Temporary warehouse workers for Amazon (AMZN) who had taken their case seeking back pay all the way to the U.S. Supreme Court faced some skeptical questioning Wednesday.
In oral arguments, some justices seemed "disinclined to find that employers must pay workers for time spent waiting to go through anti-theft security checks," according to The Associated Press. The workers had brought suit against Integrity Staffing Solutions, a contractor for Amazon, claiming that they should be paid for time they spend after their shifts waiting to undergo mandatory security checks the e-commerce company conducts to cut down on employee theft.
The case is being closely watched in the retail industry, which could be on the hook for billions of dollars should the court decide that security screenings are time that should be compensated. Many retail companies require security checks because employee theft is common in the industry. Amazon, along with companies such such as CVS (CVS) and Apple (APPL), have been sued over the practice. Those suits are temporarily on hold pending the outcome of this case.
The two lead plaintiffs, former Integrity Staffing employees Jesse Busk and Laurie Castro, claimed that they often had to wait as long as 25 minutes in line at Amazon warehouses while workers emptied their pockets and walked through metal detectors. A federal district court in Nevada ruled that the wait was not part of their duties and so did not require payment. The Ninth Circuit Court of Appeals reversed that ruling, leading Integrity Staffing to appeal the case to the U.S. Supreme Court.
Although the warehouse workers were technically employees of Integrity Staffing Solutions and not directly employed by Amazon, all their work occurred at Amazon facilities. They claim that the security checks were ordered by Amazon and only benefited the retailer.
Integrity Staffing argues that waiting to go through a security check was like waiting to punch a time clock, activities that weren't part of their specific duties. A 1947 law states that employees only have to be compensated for activities that directly benefit the employer.
Various groups have filed briefs in support of one side or the other. The Obama administration surprised some observers by filing an amicus brief siding with Integrity, arguing that the security checks were not "integral and indispensable" to the jobs the workers performed.
Temporary workers hired through contracting firms have become an important source of labor for companies, especially those trying to cut costs. Corporations have outsourced jobs for years when not considered central to a company's expertise. The thought was that having another company perform duties like bookkeeping, manufacturing or computer programming would allow executives to focus on core operations.
According to the National Employment Law Project, an advocacy group focused on economic rights for workers, contract workers puts downward pressure on wages and working conditions. A report by the organization says that temp staffing results in lower pay, effectively keeps workers from unionizing and has "serious impacts on workers' health."
High-tech companies including Amazon and Google ( GOOG) routinely used contracting firms to provide workers in a variety of areas, including physical security, food service, warehouse, and maintenance and janitorial operations. Microsoft (MSFT) went so far as to hire large numbers of programmers on a contract basis but without offering benefits. Coders filed multiple class action suits against the company in the 1990s.
Google recently made a move in the opposite direction, with plans to bring temp security guards back into the company as employees with benefits.
Using contract firms became popular for a number of reasons. Companies could insulate themselves from many labor regulations and worker complaints, pointing to the contracting firm as the "real" employer. Employing people on contract also meant that the company might effectively lower total wage and benefit costs and insulate themselves from potential lawsuits.
But such work arrangements have recently come under scrutiny from courts and regulators. The general counsel of the National Labor Relations Board, a federal agency tasked with protecting employee rights and guarding against unfair labor practices, instructed the agency's regional offices to treat McDonald's as a co-employer of the workers at its franchised operations. The implications could be large in a series of class actions by employees targeting McDonald's and franchise owners for allegedly not paying workers for the full amount of time they are required to be on duty.
FedEx Ground also recently lost a recent court case in which drivers for the service claimed they had been improperly classified as contractors rather than employees. A new Kansas Supreme Court ruling that FedEx drivers had been employees allowed similar suits to proceed in the Seventh Circuit.