider’s two labor suppliers at the time, Premier and Impact, for failing to provide employees with statements detailing the hours they had logged, their hourly pay, deductions and other wage-related information. The state proposed a $601,000 penalty against Premier, $499,000 against Impact.

Premier and Impact were using an indecipherable “group piece-rate” system to compensate workers, investigators found. Workers say they virtually always lost money in the arrangement, compared to what they would have made had they been paid by the hour.

“We found that workers were being denied the very basic right to know what they had earned for the work that they were doing,” California Labor Commissioner Julie Su, who ordered the raid, said in an interview. “We found that workers were being denied minimum wage, were not being paid overtime hours.”

Premier – which no longer contracts with Schneider – and Impact agreed to pay $175,000 and $140,000 in fines, respectively, to settle the cases. In addition, Premier will pay $75,000 in back wages to 151 workers; Impact will pay $60,000 to 283 workers.

Neither Premier nor Impact responded to emails and phone calls seeking comment. In its statement, Schneider said it was unaware of the violations prior to the raid.

“Our contracts clearly indicate that the vendors are exclusively responsible for the material aspects of the employment, including hiring, discipline, onsite management, training, determining rates of pay, timekeeping and compliance,” Schneider said.

California’s Su said she brooks no tolerance for employers who exploit low-wage, immigrant workers. Her views were hardened in the mid-1990s, when, while working as a lawyer with the Asian-Pacific American Legal Center in Los Angeles, she represented 72 garment workers from Thailand who had been kept behind barbed wire and under armed guard at an apartment complex in suburban El Monte. She sued the shop owner and won more than $4 million in back wages for the encaged Thai workers – as well as a group of Latino workers who sewed in a “front shop” and were being shorted on pay.

“We have seen in many industries that this type of subcontracting can give rise to really horrible labor abuses,” Su said. “There becomes a question about who’s ultimately responsible for the workers and who has the legal obligation to ensure that labor laws are complied with.”

The construction of mega-warehouses near Interstate 10, east of Los Angeles, began in the late 1990s. Today, similar clusters of blocks-long buildings anchor sections of Chicago, northern New Jersey and other urban areas. Some serve only Wal-Mart; others have multiple customers.

Endemic mistreatment
Mistreatment of workers in these facilities is endemic, a product of fierce competition for contracts with Wal-Mart and other retailers, said Juan De Lara, an assistant professor of American studies and ethnicity at the University of Southern California who has researched the industry. “Walmart essentially distances itself from conditions inside these warehouses,” De Lara said.

In interviews and written declarations, current and former workers at Schneider said they were required to perform various tasks for which they were not paid. They might be called to work and told to wait for hours in case they were needed, they said, only to be sent home without pay. Those who complained were told, “If you don’t like it you can hit the door,” Impact worker Juan Chavez said in a declaration.

Jesus Sauceda, 33, worked construction until the weak economy forced him out of a job. He went to work for Impact in Mira Loma in late 2011 and said he was surprised at the conditions in the Schneider warehouse. “Everything you do, they want more,” Sauceda said. “I’d rather work outside in the heat.”

Sauceda injured his shoulder while lifting a box – a warehouse worker might move as many as 4,000 a day, he says – and has seen co-workers get hurt as well because “they don’t have the time to work properly."

“When there’s a problem with pay or working conditions, a company like Schneider will hand it off to the staffing agency,” said Guadalupe Palma, a director of Warehouse Workers United. “The workers are bounced between the warehouse and the agencies and the problem never gets resolved. They get terminated if they’re injured or complain about hours missing from their paychecks.”

U.S. District Judge Christina Snyder, who is presiding over the lawsuit, has made several rulings favorable to the plaintiffs. In February, for example, Snyder blocked the termination of about 100 Premier workers, who were absorbed by Schneider.

The judge issued an order in December 2011 that effectively ended the piece-rate system and forced the two temp agencies to pay hourly wages, maintain accurate payroll records and disclose on each paystub how pay was calculated.

Neither of these rulings touched Wal-Mart directly. But, lawyer Rubin asserts, the retailer “is responsible for the ultimate plight of the workers.”

This story is a joint project of the Center for Public Integrity and the Center for Investigative Reporting.

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