Sometimes, under certain circumstances, McDonald’s Corp. might be held partly responsible for its franchisees’ bad behavior. Maybe. So announced the National Labor Relations Board’s general counsel, a sort of independent prosecutor, this week.
Predictably, labor groups cheered while industry spokesmen declared that economic collapse was imminent. The truth, despite the hyperventilation, is that the consequences of this announcement — which is more about prosecutorial strategy than any actual change in the law — are pretty limited.
But the rash of coverage did at least shine a spotlight on important problems facing the U.S. economy: our increasingly fissured workplace, and the ingenious strategies companies have developed to absolve themselves of responsibility for low wages and poor working conditions.
In recent decades, companies have gotten craftier at erecting barriers, legal or otherwise, between themselves and the workers who do their bidding. Once upon a time, the company you worked for was quite obviously your employer, and you were quite obviously its employee. That’s not necessarily true anymore.
Today, you are increasingly likely to be an “independent contractor,” a “temp,” a “franchisee,” a “freelancer,” a “subcontractor” or some other version of outsourced laborer. On the question of “who’s the boss?,” obfuscation has become the name of the game. So when something goes wrong, it’s not clear whom to hold responsible.
Of course, outsourcing is not a new development or always nefariously motivated. Economists have been debating for many decades, if not centuries, whether it makes financial sense for firms to make or buy goods and services. And there often are clear efficiencies to be gained from “vertical disintegration” of some kind. For example, rather than trying to manage a custodial staff and an inventory of cleaning supplies, an engineering firm might benefit from hiring a cleaning company that specializes in this sort of thing.
What’s changed, according to labor economists and lawyers I’ve spoken with, is that companies are outsourcing more and more of what used to be considered their core competencies. Shipping and logistics companies, hotels, tech firms and even recycling plants can now be composed almost entirely of contractors, subcontractors and temps. And thanks partly to technological advances, the corporate parent can still enforce standards for its various nonemployee partners as if they were traditional employees. Plaintiffs are using the influence McDonald’s maintains over labor practices, through proprietary software and frequent visits, to make the case that it should be held accountable for its franchisees’ alleged labor infractions.
No doubt some of these arrangements are being created for reasons of efficiency. But part of the motivation does appear to be to skirt labor laws and depress compensation. Getting workers off your own books can mean you don’t have to bear the cost of obligations such as health insurance or family leave. Using temp agencies, which disproportionately employ women and minorities, can make it easier to remove workers without inviting discrimination claims, said Alan Hyde, a law professor at Rutgers. “There are no fingerprints if you’re not the employer, and I have no doubt that’s part of the picture,” he said.
Outsourcing also seems to effectively grind down worker pay. A 2010 study by economists Arindrajit Dube and Ethan Kaplan looked at low-wage occupations in which there has been a substantial increase in outsourcing and found a wage penalty ranging from 4 percent to 7 percent for janitors and 8 percent to 24 percent for security guards.
Why might this happen? Well, a client can threaten to switch to another janitorial contractor if the price of the service isn’t reduced, maintaining plausible deniability about the resulting cuts to workers’ wages. In some cases, you might wonder whether the client is tacitly endorsing, or at least turning a blind eye to, labor abuses by demanding a price so low that the only way for the contractor to meet it is by cutting corners.
It’s hard to know when a firm is setting up these alternate structures because there are legitimate efficiencies to be gained, and when it is merely trying to duck responsibility for the treatment of its workers by engaging in regulatory arbitrage. But as we see more “innovation” in worker-company relationships — including through platforms, like Uber or TaskRabbit, with an even more informal approach to their workforces — I worry that we will see greater confusion over accountability, as well as further downward pressure on living standards, particularly for low-skilled workers. Our already fragmented collection of labor laws has not done a good job of keeping up with the problems arising from the 21st century’s increasingly fractured workplace.