AFL-CIO: Labor Ready Misclassifies Workers, Underpays Workers' Comp

The Building and Construction Trades Department, AFL-CIO, sent a report to state regulators charging that Labor Ready Inc. misclassified its workforce on a large scale in most states since at least 1994, a charge the company vehemently denies.

"The 'new report' is a rehash of the same accusations the union has made throughout its two-year campaign against Labor Ready," says Labor Ready President and CEO Joe Sambataro. "The union's claims should not be taken as anything other than the latest effort to distract the company from its mission of putting people to work. Labor Ready put more than 650,000 people to work last year and often serves as a bridge to permanent employment. The Building and Construction Trades Department has a vested interest in seeing that those people are not employed on construction jobsites."

According to the union's report, Labor Ready may have:

  • Underpaid its insurance carriers and under-estimated its reserves to pay claims by at least $200 million.
  • Employed more construction workers (32 percent) than any other type of worker, yet classified less than 10 percent of their workforce as construction.
  • Classified nearly half of its workforce as "clerical," even though company records show that Labor Ready does not dispatch clerical workers. In several states, nearly 100 percent of Labor Ready's payroll was classified "clerical," according to the AFL-CIO.
  • Underpaid more than $125 million in claims to injured workers.
  • Paid no benefits in Arizona, Kansas, Maryland, Massachusetts and New York, even though the company had around $20 million in payroll and hundreds of potentially compensatory injuries in those states.

Sambataro says Labor Ready properly pays its insurance carriers and maintains adequate workers' compensation reserves. And, he contends, there has been no underpayment of claims to injured workers.

In 47 states, Labor Ready obtains its workers' compensation insurance through a private insurer. The insurance carrier charges Labor Ready one uniform premium rate that is modified to reflect Labor Ready's actual claims experience over the history of the company. The insurance carrier audits the company's records on a regular basis and prices its premiums accurately to cover actual claims.

In Washington, Ohio and West Virginia, Sambataro claims Labor Ready pays premiums directly to the state. While premiums in those states are initially based on payroll classification, they are adjusted by an "experience modification factor" to reflect Labor Ready's actual claims experience. In addition, retroactive adjustments can be made to the premiums after each policy year, based on actual claims experience. Retroactive adjustments in Washington alone have resulted in premium refunds to Labor Ready of approximately $282,000 for 1998 and $370,000 for 1999.

He says the company's workers' compensation reserves are ultimately based primarily on actual claims experience. PricewaterhouseCoopers recently completed its review of the first quarter of 2002 with no recommended adjustments to the reserves or process of reserving.

Labor Ready does dispatch temporary workers to clerical positions. In 1998, the year on which the union focused its report, Labor Ready classified approximately 4.5 percent of its temporary workers as clerical. Labor Ready also has a workforce of approximately 3,000 permanent employees who work in corporate, branch and regional offices. In 1998, these permanent employees represented approximately 15 percent of Labor Ready's total payroll. Therefore, says Sambataro, nearly 20 percent of the company's total payroll was legitimately classified as clerical. Labor Ready also reported approximately 19.4 percent of its 1998 payroll in construction categories.

In addition to statistical records, the union's report also cites court testimony submitted by Labor Ready employees. For example, former Labor Ready worker Larry Richards worked as a construction laborer 126 times in West Virginia from March 1996 to December 2000. The union contends that for workers' compensation purposes, Labor Ready coded him as a maid, clerk or clerical worker 27 times. For the remaining 99 jobs, Richards was coded "piano tuner/taxidermist." Not once was he coded as a construction worker, according to the report. Workers' compensation insurance for construction workers is more than 10 times that for the category in which Richards was listed.

Sambataro says the union has been distorting the "piano tuner/taxidermist" classification for two years. The actual classification was, in fact, "miscellaneous repair and maintenance," he says. Two items, of several, in the examples of jobs correctly classified under "miscellaneous repair and maintenance" were the piano tuner and taxidermist descriptions. By using this code, Labor Ready never represented that it was dispatching workers as piano tuners or taxidermists, says Sambataro, although he doesn't explain why a construction worker would be classified under "miscellaneous repair and maintenance" when a classification for "construction" exists.

"The union's claim of a pattern of workers' compensation misclassification is false," claims Sambataro. "Putting people to work, providing our customers with a flexible work force and focusing on excellent customer service is what gives Labor Ready its competitive edge."

Building Trades President Edward Sullivan asked state regulators to use the report to launch new probes of Labor Ready's practices or expand probes that are currently under way, and to consider criminal prosecution against the company.

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