Chain of Greed: How Walmart’s Domestic Outsourcing Harms Workplace Rights of Warehouse Workers

Executive Summary

Few U.S. corporations have attracted more intense scrutiny of their business and labor practices than Walmart. However, while poor working conditions and wage violations among the company’s retail employees have been documented and worker rights violations attributed to Walmart’s international suppliers well publicized, far less understood are the pervasive labor abuses that take place outside of Walmart’s stores but in its domestic supply chain, in service of its bottom line here in the U.S. These worker rights violations are largely the product of Walmart’s signature and aggressive practice of “outsourcing” elements of its warehousing, transportation, and goods-delivery systems to companies that, in turn, often further subcontract the work to still other entities or individuals.

These outsourced workers laboring on Walmart’s behalf toil at the bottom of a complex hierarchy of intermediaries and in alternative employment schemes that leave them vulnerable to significant worker rights abuses and unsure where to seek redress. Walmart sets the parameters for the working conditions in these facilities, sometimes directly by having managers onsite, and sometimes indirectly through monitoring suppliers’ operating costs and setting ever more stringent price demands. But when things go wrong, it’s the contractors that are blamed, while Walmart skirts responsibility for its actions and accountability for its influence over those engaged in its massive supply chain.

This report seeks to shed light on this shady side of outsourcing by profitable corporations like Walmart, and the devastating impact of the practice on U.S. workers. It is a case study of how domestic outsourcing, when not properly regulated by robust laws, and when used by aggressive cost-cutting corporate giants, squeezes all the players in the supply chain beyond their limits, ultimately inflicting severe pain on the subcontracted workforce. In the case of Walmart’s logistics systems, it is a story of low-paid and extremely dangerous warehouse work, with workers unloading and loading boxes, up to 200-pounds, from shipping containers on a piece rate system for days and hours on end.

But it is also an inspiring story of a diverse and talented workforce that is bravely organizing and risking retaliation by taking on Walmart and its contractors to fight for fair working conditions, and of determined state officials seeking to ensure that the labor and employment laws are strongly enforced to level the playing field for law-abiding employers. Focusing on the warehouse workers employed in Southern California and elsewhere who move Walmart goods across the U.S., this report seeks to promote a broader discussion about corporations’ decisions to contract-out dangerous, labor-intensive parts of their businesses to the lowest bidder, and the ill effects this can have on workers, their families, and communities.

As described below, greater transparency and accountability within these multi-layered hydra-like logistics chains are urgently needed. At a time when U.S. economic growth skews so heavily toward low-wage industries and jobs, it is crucial that the public and policymakers alike better understand and respond to the practices and strategies that are propelling this lopsided change. We hope that this report and the case study it highlights will contribute to this broader understanding.

Of special significance, the report details the following findings and conclusions:

Domestic outsourcing is on the rise across key U.S. industries:
Contracting out is becoming increasingly common in many of the nation’s largest and fastest-growing industries, including construction, day labor, janitorial and building services, home health care, warehousing and retail, agriculture, poultry and meat processing, high-tech, delivery, trucking, home-based work, and the public sectors. Even hotels have begun to outsource traditional functions, including cleaning services. Often relying on the use of temporary and staffing agencies, outsourcing in these industries has also resulted in comparatively lower wages for work similar to the jobs previously performed in-house.

Walmart squeezes supply-chain contractors and U.S. workers:
Walmart’s policy of enforcing ever-lower prices has serious implications for the working conditions throughout Walmart’s supply chain. Even manufacturing behemoths are not immune from the pressures Walmart can impose on their profit margins, and by extension, their employment practices. Walmart’s stated “Plus One” bargaining strategy, which requires that all suppliers and contractors reduce their price of goods, increase quality or increase speed of delivery every year, vividly exemplifies the pressure that squeezes contractors’ margins and encourages low-road employment behavior like cutting corners on safety and violating wage and hour laws.

Walmart’s outsourced logistics operations raise critical labor concerns:
As Walmart’s leadership once explained to Wall Street analysts, “The misconception is that we’re in the retail business, we’re in the distribution business.” While Walmart maintains a vast and sophisticated distribution system operated in-house, it also relies on some of the nation’s largest third-party providers to ship and store its goods, including Schneider National and Swift Transportation, which in turn contract with a complex web of temporary agencies to supply the warehouse workforce. In major logistics hubs around the U.S., from Southern California to Chicago to New Jersey, workers employed by outsourced Walmart logistics operations have raised allegations of unpaid wages, health and safety and other serious labor violations.

Labor violations are rampant in Southern California’s Inland Empire, which is a warehouse nerve center for Walmart goods.
Under the watchful eye of Walmart managers, the outsourced warehouse operations of Schneider Logistics and its temporary staffing firms (Rogers Premier and Impact Logistics) have produced rampant wage and overtime and health and safety violations that are the subject of a class action lawsuit. Indeed, evidence produced as a result of the lawsuit makes clear that Walmart is intimately involved in the daily operations of the Schneider operations, which solely move Walmart goods. This report, court documents and recent investigations by the California Labor Commissioner and the California Division of Occupational Safety and Health (Cal/OSHA) reveal the breadth of labor abuses taking place in these warehouses. They include confusing “piece rate” pay schemes where workers are only paid for unloading and loading containers, not for other work performed, for working lengthy hours with no overtime pay, for illegal and falsified pay records, and for hazardous workplace conditions (especially excessive heat, pressure for speed, and unstable storage stacking). These conditions have also created a climate of fear among a largely Latino workforce that claimed labor violations and were subsequently threatened with termination, and a federal court ruling vindicating the workers who alleged retaliation.

Domestic outsourcing imposes an especially severe toll on Latino workers in Southern California and around the U.S.:
Latinos often represent a large segment of those industries where domestic outsourcing by major corporations is most prevalent. In addition, the same industries that implement contracting-out and employ vulnerable, often Latino, workers frequently also have the highest rates of workplace violations of core labor standards. A 2009 study of over 1800 low-wage workers in Los Angeles – nearly 1300 of them Latino – found that minimum wage violations affected 38.3 percent of the workers, and that an astounding 79.6 percent of Latino workers had suffered violation of their overtime pay rights in the week prior to the survey. Logistics companies are no exception. In the production, packaging and warehousing occupations reported in the Los Angeles survey, overtime violation rates reached 37.3 percent of workers, with meal break violations affecting 83.4 percent of these workers.

We should hold major corporations accountable for worker rights abuses that result from unfettered domestic outsourcing.
The challenge for policy makers and enforcement agencies is to use existing enforcement tools effectively to protect workers’ interests, while developing new models to hold these corporate entities accountable for the conditions they engender within the production and logistics pyramids they command. The report offers a combination of strategies that go a long way to: (1) enforce existing labor standards laws that hold multiple entities jointly responsible for any work performed in the business; (2) promote innovative state and federal laws and enforcement strategies to target contracting abuses; (3) secure agreement from Walmart and other supply chain controllers to adopt strong codes of conduct; and (4) document the scope of contracting-out and its impact on U.S. workers.