Making Millions off the Homeless

radman resist at
Mon Aug 28 12:57:59 PDT 2000

Company Criticized for Making Millions Off Homeless Laborers Sunday, August 20, 2000

BY PEGGY ANDERSON THE ASSOCIATED PRESS TACOMA, Wash. Labor Ready made more than $850 million last year linking unskilled worker -- often homeless men in desperate straits -- with small businesses desperate for no-hassle part-time help.

But what exactly are they profiting from? "Labor Ready is making all that cash off the homeless," says Larry Geo, 40, interviewed at a Seattle tent city of homeless people. The Tacoma-based company, which operates 839 "stores" in 50 states, Canada and the United Kingdom, takes heat from unions and homeless advocates for exploiting those with no skills, no prospects and nowhere else to turn. "They take too big a cut," added James Fradenburg, 43, like Geo a potential member of Labor Ready's work force of low-income urban men. The company takes at least 30 percent of incoming wages to cover workers' comp insurance costs, payroll taxes and other deductions and overhead, says its general counsel, Ron Junck. But defenders say Labor Ready brings order and accountability to the marketplace. "Welcome to the real world," says Christopher Jenks of Harvard University, author of The Homeless. "This is called capitalism." Founded in 1991, Labor Ready went public in 1996, becoming the day-labor equivalent of a fast-food chain. Business boomed, and its stock hit a high of $23 last summer. The Utah office is located in Kearns. There have been some missteps since then founder Glenn Welstad has resigned and shares these days fetch $4 to $5. But the company has opened more than 150 new stores since January. For client companies, Labor Ready takes the risk and the paperwork out of hiring from a high-risk labor pool. Many customers "are probably not making enough money to hire a full-time person," says analyst Jeanne Ernst with First Security Van Kasper in San Francisco. "It's probably a godsend to have somebody come in for two hours" or a couple days a week. Advocates for the homeless worry Labor Ready is part of a contingency-worker trend that could create a permanent underclass with no job security, no health insurance and few rights. "People who are homeless need jobs that pay living wages," said Barbara Duffield at the National Coalition for the Homeless. Labor Ready "is an interim kind of measure that grows and becomes the answer, and then people don't look at the long-term answer," she said. But Junck counters that workers typically work for Labor Ready just 100 hours before they move on often to "full-time employment they've landed through working with us." The company has organized what used to be street-corner operations with no worker protections, said analyst Karan Sodhi with Stephens Inc. in Boston. "They're performing a valuable service." But Labor Ready is being sued over the cash-dispensing machines at the heart of its "work today, paid today" slogan. Workers pay a $1-and-change fee to use the machines a worker who earns $38.57 takes away $37. They can also be paid by check, but that is problematic for those without addresses or bank accounts. The company's 10-K filing with the Securities and Exchange Commission (SEC) characterized the fees as insignificant, but they brought in $7.7 million last year. "The machines are . . . a convenience for our workers," Junck said. The Atlanta lawsuit over the machines is one of several salvos fired by the AFL-CIO's Building and Construction Trades Department. The union agency, which holds 515 Labor Ready shares, also accuses the company of "seriously misleading statements" to the SEC.

The typical Labor Ready customer wants two temporary workers. The typical daily payout is less than $50. But it adds up. The company had 254,000 customers in 1999 and filled 6.5 million work orders.

"Last year we employed 700,000 workers," Junck said virtually all earning more than the $5.15 minimum wage. As the employer of record, Labor Ready handles government paperwork and even safety training through videotapes when warranted. The company tracks offices and workers by computer. No-shows and substance abusers are blackballed systemwide. Labor Ready represents "in some sense the privatization of employment offices" without the accountability required of public agencies, says Cathy Ruckelshaus at the National Employment Law Project in New York. There have been growing pains. A 1999 purge of middle managers about 300 account representatives who hustled prospective clients undermined morale and growth, Ernst said, though "for several quarters they were performing above expectations" as a result of the cuts.

Then there was Welstad's unauthorized $3.5 million loan from the company to meet a margin call and prevent further decline of its stock. The move prompted his June resignation as president and chief executive officer. "They were very lucky they had Dick King in place when that happened," Ernst said, referring to Welstad successor Richard King, former president of the Albertson's grocery chain, hired in May. Ernst rates the company a hold. "While the economics of their business are compelling, I'm not totally convinced they can get back where they were," she said. With a 4 percent unemployment rate, "even people with very low skills can get full-time jobs."

Sodhi gives Labor Ready a neutral rating, concerned that "they grew a little faster than they could manage."

Copyright 2000, The Salt Lake Tribune

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