CONTINGENT WORK AND THE STAFFING INDUSTRY: A REVIEW OF WORKER-CENTERED POLICY AND PRACTICE

Nikolas Theodore & Chirag Mehta Center for Urban Economic Development University of Illinois at Chicago

October 1999

Report prepared for the Ford Foundation

Acknowledgements Thanks to Mara Manus of the Ford Foundation and Mark Elliott of Public/Private Ventures for their guidance and feedback during the preparation of this report. Thanks also to the following organizations for contributing information: National Employment Law Project AFL-CIO Primavera Works National Alliance for Fair Employment 9 to 5 National Association of Working Women Workers Organizing Committee WashTech Progreso Latino Campaign on Contingent Work Community Voices Heard Service Employees International Union Carolina Alliance for Fair Employment People Organized to Win Economic Power Atlanta Labor Pool Workers Union Finally, thanks to Bill Howard, Tim Lohrentz, and Marya Morris for comments on an earlier draft of this report. We gratefully acknowledge funding from Public/Private Ventures.

Please direct comments to: Nik Theodore Director of Research UIC Center for Urban Economic Development (M/C 345) 400 South Peoria Street Chicago, Illinois 60607-7035 Tel: Fax: E-mail: Web site: 312-996-6336 312-996-8378 theodore@uic.edu http://data.cued.uic.edu/cued/

Table of Contents

INTRODUCTION......................................................................................................... 1 SECTION I: CONTINGENT WORK AND THE STAFFING INDUSTRY............. 6 CONTINGENT WORK DEFINED ....................................................................................... 6 WHY DO EMPLOYERS USE CONTINGENT WORKERS? ..................................................... 8 WORKERS PREFERENCES FOR CONTINGENT WORK ..................................................... 10 CHARACTERISTICS OF CONTINGENT WORKERS ............................................................ 12 Distribution of workers by industry......................................................................... 12 Distribution of workers by occupation .................................................................... 13 Wages of workers in nonstandard arrangements..................................................... 14 STAFFING INDUSTRY TRENDS...................................................................................... 18 Temporary Help Services........................................................................................ 19 Professional Employer Organizations (PEOs) ........................................................ 22 SECTION II: STAFFING INDUSTRY GROWTH STRATEGIES........................ 24 VENDER ON PREMISES SERVICES ................................................................................. 25 EXPANSION STRATEGIES ............................................................................................. 29 Branches, Franchises, and Licensed Agencies ........................................................ 29 Mergers and Acquisitions ....................................................................................... 30 Internal Growth ...................................................................................................... 32 FACTOR FUND INVESTMENT FOR THE STAFFING INDUSTRY .......................................... 32 STAFFING INDUSTRY TRENDS BY MARKET SEGMENT ................................................... 33 Healthcare Staffing................................................................................................. 33 Information Technology.......................................................................................... 35 Accounting and Finance ......................................................................................... 36 SECTION III: THE INFLUENCE OF PUBLIC POLICY ON CONTINGENT STAFFING ARRANGEMENTS ................................................................................ 38 WORKERS COMPENSATION AND THE AGENCY-CLIENT RELATIONSHIP ........................ 39 REGULATION OF EMPLOYEE LEASING .......................................................................... 40 ENFORCEMENT OF ERISA........................................................................................... 43 THE MICROSOFT CASE A POTENTIAL VICTORY FOR PERMATEMPS.......................... 43 INDEPENDENT CONTRACTOR CLASSIFICATION AND COST-REDUCTION STRATEGIES...... 46 NLRA AND ITS OUTDATED VIEW ON EMPLOYER-EMPLOYEE RELATIONS ..................... 47 JOINT LIABILITY UNDER FEDERAL EMPLOYMENT LAWS ............................................... 49 FAMILY AND MEDICAL LEAVE ACT ............................................................................. 50 FEDERAL FAIR LABOR STANDARDS ACT...................................................................... 51 RECENT POLICY INITIATIVES ....................................................................................... 51 Equal pay and benefits for equal work .................................................................... 51 Stopping the misclassification of workers as independent contractors..................... 52 Staffing industry model unemployment insurance laws............................................ 53 THE IMPACT OF EMPLOYMENT POLICIES ON CONDITIONS FOR CONTINGENT WORKERS . 54

SECTION IV: WORKER-CENTERED PRACTICE ............................................... 56 NON-PROFIT TEMPORARY HELP AGENCIES ................................................................. 56 CORPORATE CAMPAIGNS ............................................................................................ 57 POLICY ADVOCACY .................................................................................................... 60 WORK FIRST, WELFARE REFORM, AND THE CONTINGENT LABOR FORCE ..................... 62 LABOR ORGANIZING STRATEGIES................................................................................ 64 NATIONAL COALITION BUILDING ................................................................................ 66 REFERENCES............................................................................................................ 68

INTRODUCTION
Economic analysts are increasingly pointing to a newly emerging economy where greater flexibility, ongoing workplace transformation, and enhanced responsiveness to market pressures are the new rules of the game. At the center of this new economy is the phenomenon of contingent work, fueled both by employers desires to increase flexibility while reducing costs and by a growing number of staffing agencies that have formed to service these needs. Staffing agencies such as temporary help agencies, professional employer organizations, and other labor contractors now operate as important for-profit labor market intermediaries, actually hiring workers for their business clients and brokering the relationships between business clients and workers. To many observers, the expansion of contingent work and other forms of nonstandard employment contracts is associated with greater turbulence in labor markets as traditional beliefs and expectations regarding job security, wage progression, and career advancement have been called in question by employers use of alternative staffing strategies. The growth in contingent work has contributed to the elimination of rungs on career ladders, increasing wage polarization between regular employees and economically marginalized contingent workers, and the erosion of wages, benefits, and social protections for a large subset of the workforce. At the same time, others have argued that it is this very adaptability of U.S. employment relations that enhances the jobcreation capacity of the economy. The loosening of restrictions on employers to staff workplaces more flexibly, it is argued, has led them to take on additional workers. Because these positions are not necessarily mutually exclusive, there has been considerable confusion, and at times outright disagreement, over the significance of employers use of alternative staffing arrangements. Adding to this confusion are labor market data which seem to be offering mixed messages. For example, on the one hand, it has been shown that temporary jobs comprise approximately 25 percent of new jobs created between 1984 and the present (Cappelli, et al. 1997) and that the number of temporary help agencies has grown by 500 percent since 1982 (HRMagazine, 1998).

Analyses following these figures would suggest that contingent work is becoming a key component of the ongoing restructuring of U.S. labor markets, and in the process it is challenging established employment conventions. At the same time other analyses indicate that only 2.2 percent to 4.9 percent of workers are employed under contingent staffing arrangements (Cohany, et al., 1998). This would suggest that while contingent work is growing, its overall impact on the economy remains modest. However, before any final conclusions can be drawn from these statistics it should be noted that many of the commonly accepted estimates used to measure the importance and magnitude of contingent work have been criticized as anecdotal and unrepresentative (Blank, 1998; Osterman, 1999). Even in the most sophisticated national surveys, depending on the methods and definitions used, estimates either systematically overcount or under-count the size of the contingent workforce (Blank, 1998). In addition to these weaknesses, the national survey data have at least three other drawbacks. First, by focusing on the number of workers holding contingent employment at a given point in time, national estimates may greatly underestimate the number of workers who are employed in contingent arrangements over the course of a year. Contingent work is, after all, a fluid employment relationship and it is likely that several workers could move through a single temporary job slot during the year. In summarizing the results of a W.E. Upjohn Institute national survey of employers, Houseman (1998: 14) found that the number of positions created for agency temporaries during a year is seven to eight times the number of temporary agency jobs likely to exist at any point in time. [Therefore, it] is likely that the number of individuals experiencing some spell of temporary employment during a year is much greater than captured in a point in time survey (see also Osterman, 1999). Second, national estimates may underplay the significance of contingent work in certain local labor markets (such as older, industrial cities like Chicago and new industrial districts like Silicon Valley) and among certain segments of the labor force (such as disadvantaged workers and recent immigrants). For example, while somewhat selective and often anecdotal, recent research has found that the employment conditions

and prospects of certain groups of low-wage workers are greatly shaped by the emergence of temporary help agencies as the employers of last resort. Even in a booming economy and at a time when employers are experiencing worker shortages, many workers still are left with few options other than turning to contingent work in an attempt to make ends meet. Other groups of workers who occupy more privileged positions in the labor market by virtue of their employment credentials and highly demanded skills may also find that their job opportunities are reliant on securing positions through temporary help agencies and other employment contractors. Contracts between employment agencies and their business clients may restrict the hiring of selected occupations to these labor market intermediaries, effectively foreclosing such occupations to all but those workers placed by staffing agencies. Thus, contingent work arrangements may have a strong and disproportionate influence on the employment prospects of certain groups of workers while having only a modest impact on the labor force as a whole. Finally, because all indications point to the continued expansion of contingent work and other forms of non-standard employment, alternative staffing arrangements and the agencies that broker these relationships may represent the leading edge of workplace transformation. Experimentation by employers with alternative arrangements and the more widespread use of contingent staffing strategies are a direct challenge both to longheld views of employment rights and privileges and to many of the employment protections and public policies that workers have come to count on and expect. The staffing industry has been active in promoting legislation at the federal and state levels that would facilitate the expansion of contingent staffing arrangements and perhaps erode worker protections. For example, industry representatives have successfully lobbied many state legislatures to make changes in unemployment insurance regulations that would reduce claims that might be made by temporary help agency workers whose longterm work assignments have ended. While worker-centered organizations have contested some employment policies as well as employer practices in this arena through litigation, policy advocacy, and alternative worker-centered practice, there is considerable

momentum behind industry efforts to open up avenues for the continued expansion of contingent work via public policy reform. Consequently, there is now a need to move beyond the focus on counting the stock of contingent workers toward examining the wider changes in employment strategies and public policy that are underway. Despite recent efforts to shed light on emerging trends and the variety of forms that workplace transformation now takes, many aspects of contingent employment remain unexplored and inadequately understood. As a result, the impact of the rise in contingent staffing arrangements on working conditions may be minimized or obscured. Equally as important, there is a need to assess the strategies and outcomes of union and community-based efforts to provide workers with greater leverage as they negotiate alternative employment arrangements. A growing number of local organizations have created non-profit staffing agencies, hiring halls, collective bargaining units, and other institutional innovations that are designed to bolster workers positions in the job market while reforming industry practice. Many of these organizations have also joined national networks that include established policy advocacy organizations to promote an employment policy agenda that keeps pace with recent developments in this rapidly changing field. This report presents an overview of the major issues facing contingent workers, recent developments in the staffing industry, an analysis of the current policy landscape, and a review of worker-centered policy advocacy and practice. Section I presents a summary and analysis of data on the contingent workforce. In this section, analyses of employer and worker surveys are reviewed and data on the temporary help industry are presented. Section II examines the growth strategies of various segments of the staffing industry. In this section, trends in industry restructuring are presented along with an examination of the growth strategies being pursued by leaders in the temporary help industry. Section III analyzes the adequacy of current public policies as well as current policy proposals that are being debated in Congress and at the state level. Contingent workers, and the staffing agencies and business clients that employ these workers, are subject to a complex array of public policies that in many ways are growing increasingly

out of date and ineffective in meeting the needs of workers. This section provides a broad overview of these policies and suggests policy gaps in existing laws governing contingent work relationships. Section IV presents a review of worker-centered employment policies and alternative practice. A growing number of unions, community organizations, and policy advocates are devising strategies to address issues faced by contingent workers. This section reviews current efforts, with a particular emphasis on efforts that have received little national attention.

SECTION I: CONTINGENT WORK AND THE STAFFING INDUSTRY

Contingent Work Defined The term contingent work was first proposed by Audrey Freedman (1985: 35) to describe conditional and transitory employment arrangements that might be put in place when a company has increased demand for a particular service or a product or technology, at a particular place, at a specific time. Thus, the concept of contingent work was designed to reflect the greater emphasis being placed on labor flexibility by employers as a response to the variability of product demand. In some senses, contingent work was viewed as the labor corollary to just-in-time production and the primary forms of contingent work were initially seen as being part-time employment and temporary work. However, this definition of contingent work has proven too restrictive. While employers continue to use non-standard employment contracts to respond to short-term staffing needs arising from fluctuations in product demand, empoyers have adopted contingent staffing arrangements for other reasons as well. As a result, the uses, types, and nature of contingent staffing have changed. To keep pace with the variety of forms that nonstandard work now takes, the concept of contingent work has been expanded and refined. Roberta Spalter-Roth and Heidi Hartmann (1998: 72-3) suggest that contingent work can be seen as having three dimensions: 1. work schedules that are either temporary or unpredictable in terms of hours and weeks of work; wages that tend to be low (overall and in comparison to full-time, permanent employees) and benefits are either not provided or inadequate; and relationships between workers and employers that are conditional and without permanence.

2.

3.

Through a supplement to the 1995 and 1997 Current Population Survey, the Bureau of Labor Statistics has gathered the most complete national information to date on workers in alternative employment arrangements. Information has been collected on workers holding four types of nonstandard employment (see Cohany, 1998):
q

Independent contractors: workers who are identified as independent contractors, independent consultants, or freelance workers, including both self-employed and wage and salary workers. On-call workers: workers called to work only when needed, although they may be scheduled to work for several days or weeks in a row. Temporary help agency workers: workers paid by a temporary help agency, whether or not their job was actually temporary.1 Workers provided by contract firms: workers employed by a company that provides them or their services to other companies under contract and who are usually assigned to only one customer and usually work at the customers worksite. Although this definition has become the standard for data collection and for

researchers examining the contingent work phenomenon, it excludes two other forms of nonstandard employment arrangements.
q

Regular part-time workers: workers hired onto a companys payroll and who work less than full-time hours each week and who are not short-term hires. Although some part-time workers should not be considered to be contingently employed because they permanently hold part-time jobs, other part-time workers are conditionally employed and should be included in definitions of contingent work. Short-term hires: workers who are hired and paid directly by a business for a limited period of time, and who work at that business work site and whos work is directed by that business.

This includes the office staff of temporary help agencies, a small number of total agency workers.

Why Do Employers Use Contingent Workers? The growing use of contingent workers by businesses is part of ongoing processes of workplace transformation that are altering the terms and conditions of employment for large numbers of workers. Many observers have linked the use of contingent staffing arrangements to downsizing and other cost-hunting strategies of U.S. businesses. Even during the current economic expansion, layoffs and downsizing remain surprisingly common occurrences. A survey of 1,200 major U.S. companies conducted by the American Management Association, found that 41 percent of companies reported job cuts in 1997, down somewhat from 49 percent in 1996 (cited in Hirschman, 1998). The most common reasons for eliminating jobs were organizational restructuring (cited by 64 percent of respondents) and re-engineering of business processes (cited by 49 percent of respondents). For most of the past 20 years, the use of contingent staffing arrangements has been viewed as somewhat of an anomaly. Businesses use of contingent workers has been explained as a reaction to market pressures, a necessary short-term strategy for businesses to compete during tough economic times. Only recently has a consensus formed that contingent work is more than a short-run deviation from regular business practices. Recent survey evidence indicates that contingent working has become institutionalized in the majority of businesses. According to the National Association of Temporary and Staffing Services, 90 percent of companies now use temporary help services (National Association of Temporary and Staffing Services, 1999b). A survey of large companies conducted by OfficeTeam found that 82 percent have permanent line items for temporary workers in their human resources budgets (cited in CPA Journal, 1998). And a survey by Olsten Corp. found that 49 percent of manufacturers now use blended workforces, work systems designed to make use of temporary, outsourced, and part-time workers as well as independent contractors alongside their full-time employees (cited in Quality, 1998). Manufacturers reported that the leading reason for using blended workforces is to control labor costs 71 percent of manufacturers responding indicated that cost control was one of the benefits of workforce blending.

The findings from several national employer surveys have shed light on many of the reasons behind the growing use of nonstandard employment arrangements (Abraham, 1990; Houseman, 1997; Osterman, 1994, 1999). The findings from these surveys suggest that employers make use of nonstandard employment contracts for four primary reasons. The most common reason is to staff peak periods or to handle unexpected increases in demand for products or services. Houseman (1998) found that 52 percent of employers surveyed reported hiring workers from temporary employment agencies and 50 percent reported hiring on-call workers to handle workload fluctuations. This reason for hiring temporary workers is closely followed by hiring workers through an agency to fill-in until a regular employee is hired (47 percent) and hiring temporary workers to fill-in for a regular employee who is ill, on vacation, or on family medical leave (47 percent). Houseman also found that a significant percentage of employers use contingent workers to reduce labor costs (see also Mangum, Mayall and Nelson, 1985). Twelve percent of employers reported using agency temporaries and 21 percent reported using part-time workers to reduce wage and benefits costs. Importantly, in her statistical analysis of the survey data, Houseman also found that the use of contingent workers by employers was positively related to the provision of good benefits packages (pension and health insurance benefits) to their regular, full-time employees. Houseman offers two possible explanations for this finding. First, employers may wish to provide different benefits packages to different groups of workers, a practice that would be in violation of federal labor laws. Staffing certain occupations through alternative, nonstandard employment arrangements such as contracting with temporary help agencies would allow employers to offer premium benefit packages to regular workers while excluding contingent workers from such benefits. An overall savings from the wage and benefits bill could then be achieved. A second possible explanation is that before employers are willing to provide costly benefits packages to workers they prefer to screen prospective employees, initially hiring them as temporaries prior to offering them regular employment.

And finally, a fourth and related reason that employers use contingent workers is to screen workers for regular jobs. Houseman found that 21 percent of employers reported using temporary help agencies to screen workers for regular jobs and 15 percent reported using part-time workers for this purpose. Workers Preferences for Contingent Work While recent employer surveys have confirmed what many had suspected lay behind the growing use of contingent workers by businesses, other observers have suggested that the rise in contingent staffing arrangements has occurred to meet workers desires for greater working-time flexibility. In particular, leaders in the staffing industry have offered this explanation, although they are by no means alone. Findings from the contingent worker supplement to the Current Population Survey can be used to evaluate such claims as well as to explore other reasons why workers are turning to various forms of contingent work as their source of employment. This section briefly examines supplyside reasons behind the increase in contingent employment while other findings from the Current Population Survey are presented in greater detail in the following section. Economists from the U.S. Bureau of Labor Statistics have analyzed data from both the 1995 and 1997 contingent worker supplements to the Current Population Survey (Cohany, 1998; Cohany, et al., 1998; Hipple, 1998). Because the data showed very little in the way of change between 1995 and 1997, the focus here will be on the 1997 data. Several findings stand out. Overall, nearly 60 percent of contingent workers indicated that they would prefer to hold a non-contingent job (Hipple, 1998). This figure is consistent with findings from a survey conducted by the National Association of Temporary Staffing Services (1994) in which 38 percent of temporary workers surveyed reported that they had turned down a full-time permanent job, preferring to remain working for a staffing agency. While the questions that were asked of workers in these two surveys are not identical, the rough similarity of these findings should be noted.

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Younger workers were more likely to prefer contingent work than were older workers. Almost half of contingent workers aged 16 to 24 reported that they were satisfied with their contingent employment arrangement, compared to only one-third of workers aged 25 and older. The reasons behind this preference were mainly those typically ascribed to part-time and temporary workers: preference for working-time flexibility, particularly to accommodate school schedules. As would be expected based on these preferences, younger workers are disproportionately represented in the contingent workforce. Interestingly, this was not the case with women with children. It is frequently suggested that women with children seek contingent employment to balance work and family responsibilities. However, the percentage of contingent workers among both married and unmarried women with children under the age of 18 was actually lower than the percentage for all workers (Hipple, 1998). This suggests that the data do not confirm the commonly held belief that women are demanding contingent work arrangements. The Current Population Survey groups the reasons why workers hold contingent employment into two categories: economic reasons and personal reasons. The most common reason that workers held a contingent job was an economic one it was the only work that could be found (18.2 24.8 percent of contingent workers depending on the estimate used).2 The second most common economic reason was the hope that the contingent job would lead to permanent employment (6.7 8.1 percent). The most common personal reason for seeking contingent work was the need to coordinate work and schooling or training (19.2 21.6 percent). Only about 3 percent of workers cited family or personal obligations (2.8 3.2 percent) and less than 2 percent indicated that the wages paid were higher than could be found in traditional employment (1.4 1.7 percent). About 12 percent reported that they preferred the flexibility and only wanted to work over a short period of time (11.2 12.6 percent).

The Bureau of Labor Statistics has created three definitions of contingent work and estimated the number of workers that are considered to be in contingent employment under each definition.

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The data presented in this section suggest that it is highly unlikely that workers demands for contingent staffing arrangements are a key factor driving the phenomenal increase in contingent work. While a subset of workers seek contingent jobs because the flexibility offered suits their needs, many others that find themselves in contingent employment despite preferring jobs under traditional employment arrangements. But even after considering data on some of the supply-side aspects of contingent employment, the assessment of contingent work is still incomplete. There exist significant differences in the employment experiences of workers holding various forms of nonstandard employment. The following section reviews the diversity of employment conditions that have come to be lumped into the category of contingent work. Characteristics of Contingent Workers While independent contractors, temporary help agency workers, on-call workers, and workers employed by contract firms are often grouped together into the category of the contingent workforce, there are significant differences in the terms and conditions of employment for workers under the various arrangements. Primarily relying on data from the Current Population Survey and analysis conducted by Cohany (1998) and Hipple (1998), this section summarizes data on the industrial and occupational distribution of workers employed under nonstandard work arrangements as well as data on differences in average wages.

Distribution of workers by industry Large percentages of workers in alternative arrangements are employed in services industries (Table 1). Independent contractors are concentrated in services (41.4 percent) and construction (20.7 percent). On-call workers are concentrated in services (47.8 percent), construction (14.5 percent), and wholesale and retail trade (14.4 percent). Temporary help agency workers are concentrated in services (42.0 percent) and manufacturing (31.8 percent). And workers provided by contract firms are also concentrated in services (35.5 percent) and manufacturing (20.3 percent).

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Table 1:

Distribution of workers in alternative and traditional work arrangements by industry, February 1997
Independent contractors 5.7 0.2 20.7 4.7 5.1 13.6 8.4 41.4 0.2 On-call workers 3.4 0.4 14.5 5.3 8.7 14.4 1.6 47.8 4.0 Temporary help agency workers 0.7 2.5 31.8 6.1 8.4 8.5 42.0 Workers provided by contract firms 0.3 2.2 5.0 20.3 13.7 8.3 7.9 28.2 14.0 Workers in traditional arrangements 2.1 0.5 4.9 17.5 7.1 21.1 6.4 35.5 4.8

Agriculture Mining Construction Manufacturing Transportation & public utilities Wholesale & retail Trade Finance, insurance & real estate Services Public administration

Source: Data from the 1997 Current Population Survey reported by Sharon R. Cohany, 1998, Table 7.

Distribution of workers by occupation Persons employment in nonstandard work arrangements tend to be concentrated in three or four occupation groups, depending on the form of nonstandard arrangement (Table 2). In contrast, workers in traditional arrangements are fairly evenly distributed across occupational groupings. Independent contractors are clustered in executive, administrative, and managerial occupations (20.7 percent), professional specialty occupations (17.9 percent), sales (17.9 percent), and precision production, craft, and repair (17.9 percent). On-call workers are concentrated in professional specialty occupations (21.2 percent), service occupations (20.4 percent), and operators, fabricators, and laborers (18.8 percent). Temporary help agency workers are mainly found in administrative support occupations (34.1 percent) and operators, fabricators, and laborers (29.1 percent). Workers provided by contract firms are concentrated in service occupations (27.7 percent), professional specialty occupations (19.8 percent) and precision production craft and repair (19.8 percent).

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Table 2:

Occupational distribution of workers in alternative and traditional work arrangements, February 1997
Independent contractors 20.7 17.9 0.8 17.9 3.9 9.1 17.9 6.8 5.1 On-call workers 2.7 21.2 4.1 6.7 8.6 20.4 14.7 18.8 2.8 Temporary help agency workers 6.9 6.6 5.8 1.7 34.1 9.1 5.1 29.1 1.6 Workers provided by contract firms 8.0 19.8 7.2 2.8 5.2 27.7 19.8 9.3 0.2 Workers in traditional arrangements 14.1 15.3 3.4 11.7 15.3 13.5 10.3 14.3 2.2

Executive, Administrative & Managerial Professional specialty Technicians & related support Sales occupations Administrative support, including clerical Service occupations Precision production, craft & repair Operators, fabricators & laborers Farming, forestry & fishing

Source: Data from the 1997 Current Population Survey reported by Sharon R. Cohany, 1998, Table 6.

These figures suggest that employers have developed different contingent-staffing strategies depending on the occupational categories that need to be filled. It is possible to make several generalizations from the data presented above. First, employers seeking to use alternative staffing arrangements to fill higher-level executive, managerial, and professional occupations are likely to favor independent contractor and on-call worker arrangements for these positions. Second, employers seeking to fill service occupations tend to favor temporary help agency workers, on-call workers, and workers provided by contract firms. Third, employers seeking to fill operator, fabricator, and laborer jobs tend to rely on temporary help agency and on-call workers.

Wages of workers in nonstandard arrangements Not only are there significant differences in earnings between contingent and noncontingent workers, large differences in earnings exist between contingent workers employed under the various staffing arrangements. Overall, persons working as independent contractors and workers who are employed by contract firms have median

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weekly earnings that are higher than workers in traditional arrangements, while on-call and temporary help agency workers have lower average earnings (Table 3). But these overall differences tell only part of the story. On average, it is men employed as independent contractors and contract-firm workers who enjoy weekly earnings that are higher than those paid to their counterparts holding jobs under traditional arrangements. In contrast, men employed as on-call workers earn, on average, 12 percent less than workers in traditional arrangements, while temporary help agency workers earn 33 percent less than men who hold regular employment. Table 3: Median weekly earnings of full-time workers in nonstandard and traditional work arrangements by gender, 1997
Independent contractors All workers, 16 years and older Men, 16 years and older Women, 16 years and older $587 $621 $409 On-call workers $432 $508 $286 Temporary help agency workers $329 $385 $305 Workers provided by contract firms $619 $685 $439 Workers in traditional arrangements $510 $578 $450

Source: Data from the 1997 Current Population Survey reported by Sharon R. Cohany, 1998, Table 12.

The earnings picture for women employed in nonstandard work arrangements is even bleaker. The median weekly earnings of women employed in all four of the alternative arrangements independent contractors and temporary help agency, on-call, and contract-firm workers are less than the earnings of women in traditional arrangements. Furthermore, the fact that the median weekly earnings of women in traditional arrangements are substantially lower than mens earnings to begin with adds to the significance of this finding. In two forms of contingent work on-call and temporary agency employment the differentials between the median wages of women in traditional and these two nonstandard arrangements are greater than the differentials for men. In other words, not only are women who are employed in contingent jobs worse off

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when compared to men, they are also worse off relative to other women holding traditional employment. Median earnings are particularly low for women working as oncall workers ($286 per week, 36 percent lower than the average earnings of women employed in traditional arrangements) and for women working through temporary help agencies ($305 per week, 32 percent lower than the average earnings of women in traditional arrangements). Data on the median weekly wages earned by workers in nonstandard arrangements also reveal significant differences between white, African-American, and Latino workers (Table 4). The median earnings of African-American independent contractors is one-third lower than that for whites, while the median earnings of AfricanAmerican workers provided by contract firms are 42 percent lower than that of whites. This indicates that even within subcategories of contingent work (such as independent contractor), groups of workers experience quite different working conditions and pay levels. Finally, among temporary help agency workers, average wages are low regardless of the race or ethnicity of workers, ranging from $332 per week for African Americans, to $324 for whites and only $281 for Latinos. Table 4: Median weekly earnings of full-time workers in nonstandard and traditional work arrangements by race and Hispanic origin, 1997
Independent contractors $603 $399 $438 On-call workers $455 $378 $321 Temporary help agency workers $324 $332 $281 Workers provided by contract firms $675 $394 * Workers in traditional arrangements $524 $428 $357

White Black Hispanic origin

Source: Data from the 1997 Current Population Survey reported by Sharon R. Cohany, 1998, Table 12.

Tabulations by Houseman (1997) from the 1995 Current Population Survey highlight the low-wage nature of many forms of nonstandard employment arrangements. Using groupings that differed slightly from those adopted by the Bureau of Labor Statistics, Houseman found that 25 percent of on-call workers or day laborers earned

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wages that placed them in the bottom 10 percent of all workers. Nearly one in five agency temporary workers and short-term hires by businesses earned wages that were in the bottom 10 percent for all workers. Using the federal poverty line as a measure of minimum income adequacy, Houseman found that more than one quarter of agency temporary workers, and approximately 17 percent of on-call or day laborers, short-term hires by businesses, and regular part-time workers earned wages that were low enough to place them below the official poverty line. In short, large segments of the contingent workforce earn very low wages leading to poverty, despite work. In assessing the figures presented by both Cohany and Housemen, it is clear that economic hardship associated with contingent employment is concentrated among women, African Americans, and Latinos, perhaps compounding other disadvantages that these groups experience in the job market. Table 5: Incidence of low wages and poverty by type of employment arrangement, February 1995
Percent of workers in bottom 10% of hourly wage distribution 19.0 25.0 5.6 13.7 19.5 31.9 5.7 Percent of workers below the poverty line 25.3 17.0 9.1 9.8 16.9 16.9 7.1

Employment arrangement
Agency temporaries

On-call or day laborers Contract workers Independent contractors Short-term hires Regular part-time workers Regular full-time workers

Source: Tabulations from the February 1995 Current Population Survey by Susan Houseman, 1997, Table 1.

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Staffing Industry Trends It is well known that the staffing industry is one of the fastest growing sectors of the U.S. economy. As the industry has grown it has developed a diverse set of staffing functions to service the changing demands by businesses for alternative arrangements. The National Association of Temporary and Staffing Services identifies seven forms of staffing carried out by temporary help agencies and other employment firms (National Association of Temporary and Staffing Services, no date):
q

Temporary Help Services. Temporary help services are staffing services provided by agencies that hire their own employees that in turn are assigned to work at a business clients work site. The agency is responsible for payroll and associated taxes, laws, and regulations, while the client is responsible for workplace supervision. Managed Services. Managed services (also known as outsourcing) are staffing services provided by an agency that supplies workers for the ongoing management of a clients facility or functions (such as a mail room or call center). The agency retains responsibility for the supervision of employees as well as accountability for the results of the facility or function that has been outsourced. The agency is the sole employer of these workers. Payrolling Services. Payrolling services are staffing arrangements through which business clients recruit workers who then are hired onto a staffing agencys payroll to perform services for the business client. Placement Services. Placement services are staffing services provided by agencies that match job seekers with employers for regular, full-time employment opportunities. Temporary-to-Permanent Services. Temp-to-Perm services are staffing services through which an agency recruits workers seeking regular employment at a business clients work site and hires these workers as temporary workers for a trial period of employment. If the business client decides to hire the worker permanently, the worker is moved from the agencys payroll to that of the business client. Long-Term Staffing. Long-term staffing is the assignment of agency workers to business clients for long-term and indefinite periods of time.

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Employee Leasing. Employee leasing involves shifting all or most of the workforce of a business client onto the payroll of an employee leasing firm. Although the expansion and diversification of alternative staffing functions is

fueling a reorganization of the staffing industry, challenging traditional notions of what constitutes a staffing agency, the industry may still be grouped into two primary divisions: temporary help services and professional employer organizations. This section reviews the trends within each of these divisions, identifying: (i) which forms of staffing organization are growing most rapidly, (ii) which forms of employment relations are created by staffing organizations, and (iii) which occupational and industrial niches are experiencing the fastest growth. The following section also analyzes the various growth strategies that are being pursued by different segments of the staffing industry and explores the changing relationships between staffing agencies and their business clients.

Temporary Help Services The dominant form of staffing service is the temporary help services (THS) agency. THS agencies supply workers to business clients on an hourly, daily, or weekly basis or for more extended periods of time. THS agencies assume many of the responsibilities of an employer including payroll, taxes, and compliance with employment laws. As has been well documented, the temporary help industry has, by several measures, been growing at a phenomenal pace. Average daily employment in THS agencies has risen from 1.17 million workers in 1990 to 2.94 million workers in the fourth quarter 1998, an increase of 60 percent (Contemporary Times, Spring 1999). During this period, annual business receipts of THS agencies grew from slightly more than $20 billion in 1990 to nearly $60 billion in 1998 (Figure 1). The total wage bill paid by the industry to temporary workers has also increased dramatically during the period 1991 to 1998. The fastest growth has occurred in the office and industrial industry sectors, while the technical and professional sectors have experienced steady, but more modest levels, of growth (Figure 2).

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Figure 1 Annual Receipts of Temporary Help Agencies 1990-1998

70
Receipts (billions of dollars)

60 50 40 30 20 10 0
1990 1991 1992 1993 1994
Year

1995

1996

1997

1998

Source: National Association of Temporary and Staffing Services, Quarterly Staffing Survey cited in Brogan, 1999, Chart 1.

Figure 2 Wages Paid to Temporary Workers by Industry Sector, 1991-1998

20 18
Wages (billions of dollars)

16 14 12 10 8 6 4 2 0
1991 1992 1993 1994 1995 1996 1997 1998
Office/Clerical Industrial Technical Professional Health Care

Year

Source: National Association of Temporary and Staffing Services, Quarterly Staffing Survey cited in Brogan, 1999, Table 1.

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The THS industry places workers in a wide variety of occupations. The National Association of Temporary and Staffing Services (NATSS), the primary industry association representing THS agencies summarizes the main occupational niches of the industry as follows (National Association of Temporary and Staffing Services, 1999a):
q

Office/clerical: secretaries, general office clerks, receptionists, typists, data entry keyers, and cashiers. Industrial: assembly, factory laborers, shipping and receiving, and manufacturing maintenance. Technical: computer programmers, systems analysts, drafters, and engineers. Professional: accountants, paralegals, attorneys, sales professionals, and management. Healthcare: staffing to nursing homes, hospitals, and outpatient clinics (excludes home healthcare workers). Consistent with traditional views of the temporary help industry, placements in

clerical occupations still comprise the largest percentage of THS agency workers (40.5 percent). But the industry is considerably more diversified than its stereotypical image would suggest (Figure 3). The second largest occupational grouping of workers is workers employed in industrial occupations (34.5 percent). Technical occupations (10.9 percent) and professional occupations (6.4 percent) follow these as the third and fourth largest occupational groupings, respectively.

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Figure 3 Occupational Distribution of Workers Placed by Temporary Help Agencies

Other 5% Professional 6% Technical 11% Clerical 40% Health Care 2%

Marketing 1%

Industrial 35%

Source: National Association of Temporary and Staffing Services, Quarterly Staffing Survey cited in Brogan, 1999, Chart 8.

Professional Employer Organizations (PEOs) Professional employer organizations (PEOs) are a second type of labor market intermediary. As with temporary staffing services, PEOs participate in a triangular, relationship involving the PEO and the business client as co-employers sharing traditional employer responsibilities. PEOs assume responsibilities and risks for human resources functions including labor law compliance, payroll, benefits provisions, and employment taxes, while their clients are responsible for devising workplans and directing workers. PEOs differ from temporary staffing agencies in several important respects. First, the co-employees of PEOs tend to be hired for an extended basis, typically for one year or more. Second, rather than providing additional or replacement workers, PEOs take responsibility for the human resource functions of their clients existing workforces. Third, PEOs are usually responsible for the majority of a clients workforce, rather than for selected occupations or for workers that may be contingently employed. Therefore, 22

co-employment through a PEO, while being an alternative staffing arrangement, may not be associated with contingent work. PEOs are a relatively new form of labor market intermediary whose main purpose is employee leasing. Like other segments of the staffing industry, the PEO sector is expanding rapidly, growing by more than 30 percent in the last five years. According to the National Association of Professional Employer Organizations (NAPEO), approximately 2 million workers nationwide are now co-employed by PEOs. Yet along with what apparently are strong growth prospects, the PEO segment of the industry is facing competitive pressures. Industry observers have been predicting a shakeout in the PEO segment as larger firms consolidate their operations through acquisitions and using cost advantages to increase market share. The number of PEOs in the U.S. is declining, a sure sign of industry consolidation (Willey, 1997). PEOs are also finding competition from temporary help agencies that are offering PEO-type services to their clients in an effort to meet existing and emerging demands for alternative staffing arrangements.

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SECTION II: STAFFING INDUSTRY GROWTH STRATEGIES

The rapid expansion of the staffing industry poses unique challenges to agencies seeking to remain competitive and expand their businesses. The main challenges facing agencies are to overcome seasonal fluctuations in staffing revenues and to defend profit margins in a highly competitive industry. Agencies have adopted several approaches to garnering greater market share. This section reviews these approaches and discusses emerging strategies for expanding business opportunities. Diversification of staffing services is an increasingly common strategy for stabilizing revenues and securing new contracts. Many agencies are pursuing horizontal integration by adding specialty services to their traditional staffing functions. Some of the largest agencies have formed networks with their divisions that specialize in supplying clerical workers, light industrial staffing, legal staffing, accounting and finance, and other staffing niches. This strategy is designed to enable agencies to service the full range of client staffing needs through a single network of affiliated divisions. Such a strategy also may protect agencies from seasonal or other fluctuations that may affect the demand for workers in a particular industry segment. An alternative strategy is one of specialization through the vertical integration of staffing services. Vertical integration involves adding complementary services that build on an agencys primary area of expertise. Specialization is common in information technology (IT) and healthcare staffing. In IT, agencies such as Metamor Worldwide have added new services to their core staffing practices. These include IT consulting, project management, and search and placement services for IT professionals. Similarly, in healthcare, staffing agencies are adding divisions that supply workers for home healthcare and nursing, pharmacology, medical assistance, and other healthcare occupations. Vertically integrated agencies are able to compete for large contracts that call for the provision of workers for a wide range of occupations within the specialty field.

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In addition to pursuing different strategies for securing market share, agencies also organize their internal decision-making structures quite differently, perhaps depending in part on the industry segments they service. There appears to be a tendency for agencies specializing in light industrial staffing to adopt decentralized decisionmaking processes allowing for considerable autonomy by local offices. In contrast, agencies providing large numbers of professional workers and agencies selling services to major U.S. corporations tend to have centralized decision-making structures, retaining tight control over company policies at headquarters. Manpower provides a case in point. Manpower designs and disseminates all assessment, training, and support materials for its local branches and franchises. In addition, office employees at branches and franchises are provided training at the companys Milwaukee headquarters, and customer invoicing and payroll processing services are provided by the companys headquarters (Manpower, 1999). Vender on Premises Services Vender on Premises (VOP) services, also known as on-site management, is a partnership-based approach to the provision of staffing services. Through VOP programs, staffing agencies and their business clients enter into long-term relationships, usually with the agency providing a wide range of staffing services. There essentially are two types of VOP programs. National staffing agencies often enter into VOP arrangements with major clients to staff work sites in multiple locations. Large, nationwide accounts typically require a network of staffing offices to place workers in various occupations and locations. Industry leaders are able to service this demand, signing national contracts and turning to local branches or franchises to deliver the services. For example, in cases where a client may require specialized staffing services, such as financial or legal personnel, in addition to the general staffing provided by an agency, agencies will turn over portions of the contract to their specialty divisions. Onsite company representatives will broker the relationship between the business client and the divisions, seeking out new business from the client and matching the appropriate division with the client need. The Director of On-Site Services of AccuStaff likened

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VOP programs to an a la carte menu in which specialized branches are brought in to handle legal, accounting, information technology, and outplacement services (quoted in SI Review, November/December 1997). A second type of VOP arrangement involves single location staffing contracts. Business clients receiving 50 or more workers from temporary help agencies are now also expecting both national and small, independent agencies to provide the services of an on-site agency representative to handle workforce and product-quality issues. For these agencies, the provision of on-site management has become a routine cost of doing business, a concession to clients that most agencies have been forced to make in the highly competitive staffing industry. Agencies favor VOP programs for several reasons. First, large accounts tend to experience fewer cyclical fluctuations. These accounts are a way to stabilize revenue streams and they serve as a buffer during periodic economic downturns. Second, these programs are a way to capture long-term contracts from major clients. Three- to fiveyear VOP contracts are typical and therefore are a boon to agencies accustomed to competing to maintain shorter-term relationships. Third, business volume tends to expand through these partnership arrangements. As staffing agencies become more familiar with clients business operations, they are able to identify new areas for the expansion of staffing services. Some agencies are now involved in many phases of business planning with their clients and, in the process, are strengthening the ties between vendors and clients. For business clients, VOP programs offer a way to expand their human resources capabilities, particularly with regard to flexible staffing, while reducing labor costs. Clients report average cost savings of 9 percent from their VOP contracts (SI Review, November/December 1997). In many respects, VOP programs are an indication that staffing agencies are expanding and formalizing their roles as human resources consultants to business clients. Whereas many agencies initially provided on-site management in an ad hoc fashion, largely responding to clients demands for assistance in managing their swelling temporary workforces, VOP programs are now a core 26

component of staffing agency strategy. National leaders have branded their VOP programs with trade names such as Vendor in Partnership (Metamor, formerly Corestaff), Master Vendor Partnering (Norrell), and Interim On-Premises (Interim Inc.). As these program names suggest, agencies are attempting to develop high-profile VOP programs that can be used to increase market share, perhaps at the expense of smaller, locally owned and operated agencies. VOP contracts are an increasingly popular method of arranging workplace contingent staffing. The use of VOP contracts doubled annually between 1992 and 1994 and grew an additional 50 percent in 1995 and 1996 (SI Review, November/December 1997). Revenues from VOP arrangements have increased from $500 million in 1992 to an estimated $6.5 billion in 1997, or approximately 12 percent of staffing industry gross revenues. The average on-site contract covering 50 to 75 workers will bring in revenues of approximately $1.5 million. The increase in VOP services is part of a general trend in higher-volume staffing contracts that is related to efforts on the part of businesses to reduce the number of suppliers with which they are contracting. The designation of a primary staffing vendor responsible for most staffing services is an increasingly common practice among the large clients of the staffing industry. Olsten Corp., for example, reports that through its Partnership Program, the agency acts as a master vendor responsible for the recruitment, training and ongoing management of large groups of employees at a single site or at multiple sites. Other clients have outsourced entire functions whereby people, processes and technology are all managed by Olsten (Olsten, 1999: 5). Business clients put most large VOP contracts up for competitive bid. The size of these contracts restricts potential bidders to only the largest agencies who dominate the market for VOP programs, gaining an additional competitive edge over smaller firms. The industry advisers, Staffing Industry Analysts, estimate that large agencies handle roughly 85 to 90 percent of the VOP sites in the U.S. (SI Review, November/December 1997). Most large, national staffing agencies report that their VOP services are highly profitable and growing rapidly. At the same time, these agencies also report that they are 27

being more selective about which long-term VOP contracts they agree to service. In the early 1990s it was not uncommon for large agencies to cut profit margins to capture a VOP contract with a major client. However, reluctant to continue incurring the costs of VOP programs for smaller orders (50 to 100 workers per day), leading agencies are attempting to increase the staffing threshold at which a VOP program will be instituted. Whether business clients have come to expect such services from their vendors and would decline to renew contracts without on-site management, remains to be seen. The competitive nature of the staffing industry suggests that agencies will find it difficult to withdraw services currently being provided. Surely agencies would like to negotiate larger contracts with business clients and suggestions that some VOP programs may be scaled back may just be part of these negotiations. While large agencies control the vast majority of VOP contracts, for small, independent agencies there also may be a market in providing on-site services for smaller-order contracts, although this would certainly negatively impact the profit margins of such agencies. In interviews with Chicago area staffing agencies, managers reported that on-site arrangements were an integral part of agency-client relations, even for small staffing firms (Peck and Theodore, 1998). The workforce threshold necessary for the placement of an on-site at a business clients facility varied, but most agencies sought to assign about 75 workers per day at a work site before a on-site supervisor was hired. While the costs associated with VOP programs are significant for smaller agencies, the provision of these services was viewed as necessary if independent agencies are to retain market share. However, it is possible that business clients will begin to demand on-site representatives from agencies placing fewer than 50 workers each day at a work site. Large agencies will probably decline to pursue such contracts, preferring to solidify their hold on larger-volume orders. Small agencies will be left to compete for this business. Some portion of the costs associated with on-sites may be passed on to the client, although it is likely that such requests would cut into agency profit margins. This may lead to some subcontracting with specialty or niche staffing agencies, or nontemporary employment contractors, although business clients may limit the extent to

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which subcontracting can occur on the grounds that the quality of subcontractors may be lower than that of the primary vendors. Expansion Strategies The staffing industry is growing rapidly, in part propelled by agencies pursuit of market share. The largest agencies follow three expansion strategies, often simultaneously. This section examines these three strategies: (i) the opening of branches, franchises, and licensed agencies; (ii) mergers and acquisitions; and (iii) internal growth. While the goal of these strategies is the same increasing company revenues emphasis on one or another strategy may provide additional insights into how agencies are positioning themselves in this highly competitive industry. For example, Olsten Corp and Kelly Services have sought horizontal integration (offering a complete mix of staffing functions) through the acquisition of agencies specializing in industry niches such as financial and legal personnel. Metamor Worldwide, one of the leaders in staffing for information technology, has pursued vertical integration (staffing the complete range of IT occupations including temporary staffing, consulting, and executive search as well as adding software and hardware services and other products) through acquisition of domestic and international IT specialty firms. And Manpower and Labor Ready rely on internal growth strategies and have been successful in opening offices in new markets, using their brand identification and nationwide contacts to attract clients.

Branches, Franchises, and Licensed Agencies As the market for contingent staffing services continues to grow, agencies are entering new locales by opening branches, franchises, and licensed agencies. Branches are agencies owned and operated by a parent staffing agency. Local managers operating within the overall corporate guidelines set by the parent agency are responsible for dayto-day operations. Profits flow back to the corporate parent. Franchises are independently owned agencies that have the right to market their services and supply workers within a defined geographic area. Like branches, franchises operate under the brand name of the parent staffing agency. For the use of the corporations name,

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advertising, and services, the corporate parent receives a portion of the profits generated by franchises. The owners of the franchise control remaining profits. Licensed Representative Operations differ from franchises in that agency operators do not have an ownership interest in the agency. In the case of Olsten Corp, licensed representatives are responsible for the office operating expenses (including rent, utilities, and office staff salaries) and the corporation is responsible for workers wages, payroll taxes, and payroll insurance. Olsten Corp. also provides franchises with accounts receivable financing and billing and payroll processing systems. In return, the corporate parent receives volumebased royalty fees. The particular strategy followed by a given agency appears to depend on the corporate philosophy of the agency as well as on consideration of the bottom line. For Olsten, licensing has been a more profitable method of expansion than franchising, so in the future the company will primarily follow this route of expansion (Olsten, 1999). Conversely, Interim Services found that company-owned branches yielded high profits than either licensed or franchised agencies. Manpowers strategy has been to standardize operations at all of its offices. This strategy requires tighter control over agency operations, so it is likely that Manpower will establish new branch agencies under the watchful eye of company headquarters. Labor Ready has indicated that it prefers a more decentralized decision-making structure and has found franchises to be a profitable means of expansion.

Mergers and Acquisitions In addition to its rapid growth, the staffing industry is undergoing a period of consolidation as industry leaders are merging or acquiring other staffing agencies. Among the major national players, the drive to acquire additional staffing-agency functions and offices is fueled by the need to penetrate new markets (both geographical and occupational/industrial), the desire to retain market share, and the hope of satisfying shareholder expectations. Merger and acquisition activity has, over the past several years, been greatest in information technology, accounting and finance, placement and search services, and health care staffing (Wilson, 1999), each of these being emerging

30

niches for the staffing industry. This pattern of mergers and acquisitions reflects the push on the part of business clients to contract with primary suppliers (master vendors) of staffing services and has been one of the main forces behind industry consolidation (Packwood, 1998). As large suppliers of contingent workers are called upon to provide a greater range of workers, staffing professional positions as well as entry-level occupations, these agencies have had to greatly expand their offerings. Mergers and acquisitions are the quickest routes to diversification. In 1998 the most active buyers of other staffing firms were Interim Services, Personnel Group of America, and StaffMark Inc. (De Bellas & Co., 1999a). Historically it has been the publicly held firms like these that have been responsible for 75 percent of the merger and acquisition activity in the industry. No doubt this is partly due to the sheer size and vast resources of these agencies. But shareholder expectations also spur agencies expansion plans. Over the past several years, the staffing firms that have been most active in acquiring other firms have been rewarded with strong gains in stock prices (Staffing Industry Report, January 12, 1999). There are signs that these trends may be changing. In the first quarter 1999, 40 percent of buyers were private firms (De Bellas & Co., 1999b; Wilson, 1999). In addition, for the first time, most agencies stock prices closed lower in 1998 than in the previous year (Staffing Industry Report, January 12, 1999). To some extent this may be a lull following a period of heavy activity and industry consolidation. There are other figures that support the view that the staffing industry has become more consolidated. Thirteen agencies were involved in more than 30 percent of the merger and acquisitions transactions in 1998 (De Bellas & Co., 1998). The top 10 buyers saw their combined market capitalization increase from $4.5 billion to $5.6 billion during the year, although first quarter 1999 witnessed a slight decrease to $5.5 billion (De Bellas & Co., 1999a). For whatever reason, the number of mergers and acquisitions in the first half of 1999 is down substantially from last year, perhaps indicating that following a period of considerable consolidation through mergers and acquisitions, agencies are now focusing on internal growth strategies (Staffing Industry Report, April 13, 1999).

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Internal Growth All staffing agencies have plans for internal growth through the expansion of existing contracts and the acquisition of new ones. Agencies employ large cadres of sales representatives to solicit new business from prospective clients. Many agencies, even some of the leaders in the industry, favor internal growth strategies rather than mergers and acquisitions. Manpower, for example, has no acquisition strategy. Instead, it expands mainly through internal growth. Labor Ready also emphasizes internal growth and the opening of offices in new geographic markets. Smaller agencies also rely on internal growth, nurturing relationships with existing clients and attracting new ones though a combination of low prices and client-focused service. Factor Fund Investment for the Staffing Industry Growth in the staffing industry, whether through franchising, acquisitions, or internal expansion, requires access to financial capital. While banks remain an important source of these funds, dozens of credit institutions have formed to meet the staffing industrys needs for so-called factor funds. Growth-oriented staffing agencies rely on external factor funds as an important source of short-term credit to cover payroll, taxes, and other operating expenses. The availability of factor funds for the staffing industry facilitates its expansion by enabling agencies to pursue increasing-volume orders and expanding the numbers of workers that are on their payrolls. TemPay, one of the many credit institutions specializing in this form of capital lending, advertises their services as follows: In a nutshell, heres what we do: $ We pay your temporary employees $ We invoice your customers $ We pay your taxes $ We help manage your receivables and all for one low, fixed fee!

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Tricom Funding, another credit institution specializing in factor funding for the staffing industry, explains the cash flow problem faced by staffing agencies and how they can help: Paying employees weekly and invoicing clients monthly creates a cash flow problem. Most of us are aware of the roadblocks encountered in going to a bank to borrow for the payroll and taxes of your temporary employees. One of the biggest is that banks generally lend a specific amount of money, and as soon as you borrow it, you have to begin paying it back . This doesnt happen with Tricom Funding. We provide a continuous weekly supply of money to meet your payroll and pay the taxes for your growing temporary staffing business. v 90 Day Charge Back v No Cash Reserve Required v Unlimited Funding As an added benefit, staffing agencies may pass the terms of credit advantages gained from factor funding onto their clients as a way of lowering bids on larger contracts. In addition to fee per worker and VOP services, access to credit is one of the ways in which agencies out-maneuver their competitors. Staffing Industry Trends by Market Segment The growth and diversification of the staffing industry is challenging traditional notions of temporary employment. In addition to clerical positions in office settings, the industry has moved rapidly into other segments, supplying workers in high-wage and low-wage occupations. This section provides brief overviews of the healthcare, information technology, and finance and accounting segments of the staffing industry highlighting industry trends and the dominant players that are shaping industry practice.

Healthcare Staffing Healthcare staffing agencies supply workers to hospitals, outpatient clinics, and nursing homes and provide home healthcare workers for in-home patient care. These agencies provide staffing for a variety of occupations including nursing, medical assistants, physical and occupational therapists, and claims administrators.

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Like other segments of the staffing industry, healthcare staffing is growing rapidly. The most successful agencies report annual growth rates in excess of 25 percent. Continued growth is expected in the healthcare segment, in large part because of emerging pressures to cut costs following recent changes in medical cost-reimbursement systems, particularly those associated with managed care (SI Review, May/June 1998; Staffing Industry Report, December 15, 1998). Managed care is leading healthcare providers to reduce staff costs, often through layoffs, making contingent staffing arrangements increasingly attractive. In addition, many healthcare services that used to be directly provided by hospitals and staffed through hospital hiring systems are now located at outside healthcare providers such as outpatient clinics. In the past, hospitals relied on pools of on-call nurses and other medical staff to fill periodic vacancies. But with tight labor markets, new avenues for full-time work have proven more appealing to workers previously employed on an as-needed basis, depleting hospital-maintained contingent staffing pools. Staffing agencies have been an attractive way for these providers to find personnel. The ongoing reorganization of the healthcare industry is also prompting administrators to redefine the job responsibilities of nurses and other front-line medical personnel. Nurses and others have resisted these changes citing decreases in patient care. Staffing agencies have moved in to provide medical personnel to assume the duties previously carried out by a wide range of healthcare professionals. The largest healthcare staffing agencies in terms of 1998 revenues are: Therapists Unlimited, Cross Country Staffing, CompHealth Inc., Healthcare Staffing Solutions, and TravCorps Clinical Staffing Solutions. Total 1998 sales of each of these agencies is in excess of $100 million (Staffing Industry Report, December 15, 1998). The healthcare segment of the staffing industry is experiencing a period of consolidation as industry leaders aggressively pursue merger and acquisitions strategies. Many segment leaders are moving toward greater vertical integration, combining nursing, therapy, pharmacology, physician staffing, and other healthcare services through a single 34

point of contact. Other large agencies have left the healthcare segment of the industry. During the past several years, some national agencies, notably Interim Services and Westaff, have sold-off their medical staffing services to concentrate on their core temporary help business. Other industry leaders maintain healthcare services under independent organizations. Still others have gone out of business. The main reason that some staffing firms are shedding their health care divisions is that agencies are finding that remaining current on changing healthcare regulations requires considerable staff time and expertise. Some leaders in the health care segment report that they are not responding to worker shortages by increasing their profit margins in an effort to discourage new competitors from entering this industry segment (SI Review, May/June 1998).

Information Technology Information technology (IT) is the largest professional staffing niche in the U.S. Staffing agencies services IT supply workers involved in the design and maintenance of computer systems such as programmers, systems integrators, and LAN administrators. Agencies in this high-growth, high-margin segment of the staffing industry have been the target of numerous mergers and acquisitions. The appeal of this staffing segment is easy to see. In the past, fluctuations in IT staffing have been less closely linked to the economic cycle than other niches, so agencies look to IT staffing as a way to buffer seasonal fluctuations as well as the effects of potential economic downturns. In addition, assignments tend to be of longer duration than those in other staffing segments, providing a measure of stability in an otherwise volatile industry. Staffing agencies specializing in IT are diversifying their services by moving into consulting, merging temporary staffing, consulting, and executive search functions, and providing these services through a single point of client contact. Search and placement services will likely be expanded in the future as part of vertical integration strategies. At

35

this time, however, agencies have been reluctant to offer permanent placement services because of the extremely tight labor market in this niche (SI Review, March/April 1997). In response to worker shortages, many IT specialists recruit workers worldwide. In addition, some leaders in the IT staffing segment are supplying workers to U.S. business clients through overseas facilities. For example, Metamor Worldwide operates three technology development centers in India providing low-cost personnel to their North American clients. In addition to lowering the total wage bill, this staffing arrangement creates a virtual second shift for its North American clients enabling rapid completion of projects and off-peak use of clients technology resources (Metamor, 1999). Metamor also employs separate work teams located in the U.S. and India to complete larger projects with short deadlines. According to SI Review (March/April 1997), the top six IT staffing firms based on 1996 and 1997 estimated gross revenues are: Keane Inc. ($461 million); Accustaff Inc. ($398 million); Manpower Inc. ($390 million); Analysts International Corp. ($389 million); Computer Task Group Inc. ($364 million); and Metamor Worldwide, formerly Corestaff, ($307 million).

Accounting and Finance Accounting and finance is the second largest professional staffing niche behind IT. Like other professional staffing segments, the labor market for accounting and finance personnel is very tight. Nevertheless, this segment of the staffing industry has experienced strong growth with gross revenues up by 50 percent in 1996 and by 30 percent in 1998 (Staffing Industry Report, October 12, 1998). Hourly billing rates are high compared to traditional staffing industry segments, ranging from $20-30 for general accounting/finance professionals, to $50-60 for special project work, and $80-100 or more for chief financial officers (Staffing Industry Report, October 12, 1998). However, greater growth is being recorded in permanent placement activities than in temporary staffing. Many agencies as well as their business clients are reporting

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shortages of candidates to fill both temporary and permanent placements. Staffing Industry Analysts reports that a strong middle ground is emerging that the accounting/finance players are labeling contract services which is not quite temporary and not permanent placement (Staffing Industry Report, October 12, 1998). The strategy involves moving high-level professionals, such as chief financial officers and controllers, onto fixed-term contracts. Through contract services, high-level personnel remain contracted with an agency for the term of a project, thereby reducing the likelihood that the agency will find itself short-staffed on a key project. Staffing agencies hope to attract professionals to contingent work as a career choice, much in the same way that IT agencies have sought to recruit workers. Staffing agencies in accounting and finance are finding themselves in competition with Big Six accounting firms. Not surprisingly, agencies are competing largely on the basis of price and flexibility. Some of the accounting firms are responding by offering contingent staffing as part of their services to clients (Staffing Industry Report, May 12 1998). This may profitable to traditional accounting firms that have strong name recognition and the trust of clients who may be slow to turn key accounts over to staffing agencies.

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SECTION III: THE INFLUENCE OF PUBLIC POLICY ON CONTINGENT STAFFING ARRANGEMENTS

The staffing industry continues to grow by navigating the complex array of laws, court decisions, and administrative rulings at the state and federal levels. To understand how the staffing industry and their business clients take advantage of employment laws, one must first understand that there is no single law that governs contingent staffing arrangements. Quite literally, laws governing the agency-business client relationship fall under the jurisdiction of all 50 states, several federal agencies, and the courts. Moreover, employment laws are generally inconsistent in how they distribute responsibilities for taxes and other statutory requirements between the staffing agencies and their business clients. Staffing agencies and their business clients may structure relationships to take advantage of a particular area of employment law. However, such relationships may compromise their interests in relation to other areas of employment law. The nature of U.S. employment laws forces the staffing industry to make tradeoffs between maximizing advantages in one area of law and limiting liabilities in others. The main purpose of most U.S. employment law is to hold employers legally and financially responsible for their employees.3 However, the rise of contingent staffing arrangements has rendered many areas of employment law ineffectual in safeguarding the rights of workers. In some cases, legislatures and the courts have attempted to adapt employment laws to the changing and multiplying forms of non-standard work arrangements. In the end, however, the vast majority of employment laws help the industry provide its main service to clients who use temporary labor the opportunity to save on labor costs and a shield to protect the business clients from employment-related liabilities in the process creating instability and uncertainty for workers.

The National Labor Relations Act, American Disabilities Act, Family Medical Leave Act, Federal Fair Labor Standards Act, Civil Rights Act, and Occupational Health and Safety Act, state unemployment insurance and workers compensation laws, and tax rules concerning employer-provided health and pension benefit programs, and federal employment taxes all govern the employer-employee relationship.

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Workers Compensation and the Agency-Client Relationship The legal foundation supporting the staffing industry consists of a combination of federal employment tax laws, and state unemployment insurance contribution and workers compensation laws. In all 50 states, these laws typically sanction staffing agencies as the primary employer of temporary workers, thereby absolving their business clients of most legal and tax liabilities associated with the employment of contingent workers (Lenz, 1998). Without this status as the primary employer of contingent workers, staffing agencies would have little reason to exist. But to fully satisfy the needs of their business clients, the staffing industry must construct a co-employer status in coordination with their business clients. The nature of most workers compensation laws best explains the tension in the legal relationship between agencies and their clients. One of the key services provided by staffing agencies is the assumption of responsibility for the payment of workers compensation expenses. By providing this service, which is viewed as indispensable by most business clients, staffing agencies expose clients to a serious legal liability workplace injury lawsuits.4 Most workers compensation laws protect the entity contributing to the state workers compensation fund from workplace injury lawsuits. Therefore, the sole legal remedy for injured workers is workers compensation the so-called exclusive remedy rule if their employer contributes to the fund (Lenz, 1998). In the typical contingent staffing arrangement, staffing agencies as primary employers of temporary workers are protected by exclusive remedy if they contribute to the workers compensation fund. Their business clients, however, are not necessarily protected by the exclusive remedy rule because they do not directly contribute to the fund. However, most state workers
4

The issue of workplace injury lawsuits and workers compensation law has its greatest impact in the light industrial segment of the temporary help industry. Labor Ready, the largest and fastest growing national day labor company targets costs associated with workers compensation claims as one of its most significant issues (Labor Ready, 1999). In its annual report to shareholders, the company explained that workers compensation expenses accounted for more than 5 percent of the company's total cost of services. Two years ago, to limit its exposure to workers compensation claims, Labor Ready purchased insurance policies to cover possible future claims. The company also retains reserves of over $50 million to pay for claims that these insurance policies may not cover (Labor Ready, 1999). To reduce compensation claims, the company employs claims coordinators throughout the U.S. to monitor workers making claims and ensure that they return to the workforce as quickly as possible.

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compensation statutes extend exclusive remedy to staffing agencies business clients, even though clients do not pay workers compensation taxes, providing that the following conditions are met:5
q q q

the business client supervises the work of contingent workers the employee consents to the arrangement the work being done is for the business client

Therefore, it is essential that business clients supervise the work of staffing agency workers in order to protect themselves from workplace injury lawsuits filed by workers assigned by the staffing agency. In most matters arising from the brokering of worker and business-client relationships, staffing agencies would benefit from being granted sole-employer status. Such recognition is crucial because it allows staffing agencies to assume total liability for all taxes, costs, and rules associated with the employment of workers the raison detre of the staffing industry. But because business clients are supervising the work of staffing agency workers, most government agencies and the courts consider them to be coemployers under most other areas of employment law. As we shall see, this status complicates business client strategies of replacing workers, and hiring or re-hiring workers through staffing agencies. Regulation of Employee Leasing Under unemployment insurance tax law, the entity responsible for payroll is liable for paying the taxes (Lenz, 1998). In states that recognize temporary staffing agencies and business clients to be co-employers of contingent workers, the agency remains
5

In all but three states (Hawaii, North Dakota and Wyoming), exclusive remedy rights are extended to business clients of the staffing industry. In Virginia and Pennsylvania, the business client may be liable for payment of an employee's workers' compensation benefits even though the staffing agency agreed to provide workers' compensation insurance coverage (Lenz, 1998). These state laws are based on the common law rule which states that the entity that directs the employee's workplace-related activities is deemed to be the employer under workers' compensation rules (Schaudies et al., 1999).

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responsible for paying unemployment insurance taxes and in most instances workers compensation taxes as well. However, payroll tax and some state workers compensation laws treat employee-leasing organizations differently from traditional temporary staffing agencies. States have taken steps to target employee leasing organizations in response to abuses involving employers laying-off and leasing back workers for the sole purpose of avoiding payroll expenses for workers who stay with the business client on a permanent basis. This section examines the payroll and workers compensation laws related to employee leasing services. The most important federal statute concerning the growth of the employee-leasing segment of the industry is the Internal Revenue Code Section 414(n) governing taxpreferred employee health and pension benefit programs. For years, the Internal Revenue Service (IRS) has encouraged companies to establish employer-provided health and pension benefit programs for their employees by allowing companies to deduct from their taxes the value of company contributions to benefits programs. The IRS provides the incentive with one stipulation employers cannot deny employees access to programs based on their class (part-time or full-time status, or occupation) within the company (Schaudies et al., 1999). For any company, including staffing agencies, to qualify for favorable tax treatment on their health and pension contributions, Section 414(n) requires that plans cover all employees in a non-discriminatory manner. Known as the IRS coverage test, plans must cover a minimum number of low-wage employees (generally 70 percent) or offer low-wage employees 70 percent of the average benefit received by the highest paid employees (Lenz, 1998).6 Only companies passing this coverage test can deduct from their taxes employer contributions to employee pension plans and other benefits programs. Currently, the IRS requires companies attempting to gain tax-preferred status for their benefits programs to include temporary employees who work under the following conditions: (i) their work is under the primary control of the business client, and (ii) during a one-year period, the temporary employee performs at least 1,500 hours

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of work (or 75 percent of the hours that a regular employee of the business client works in a 12-month period). It is in the best interest of the business client seeking to deny some employees access to benefits programs, to exclude them from their head-count in order to pass the coverage test. If a staffing agency supervises the work of the leased employees, the IRS would allow the business client to exclude these employees from their head-count. However, as explained earlier, shifting the role of supervision to the staffing agency would expose the business client to workplace injury lawsuits. Therefore, business clients tend to retain responsibility for supervision of leased employees. Payrolling became a popular business practice after the enactment of the Employee Retirement Income Security Act (ERISA) in 1974 which effectively prohibited employers from denying some employees access to company benefits programs based on their class or status in the company (Simonson, 1998). However, the law did not include temporary workers provided by staffing agencies in the definition of employee protected by the Act. Taking advantage of the definition, employee-leasing organizations offered companies the opportunity to retain their workers and deny them access to benefits while remaining within the limit of the law. Not until 1983 did Congress and the IRS respond by tightening the IRS rules (Schaudies et al., 1999).7 State governments also have acted to prevent this abuse. Several states now hold the business client accountable for the workers compensation-related expenses associated with leased employees. In addition, Illinois and Kentucky expressly hold the business client responsible for unemployment insurance expenses when doing business with an employee leasing organization (Lenz, 1998).

The IRS does not use a standard formula to calculate average benefits. Rather, assessments are made on a case-by-case basis.
7

The IRS wrote the rules to target leased employees. However, the rules are

broad enough to encompass all temporary employees used for more than one year by the same client.

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While the rule change in 1983 eliminated most of the advantages to business clients of payrolling permanent employees to cut costs, the rules are not airtight and payrolling continues. Companies can terminate leased employees prior to their completion of one year of work or turn over control of leased employees to a staffing agency to legally exclude them from their headcount to pass the IRS coverage test. Enforcement of ERISA Congress and the IRS reacted to close loopholes in ERISA by tightening tax rules on benefit programs. However, Congress should have acted to tighten the ERISA definition of an employee to prevent companies from payrolling workers for the sole purpose of skirting their obligations as employers under the law. While Congress has not yet addressed this issue, the courts have ruled in favor of hundreds of contingent workers suing their employers for access to company benefits programs, essentially challenging the ERISA definition of employee. The Microsoft Case a Potential Victory for Permatemps The most publicized case involving the use of temporary workers and independent contractors allegedly as a tactic to deny employee access to benefits is Vizcaino v. Microsoft Inc., the case filed by a class of computer programmers employed by the software giant.8 In the late 1980s, Microsoft re-classified hundreds of computer programmers working for the company as independent contractors, thereby excluding these workers from company benefit programs. Workers filed suit with the IRS and in 1990 the IRS ruled that these workers were indeed bona fide employees of Microsoft, not independent contractors, and therefore entitled to benefits under ERISA. The IRS uses a 20-factor test to determine whether a worker is an independent contractor or an employee. The most critical factor examines which entity directs the work-plan for the worker. In cases where the employer strongly supervises the work, employers will find it difficult to classify workers as independent contractors (Schaudies et al., 1999).

Vizcaino v. Microsoft Corp., 97 F.3d 1187 (9th Cir. 1996).

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Shortly after the ruling, Microsoft payrolled a smaller class of workers through a staffing agency allegedly in order to exclude these workers from pension and stock option plans. This practice seems to have been expanded. Currently, at least 25 percent of Microsoft workers are hired through staffing agencies (Cole-Gomolski, 1999). Using the previous IRS ruling to support their case, this larger class of workers sued Microsoft in court claiming that they are permanent, bona fide employees of Microsoft even though they are paid through a staffing agency arguing that, under ERISA, they are entitled access to Microsofts benefit programs. After several court decisions, the Ninth District Court of Appeals ruled in May 1999 that all workers in this class are common-law employees of Microsoft and therefore, entitled access to Microsofts benefits programs. The three-judge panel ruled that, if Microsoft controls the worker on the job, the software company may be regarded as a joint employer with the agency. Even if for some purposes a worker is considered an employee of the agency, that would not preclude his status of common-law employee of Microsoft (quoted in Bernstein, 1999: 46). This ruling will expand the number of workers eligible for Microsofts employee stock purchase plan by 10,000 to 15,000 workers (Houston Chronicle, 1999). This ruling, a landmark decision for the staffing industry, will greatly impact the practice of permatemping hiring workers or reclassifying existing workers on a fulltime and semi-permanent basis through staffing agencies. Essentially, any long-term temporary worker is entitled access to benefits programs offered by a business client as long as the business is found to be a joint employer with the staffing agency (Bernstein, 1999). The temporary staffing industry, generally upbeat about court rulings that pose setbacks to the industry, could not avoid acknowledging the significance of the latest ruling. Edward Lenz, general counsel of the National Association of Temporary and Staffing Services, offered the following advice to business clients of the staffing industry: Enroll long-term temps in benefit plans or surrender control over them to the agencies (quoted in Bernstein, 1999: 46). Surrendering control of long-term temporary workers to agencies would mean that staffing agencies would hire and fire temps, promote and

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discipline them, conduct performance reviews and decide on wages, and critically, direct the work at the work-site on a daily basis. The Microsoft ruling presents a conflict for the industry. On the one hand, sole employer status can be advantageous for protecting business clients from potential costs and liabilities. However, as discussed earlier, sole employer status would expose business clients to the threat of workplace injury lawsuits without the protection of exclusive remedy. At this point, it is too early to know how the industry will resolve this conflict. However, one solution a current NATSS initiative may be to change state workers compensation laws to permanently extend exclusive remedy rights to business clients, even though they supervise the workers assigned to them by the staffing agency. In North Dakota, NATSS claimed victory for helping pass a bill that extends the exclusive remedy rule to either party in a staffing arrangement as long as one of the entities pays into the state workers compensation fund. The law overturned a 1998 North Dakota Supreme Court decision which held that the business client will not be protected by the exclusive remedy rule unless the business is a contributing employer to the state workers compensation fund (National Association of Temporary and Staffing Services, 1999c). Microsoft may already have arrived at its own solution reduce dependence on temporary workers and hire more permanent staff. According to the Seattle Times, an internal memorandum suggested that the company is now encouraging managers to reduce their reliance on temporary agency workers (Greene, 1999). Sources say the memo, which provides strict instructions on how managers should use temporary workers, was meant to enforce an internal policy of using temporary workers only on a short-term basis. In theory, that has always been Microsofts policy, however, in practice, supervisors have used the same temporary workers for several years with little interference from company management. The court ruling, however, will not likely impact the hiring of shorter-term temporary workers; generally those who work fewer than 1,500 hours in a 12-month period, a distinction made by the IRS to determine employee status. This standard of 45

time on the job has become one of the critical benchmarks for determining whether a worker is a bona fide employee of a business client or a staffing agency employee. Acknowledging the increased use of this benchmark by the courts and state legislatures, the staffing industry advises its members to avoid retaining workers on the same assignments for long periods of time. You cant keep temporaries doing the same job for two or three years, says staffing industry expert Stanley Nollen of the Georgetown University School of Business Administration. Make it attractive for them to stay 10 months or one year or a year and a half, but not three years. Its wrong and it wont work. You will have an employment relationship with a person, and once thats established, you lose the whole reason to have these people off the payroll in the first place (quoted in Flynn, 1995: 4). Independent Contractor Classification and Cost-Reduction Strategies Employers, as Microsoft Corp. demonstrated, may seek to avoid payroll taxes, workers compensation costs, and the inclusion of certain classes of workers in benefits programs by misclassifying employees as independent contractors. Workers employed in occupations ranging from screenwriters to taxi drivers perpetually face this threat. For example, taxi drivers in San Francisco working for Yellow Cab Corporation recently won a decision from the California Supreme Court that ruled that Yellow Cab misclassified drivers as independent contractors to exclude them from benefit programs (Employment Law Information Center, 1999). Presently, taxi drivers in New York are organizing for the same status. Writers and other employees of Time Warner Inc. received assistance from the U.S. Department of Labor who recently filed a lawsuit against the company for misclassifying workers as independent contractors or the employees of temporary agencies (Business and Health, 1998), a practice that appears to be common. A 1989 General Accounting Office study found that 38 percent of employers misclassified employees as independent contractors (cited in U.S. Department of Labor, 1994). The practice of misclassifying employees as independent contractors can save companies millions of dollars in benefits costs and employment-related taxes. On average, employers pay approximately $207 per worker in unemployment taxes annually 46

(HR Focus, 1999). Some analysts estimate that the recent ruling against Microsoft will cost the software giant anywhere from $10 million to $20 million in back taxes and benefits costs (Employment Law Information Center, 1999). A 1994 study commissioned by the Coalition for Fair Worker Classification estimated that the federal government loses $3.3 billion in revenue annually due to employee misclassification (cited in U.S. Department of Labor, 1994). As a result of the Department of Labor action against Time Warner Inc., the issue of employee misclassification is now being addressed by two government agencies, the U.S. Department of Labor and the IRS. Historically, the IRS has not strongly enforced the tax code to prevent employee misclassification. As long as employers had in their possession contracts signed by workers voluntarily submitting to independent contractor status, the IRS would not investigate further into whether the worker was misclassified. In the event that no contract existed, the IRS would use its 20-factor test to determine the status of the worker. The Department of Labor, the federal agency responsible for enforcing ERISA, has always had the remit to investigate accusations of misclassification, but until recently has not done so. The Department claims it will begin investigating cases where it appears that employers deliberately misclassified workers as a cost-saving measure (Mamorsky, 1999). NLRA and its Outdated View on Employer-Employee Relations As more businesses use staffing agencies to hold down wages and limit employee access to benefits programs, contingent workers may consider unionization. However, labor law, in particular, the National Labor Relations Act (NLRA), almost entirely ignores the needs of temporary workers who seek to unionize and establish collective bargaining units. Any temporary worker attempting to join an existing collective bargaining unit representing permanent workers at the work-site at which they are assigned must first gain recognition from the National Labor Relations Board (NLRB) that a sufficient community of interest exists between the contingent workforce and the pre-existing, 47

non-contingent unionized workforce (Lenz, 1998). Common supervision and working conditions such as sharing the same work facilities could be deemed to constitute a sufficient community of interest. After the NLRB has determined there is a sufficient community of interest, temporary workers must gain the consent of both the agency and business client if the NLRB determines that a joint employer relationship exists. The NLRB considers almost all temporary staffing arrangements to be joint employer relationships. This principle of mutual consent, established by the Greenhoot decision9 in 1973 and upheld by the NLRB in 1998, has prevented thousands of temporary workers from joining unions and encouraged employers to outsource union jobs to severely scale back the size of bargaining units (Hiatt and Jackson, 1996). The NLRB offers less guidance for temporary workers seeking to establish a new collective bargaining unit entirely comprised of temporary workers. Temporary agency workers in the accounting department at Microsoft understand better than most this gap in the law. In the summer of 1999, 15 temporary workers in this division, employed through four different staffing agencies, joined Washtech (an affiliate of the Communication Workers of America) and approached their staffing agencies requesting recognition as a collective bargaining unit. None of the agencies complied with the workers request. So the workers are now left with the option of petitioning the NLRB to sanction an election to establish a union and collective bargaining unit. The workers are hesitating to make such a move because it is unclear if the NLRB would sanction an election. The key issue is whether the NLRB will apply the Greenhoot decision to this case. If Greenhoot is applied, the workers will need consent from all four agencies before an election could take place. No precedent exists, however, to offer Washtech more definitive direction. Washtech organizer, Marcus Courtney, believes that if the NLRB were to be petitioned for an election, it would be the precedent-setting case for all temporary workers considering the same option. Unfortunately, such a case could take the NLRB literally years to address. Until that time comes or the NLRA is amended to address this issue, it is unlikely that the staffing industry, its clients, and workers in temporary arrangements will gain any more clarity on this pivotal issue.
9

Greenhoot, Inc., 205 N.L.R.B. 250 (1973).

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In the longer term, the greater barrier to establishing unions of temporary workers is the NLRA rule prohibiting occupation-based (as opposed to employer-based) unions (Reynolds, 1997). Building and garment trades excluded, the NLRB requires workers to be part of a stable employer-employee relationship working within a defined bargaining unit in order to be recognized under the NLRA. However, the very nature of contingent work effectively ensures such a relationship will not exist. Temporary workers often switch job assignments over the course of a year. A union that is based at a fixed worksite would not help these workers. Joint Liability under Federal Employment Laws In the area of civil rights and worker safety, federal law offers a legal solution for holding both staffing agencies and their business clients accountable for their responsibilities as employers the principle of joint liability. Title VII of the Civil Rights Act, the Occupational Safety and Health Act (OSHA), and the Americans with Disabilities Act (ADA) all treat staffing agencies and their business clients as jointly liable for provisions in these Acts and any subsequent rules. To the detriment of temporary staffing agencies, OSHA holds the party in direct control of the work-site liable for compliance regardless of which entity is considered the employer. OSHA has ruled that even in a co-employer situation, the staffing agency is liable for OSHA compliance. In addition, staffing agencies cannot send a temporary worker to a job assignment if they know or should have known of unsafe workplace conditions (Burns, 1997). More than any other law governing employer-employee relations, Title VII and the ADA are the most prohibitive for the temporary staffing industry and its clients. In short, Title VII states: a temporary agency cannot discriminate in determining job assignments; business clients cannot discriminate in their requests for temporary workers; and all entities may be liable for the discriminatory acts of either party in a co-employer situation (Schaudies et al., 1999). The Equal Employment Opportunities Commission (EEOC) also enforces the ADA using the principle of joint liability. However, staffing 49

agencies are not responsible for making physical changes to the buildings of their clients to comply with the ADA. Family and Medical Leave Act While the Family and Medical Leave Act (FMLA) broadly defines an employee, Department of Labor rules issued in 1995 for the Act created several loopholes that allow employers to contract out segments of their workforce to not only deprive temporary workers of FMLA benefits but bona fide employees as well. The FMLA, enacted in 1993, provides eligible employees with the right to 12 weeks of unpaid leave for family and medical reasons. To be eligible for benefits, an employee must have worked for at least 12 months (not necessarily consecutively) with an employer and worked one year or 1,250 hours with the company in the preceding year before the leave, and be employed at a work-site with 50 or more employees. Department of Labor rules issued in 1995 state: 1. Clients using temps or leased employees must include them in head counts to determine if their bona fide employees are eligible for benefits; Independent contractors are not considered to be employees; and In a co-employment situation, only the primary employer is subject to the Act. DOL considers the temporary staffing agency to be the primary employer of temporary workers.

2. 3.

Under FMLA, primary employers must restore temporary workers to their original positions when they return from leave. However, if a business client has terminated the contract with the staffing agency while the worker was on leave, the worker does not have the right to return to their original position. In such an event, the agency is responsible for placing the employee in a comparable position elsewhere (Lenz, 1998).

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The FMLA has its share of loopholes. Clients of staffing agencies can limit their headcounts for determining eligibility to below the workforce threshold by converting permanent workers to temporary workers and ensuring that temporary workers do not work more than 1,250 hours in a 12-month period. Clients can also attempt to circumvent the rules by reclassifying employees as independent contractors. Temporary workers are eligible for FMLA benefits from their staffing agency, as long as they meet the Department of Labor criteria. However, it is not likely that many temporary workers will take advantage of these benefits for fear of losing their current assignment. Federal Fair Labor Standards Act The Fair Labor Standards Act (FLSA) provides employees rights to a minimum wage, overtime pay, and equal pay, and protects children from labor abuses. The Act does not distinguish between temporary workers and regular employees. The courts have established a five-factor economic reality test to determine which entity is the official employer for purposes of applying FLSA rules. Ultimately, the entity responsible for the payroll is most immediately responsible for compliance. As a practical matter, in temporary staffing arrangements, the U.S. Department of Labor defines the relationship as a joint employer arrangement where both the agency and business client are jointly liable for violations of minimum wage, overtime pay, equal pay requirements, and child labor abuses. Staffing agencies or their business clients may attempt to escape liability under the FLSA by misclassifying employees as independent contractors who are not covered by the Act. Recent Policy Initiatives

Equal pay and benefits for equal work Labor advocates have introduced legislation in Congress and some state legislatures which, if enacted, would ensure that temporary workers receive wages equal to those earned by their permanently employed counterparts performing the same work. More than most, these efforts strike close to the heart of the temporary staffing industry.

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At the federal level, Congressman Lane Evans (DIL) introduced the Equity for Temporary Workers Act in 1999. This legislation would prevent any staffing agency or business client from paying temporary workers less than permanent workers performing the same work. Employers could only reduce pay on the basis of merit, seniority, or quality or quantity of production, not employee status. A second bill introduced by Congressman Evans would prohibit firms from denying their workers access to company benefits programs solely on the basis of employment status. If these bills are enacted, they could eliminate much of the labor-cost savings that temporary staffing agencies offer their business clients. The bills would likely have their greatest impact on the practice of permatemping workers who work permanently with the same company and usually alongside permanent employees but who are paid through a temporary employment agency. On the other hand, equal pay and benefits for equal work policies may drive more firms to use temporary staffing agencies to fill positions for entire occupational categories within their workforce. For example, companies may decide to hire all their mailroom or clerical workers from temporary staffing agencies. Equal pay for equal work legislation would not necessarily have an impact under these circumstances because temporary workers would not be working alongside permanent workers in the same occupation. The legislation also would probably not have an impact on the day labor segment of the industry. The Equity for Temporary Workers Act only protects workers who work more than 1,000 hours in a 12-month period with the same company. Many day laborers would not be covered under such a rule.

Stopping the misclassification of workers as independent contractors Courts, the U.S. Department of Labor, the IRS, and members of Congress have recently spoken out against the practice of misclassifying workers as independent contractors for the purpose of denying them access to company-provided health and pension benefits. Because the definitions of an employee and independent contractor included in the tax code and federal statutes are ambiguous, some members of Congress have introduced legislation that more clearly direct employers on when they may classify

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workers as independent contractors. Congressman Kleckza (D-WI) introduced the Independent Contractor Clarification Act that would simplify the IRS 20-factor test into three rules. This bill, supported by the AFL-CIO, would legislate the de facto policy adopted by the courts and the IRS if a company directs the work and the worker has no control over profits, then the worker cannot be classified as an independent contractor. The staffing industry has countered with legislation of its own that would allow companies to classify workers as independent contractors as long as workers sign an agreement authorizing the classification in essence, signing away their rights. Initiatives focusing on ending the practice of misclassification of independent contractors have their limitations in the larger effort to reduce the downsides of contingent work. While independent contractors comprise a significant share of the contingent workforce and efforts to end the practice of employee misclassification are needed, these efforts may not reduce the number of contingent workers in the workforce as a whole. Ending the practice of misclassification may lead companies to contract with temporary staffing agencies to circumvent employee status rules. Companies that are unable to continue classifying their employees as independent contractors to skirt rules on employee access to benefits, will likely turn to temporary staffing agencies to hire these workers. Indeed, after the IRS stopped Microsofts practice of misclassifying workers, the company began hiring those workers through staffing agencies.

Staffing industry model unemployment insurance laws The staffing industry, represented by the National Association of Temporary Staffing Services (NATSS), is leading an effort at the state level to change unemployment insurance laws to make it more difficult for temporary workers to claim unemployment insurance when their long-term assignments have ended. The proposed legislation, which has passed in 15 states and has become policy and an administrative rule change in five others, would deny a temporary workers claims to unemployment insurance if the worker fails to notify the staffing agency when their last assignment has ended or if they turn down a suitable work assignment. In effect,

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the law could force workers to continue accepting work assignments regardless of how difficult or undesirable the assignment, as long as the assignment is deemed suitable by the agency. The Impact of Employment Policies on Conditions for Contingent Workers The disadvantages faced by contingent workers as documented here and elsewhere are in large part a product of policy and the actions (or inaction in some cases) of Congress, state governments, federal agencies and the courts. For example, temporary staffing may be the least stable of all contingent staffing arrangements, according to the Bureau of Labor Statistics. Seventy-one percent of all temporary workers worked for less than one year on a job assignment (the median current assignment is five months). Policy is partly to blame for this high rate of churning among temporary workers. Most employment laws encourage temporary agencies and their business clients to reduce the length of job assignments to less than one year in order to limit liability for the business clients. Most of the recent policy actions taken by the courts and federal agencies also have focused on protecting the rights of long-term temporary workers to access benefits. While these efforts are necessary and important, they will not affect a large segment of the contingent worker population. Not surprisingly, considering the nature of laws governing health and pension benefit coverage (ERISA and tax laws on employer-provided health and pension programs), only 20 percent of temporary workers are eligible for employer-provided health benefits and only 10 percent are eligible for employer-provided pension plans, compared to 75 percent and 57 percent, respectively, for workers in traditional arrangements (Cohany, 1998). Both ERISA and the tax code encourage business clients of staffing agencies to convert entire occupational categories into temporary positions and to ensure that temporary workers do not stay in positions for extended periods of time in order to reduce the number of employees eligible for company health benefits and pension programs.

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It is also no surprise, considering the current state of labor law, that only 2 percent of contingent workers are represented by a union or an employee association. The NLRA, as it is written and enforced, makes it virtually impossible for workers in nonstandard work arrangements to join existing collective bargaining units or to establish their own bargaining units. Finally, it is no surprise that a growing number of organizations nationwide, as we shall see in the next section, have chosen to address the needs of low-wage contingent workers through worker-centered policy and practice. Indeed, while most of the recent policy changes focus on preventing employer abuses involving long-term temporary workers in higher-wage professional occupations, legislatures and the courts have been slow to remedy exploitation that occurs in the low-wage contingent labor force. Recent policy efforts may successfully reduce contingency and insecurity for professional workers with long-term futures at stable work sites. In the process, however, these efforts may marginalize low-wage contingent workers, further distancing them from other workers. The danger is that the low-wage contingent labor force may become progressively more isolated, limiting their ability to advocate for policy changes. This is the political challenge that a number of worker-centered organizations have chosen to address. The next section will review their goals and strategies.

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SECTION IV: WORKER-CENTERED PRACTICE

The field of worker-centered practice addressing issues involving the temporary staffing industry covers a diverse range of goals and strategies. Most organizations employ multiple strategies that fit the following categories: non-profit temporary help agencies, corporate campaigns, policy advocacy, organizing of welfare recipients, and labor organizing. This section reviews the dominant forms of practice based on interviews of dozens of organizations around the country addressing contingent worker issues. Non-Profit Temporary Help Agencies Some organizations are working toward raising standards in the staffing industry, particularly the low-wage segment of the industry, by forming their own temporary help agencies using high-road practices. Primavera Works in Tucson, for example, established a temporary help agency in 1996 to place workers residing in Primavera shelters into employment. The decision to establish the agency came after years of pursuing advocacy-oriented measures to address the complaints of residents about the day labor industry in Tucson. In 1996, the group began placing workers into jobs that primarily came available through short-term public contracts. In 1998, a Charles Mott Initiative grant gave Primavera the opportunity to expand (see Elliott and King, 1999). Currently, 40 to 50 private sector businesses hire temporary workers through Primavera. On average, the agency places 50 workers per week into jobs for 20 to 25 hours per worker per week. According to Karen Uhlich, Executive Director of Primavera Works, one-third of the workers placed through their agency find permanent employment. The strategy behind the creation of the non-profit temporary agency rests on two premises. First, while policy advocacy is necessary to improve conditions for all temporary workers and abusive day labor agencies ought to be held accountable for their poor work practices, there is a role for day labor in the low-wage segment of the labor market. Primaveras constituents, primarily homeless men, are in need of jobs and without day labor agencies, probably would not be able to find work. Second, Primavera 56

believes that its non-profit staffing agency can compete with for-profit firms (approximately eight to 10 in the Tucson area) by attracting workers away from other agencies by offering workers slightly higher wages and training and by offering business clients a quality work force at competitive rates. Ideally, this strategy would lead forprofit day labor agencies to raise their standards in order to remain competitive. While other agencies realize that Primavera Works is a significant competitor, most have not yet altered their practices. However, it may be too early to realize such impacts. Nevertheless, the goal remains, according to Uhlichs, to change the labor market so these workers are better served and the folks hiring are better served. The South Bay AFL-CIO Labor Council based in Silicon Valley, in coordination with area unions and community groups, established Solutions@work, a non-profit, union-based temporary agency for workers in high-tech industries who have been forced into temporary jobs. Solutions@work offers workers higher wages and benefits and more training relative to other staffing agencies in the region and will also charge clients lower fees in order to compete with for-profit agencies. The group also pursues an advocacy strategy that focuses on establishing a code of conduct for all temporary agencies. South Bay CLC Executive Officer, Amy Dean, explains, [The] goal is to transform employment practices by marrying a placement agency to an advocacy strategy that in time will raise the wage floor, allow access to benefits, and affect overall hiring practices. Corporate Campaigns Dozens of organizations representing the interests of temporary workers have focused their efforts on pressuring staffing agencies to voluntarily improve their business practices. Codes of conduct have become popular vehicles for groups to advocate higher standards for temporary workers in the industry. Codes of conduct are a set of best practices that sponsoring organizations ask temporary help agencies to adopt as internal policy. Many organizations including 9 to 5 National Association of Working Women (Milwaukee), the New Jersey Temporary Workers Task Force, Working Partnerships USA (San Jose), and the Carolina Alliance for Fair Employment (CAFE) 57

have crafted codes and are calling on agencies to voluntarily commit to these standards. Groups also work with agencies business clients to gain commitments to contract only with staffing agencies that abide by the code. A growing coalition of organizations addressing contingent worker issues has made the promotion of codes of conduct at the local level a priority. The National Alliance for Fair Employment (NAFE) has drafted a Principles of Fair Conduct for Temporary Agencies which address work practices falling into several categories. See Appendix A for a draft of their code. Advocacy organizations organize around codes of conduct for several reasons. According to Ellen Bravo, Co-Director of 9 to 5, the organization is pursuing the strategy primarily as a way to raise the bar on standards within the staffing industry. For example, if a leading national staffing agency was to adopt the code of conduct and reform its practices, it could create pressure on its competitors in the industry to also adopt the code. It is hoped that widespread support for codes of conduct would subsequently raise the level of standards across the industry. Implicit in this strategy is the assumption that staffing agencies will sign on to the code because it will help them attract a greater share of workers away from their competitors, thereby establishing a longer-term competitive advantage in their regional markets. Pursuit of this strategy has also helped organizations identify and expose staffing agencies with particularly poor work practices. The threat of exposure may also pressure the staffing agencies to improve their practices.
q

The New Jersey Temp Workers Alliance one of the leading organization in the country in terms of signatories to a code of conduct has at least 32 staffing agencies signed on to their Principles for Fair Conduct for Temporary Employment Agencies. Their criteria for best practice agencies include: positive response to the Principles of Fair Conduct; no unresolved complaints against the agencies at Better Business Bureaus, NJ or County Department of Consumer Affairs, NJ Division of Civil Rights, NJ Department of Labor Wage and Hours, and Disability Court; and registration with the NJ Department of Consumer Affairs. The Alliance also directs temporary workers to best practice agencies to create additional incentives for agencies to sign on to the code.

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CAFE has used a code of conduct to pressure government agencies to contract solely with temporary help agencies that agree to abide by a code similar to the NAFE code of conduct. Annually, North Carolina state agencies subcontract 12,000 state jobs to 32 different temporary agencies. Some organizations have chosen more directly confrontational approaches for

changing corporate behavior. The corporate campaign approach is quite different from the market strategy utilized by non-profit temporary agencies and the voluntary, selfregulatory approach utilized by code of conduct organizers. Corporate campaigns tend to be more directly linked to policy campaigns to regulate the industry. Moreover, this style of corporate campaign is more linked to efforts to curtail the growth of the temporary employment industry.
q

The Labor Pool Workers Union in Atlanta, Georgia is currently leading a public campaign against Emory University to force the university to hire workers previously employed through temporary help agencies and to pay them a livable wage with benefits. Emory employs more than 100 labor pool workers during peak construction times during the year. As a result of early discussions with Emory officials, the university has already agreed to hire some Union workers and place other Union members on a priority list for future job openings.

The Workers Organizing Committee (WOC) in Portland, Oregon assists workers with disputes (primarily workers compensation claims) against day labor agencies or their business clients. While WOC works with state agencies to remedy grievances, the organization prefers to arrive at solutions by directly pressuring staffing agencies and business clients to change their practices.

In 1995, CAFE organized its members to test 32 agencies in Greenville, South Carolina for discriminatory and other illegal work practices. After the first round of testing, the organization found several violations of the Americans with Disabilities Act as well as other violations of federal and state laws. The group has decided to focus on two types of violations: violations of the ADA and wage and job description notification laws. After additional testing, CAFE filed suit with the EEOC against Kelly Services and Adecco for violations of the ADA. Adecco voluntarily changed its practices, while the case against Kelly Services is pending. CAFE also sued the South Carolina Department of Labor for improper enforcement of job notification rules a case that CAFE lost last year.

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Overall, corporate campaigns targeting staffing agencies and their business clients have served several purposes. Importantly, the actions have led to changes in work practices producing immediate improvements in workers lives such as ending workplace discrimination, converting temporary jobs into permanent jobs with benefits, and raising wage levels. In the process, these campaigns have fulfilled the larger purpose of drawing public attention to the abuses in the temporary help industry, improving the enforcement of existing regulations, and helping enact additional worker protections. Policy Advocacy Most of the organizations discussed in this report participate in the policy-making process at the federal, state, and local levels. This section reviews several areas of policy work initiated by organizations representing temporary workers. Given the general lack of local jurisdiction over employment law, most local policy efforts have focused on hiring and wage policies for local public employees or employees hired on government contracts.

In 1991 CAFE successfully lobbied Greenville County, South Carolina to enact legislation granting County temporary workers equal pay for equal work performed by County employees. CAFE launched the campaign after the County terminated 200 permanent employees and replaced them with temporary workers.

The Labor Pool Workers Union in Atlanta recently successfully lobbied the city council to pass safety standards for day labor agencies and to prohibit day labor agencies from charging workers for costs associated with transportation to client work sites. A number of organizations have also been active at the state level, advocating for

legislation and working with state agencies for better enforcement of existing rules. Both 9 to 5 and CAFE have worked with their state EEOC for stronger enforcement of civil rights statutes and the ADA. Primavera Works has worked with the Arizona Department of Labor for stronger enforcement of minimum wage laws.

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While the growing number of bills introduced into state legislatures is an indication of the progress of worker-centered organizations to place their issues with the temporary staffing industry on the public agenda, few states have yet to enact legislation that significantly addresses many of the key issues facing workers. Nevertheless, organizations representing temporary workers continue to emphasize the need for state policy.
q

The Campaign for Contingent Work (CCW) in Boston has lobbied in support of their Workplace Equity bill introduced in the Massachusetts state legislature in 1999. The bill would require equal pay for contingent or part-time workers doing the same work as their permanent counterparts; prevent discrimination in benefits against part-time or contingent workers regardless of employment status; and set standards for state contractors employing workers in part-time and contingent jobs. According to the National Employment Law Project (NELP), the Connecticut and Pennsylvania state legislatures are considering similar bills.10 The Washington Alliance of Technical Workers (Washtech), in association with the Communication Workers of America, has helped move a Contingent Worker Bill through the Washington state legislature. The bill would establish a task force to study the problems associated with the contingent labor industry in that state. Washtech represents the Microsoft workers who recently won the right to access Microsoft benefits programs. Progreso Latino in Rhode Isand successfully lobbied for the passage of three pieces of legislation: (i) a bill to establish a commission to study problems associated with contingent work and to recommend policy remedies; (ii) a bill requiring temporary agencies to register with the state; and (iii) a bill requiring temporary agencies to obtain bonding insurance.

Policy efforts at the federal level are only beginning to take shape. Until recently, the most active participants in the national policy debate have been policy think tanks including the National Employment Law Project, and unions represented by the AFLCIO. The AFL-CIO has focused on promoting its legislation intended to prevent employers from misclassifying bona fide employees as independent contractors. The Independent Contractor Clarification Act, sponsored by Congressman Kleckza (D-WI),
10

NELP has published a study entitled Workplace Equality for Nonstandard Workers: A Survey of Model State Legislation, the most complete and up-to-date source of information on state legislation affecting the contingent labor industry.

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states that if a company directs the work and the worker has no control over profits, then the worker cannot be classified as an independent contractor. Work First, Welfare Reform, and the Contingent Labor Force Welfare reform and the advent of work first policy has forced some organizations that historically have focused on organizing around welfare rights to also turn their attention to the rights of contingent workers. Organizations such as 9 to 5, Community Voices Heard in New York City, and People Organized to Win Economic Rights in Oakland, have come to view work first as a strategy for increasing the pool of low-wage contingent labor by forcing welfare recipients into the labor market, rather than a strategy to increase the self-sufficiency of low-income families.
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Established five years ago, New York welfare recipients created Community Voices Heard (CVH) to develop programmatic responses to the welfare reform. A 1998 CVH survey of welfare recipients found that less than 6 percent of workfare participants were moving into long-term, permanent employment. In response to the ineffectiveness of the New York City workfare program, CVH launched their Count Our Work Campaign. The campaign consists of three components: 1. popular education training programs for welfare recipients to educate them on the realities of workfare; 2. a training program organized with the help of the National Employment Law Project to train workers on their rights as workfare participants; and 3. a policy campaign aimed at improving the workfare program to move welfare recipients into permanent, living-wage jobs. As part of the Campaign and in coordination with several unions and community organizations, CVH is advocating two pieces of legislation: the Empire State Jobs Bill and the New York City Transitional Jobs Bill. Both bills, currently pending in the New York state legislature, would create approximately 4,000 jobs over two years for welfare recipients. Participants would start work with an 18-month transitional job in a non-profit organization or in the public sector. After the transitional job, participants would move into a permanent job in the public sector. According to CVH, the Campaign has already convinced the New York state legislature to authorize a $100 million appropriation bill for job creation for welfare recipients.

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9 to 5s Campaign to Make Work Flexible and Fair, established in 1998, has laid the foundation for national and state policy changes to improve the quality of nonstandard jobs by documenting problems through focus groups, research and employment testing, identifying policy needs, and increasing national coordination between organizations with similar goals. In Milwaukee, testing of temporary agencies using participants from the Wisconsin Works (W-2) program helped 9 to 5 gain stronger EEOC enforcement of the ADA. 9 to 5 is currently working with the EEOC on issuing guidelines to prevent future abuses and discrimination against workfare recipients and temporary workers. In addition, focus groups and further research on the relationship between W-2 and the temporary help industry has exposed how the temporary help industry has gained from work first, and in the bigger picture, how work first has largely prevented welfare recipients from finding sustainable work. People Organized to Win Economic Rights (POWER) formed five years ago in San Francisco and Oakland to organize low-income people around welfare rights issues. After the City of San Francisco implemented its workfare program in 1996, POWERs members developed a strategy to address abuses in the program, and to increase compensation for workers. In the longer term, POWER plans to challenge the City to transform the welfare-to-work program into a bridge to sustainable employment rather than as a supply of low-wage and temporary labor. As a result of their initial campaigns, POWER has successfully lobbied for the following policies and rule changes: 1. rule changes by California OSHA to recognize workfare recipients as employees, thereby granting them protection under OSHA rules; 2. a San Francisco Department of Public Health investigation of worksites where the City had placed workfare recipients which led to correction of several violations; 3. the creation of a grievance procedure for workfare recipients who believe that their rights have been violated; 4. free transportation passes for workfare recipients that, on average, are equal to 10 percent of their wages; and 5. a new classification for workfare recipients which made them eligible for future civil service job openings.

Currently, POWER aims to pass the Workers and Gaining Employment Security (WAGES) bill in the San Francisco City Council. The bill, very similar to CVHs Empire State Jobs bill, would create a two-step jobs program to ultimately move workfare recipients into permanent jobs in the non-profit sector. First, workers would participate in a transitional three-month workfare program in either the public or non-

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profit sectors. After the transition phase, the City would place workers into subsidized jobs in the non-profit sector. According to Steve Williams, Executive Director of POWER, WAGES could create between 300 to 500 new jobs that would pay prevailing wages ($15 to $20 per hour).

Labor Organizing Strategies As discussed in the previous section, federal labor laws significantly restrict opportunities for unions to organize temporary workers into collective bargaining units. As a result, unions have had to pursue other strategies for organizing temporary workers. Community-based labor organizations representing temporary workers have also used creative action strategies in lieu of a clear union organizing strategy to advocate the interests of temporary workers. In June 1999, a group of financial and accounting temporary workers at Microsoft, joined Washtech seeking representation in their bid to collectively bargain with four temporary employment agencies. The workers concerns included pay equity, benefits that vary between agencies, contracts that bar workers from switching agencies, and non-technical job classifications that limit pay raises and promotion opportunities. All four agencies have refused to bargain with the workers. Therefore, the workers are considering petitioning the NLRB for an election to recognize their bargaining unit. The success of the union organizing strategy will largely depend on how the NLRB defines the employer status of each worker. If the NLRB considers all four agencies and Microsoft to be co-employers, the workers may have to gain the consent of all agencies before NLRB will grant an election. The alternative is what Washtech organizer Marcus Courtney calls a collective action strategy (as opposed to the collective bargaining strategy typically followed by unions). Courtney argues that the public pressure Washtech has placed on Microsoft has already led to improvements in working conditions for accounting department workers, including an increase in their wages and new technical job classifications.

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Collective action can also create the pressure necessary to pressure employers to voluntarily consent to collective bargaining with their temporary workers or allowing them to join existing bargaining units especially when the employer is a state or local government. The American Federation of State, County, and Municipal Employees (AFSCME) has successfully organized temporary employees into the existing bargaining units of permanent employees.
q

In 1995 the state of Minnesota agreed to include temporary employees working more than 67 days into existing collective bargaining units. Moreover, union locals can negotiate contract language that limits the number of days that a temporary worker holds temporary status before the state must grant workers permanent status. In 1993, the state of Pennsylvania agreed to hire temporary employees from a pool of workers established by the state council of AFSCME. The temporary workers are eligible for union membership and are given priority for permanent vacancies. According to AFSCME, in the last two years, over 600 temporary pool workers have moved into permanent state jobs. In Philadelphia, AFSCME negotiated a contract with the 14 hospitals where they represent healthcare workers to be the sole source of referrals for all bargaining unit jobs at these hospitals. The Employment Placement Service verifies employees prior work performance, licensure, and certification. In Baltimore, AFSCME is working with Baltimoreans United in Leadership Development (BUILD) to establish their own temporary help agency. The agency, called WeCare, will concentrate its efforts clerical and light industrial occupations. The goal is to compete with traditional temporary staffing agencies for clients in state government and the healthcare industry.

As an alternative to organizing official collective bargaining units, some community-based labor organizations have chosen to organize temporary workers into voluntary membership-based organizations. The Workers Organizing Committee (WOC) of Portland has organized a group of immigrant day laborers to establish their own minimum wage below which they will not accept work. WOC is also organizing other workers to join the group in order to gain leverage against local day labor agencies in order to push wages above their current low levels.

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The Labor Pool Workers Union in Atlanta performs a similar function by organizing day laborers to pressure clients of temporary agencies to hire workers directly and permanently. As mentioned earlier, the LPWU successfully pressured Emory University to hire day laborers into permanent positions and to give LPWU members priority for future vacant positions. National Coalition Building The National Alliance for Fair Employment (NAFE), a network of more than 40 organizations representing contingent and non-standard workers across a wide range of industries and occupations, formed two years ago. While the network remains in its formative stages, it has established working groups, steering and executive committees, and has begun work on a policy and organizing agenda that leaders hope to publicly unveil at the end of this year. At their conference in early 1999, member groups defined their goals and developed a decentralized structure to begin their work. The goals of NAFE include: enhancing local organizing and magnifying the impact of local efforts in a national framework; acting as a clearinghouse of information and a communications network; framing local and national debates of the issues; supporting public policy change; coordinating lawsuits and other actions against employers; and research to support organizing and policy activities. NAFE established several working groups to begin develop this agenda. NAFE will not attempt to work on every member organizations issues at the national level but will focus on what they call wedge issues issues that divide the business community and issues that the business community uses to divide workers. In the near future, organizers hope to launch a national campaign and hold a national meeting to devise a national policy strategy. Its draft policy agenda at the national level includes legislation or administrative rule changes to improve the NLRA on temporary workers rights to organize, a temporary workers bill of rights, equal pay and benefits for

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equal work, universal health care, and a ban on permatemping (preventing the use of temporary workers for more than three months without conversion to permanent status).

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