Are Civilian Flaggers Really Beneficial?

On April 17, 2008, Governor Deval Patrick signed St. 2008, c. 86, An Act Financing the Commonwealth’s Transportation System (“Act” or “Bond Bill”). Section 10 of the Bond Bill authorizes the Executive Office of Transportation and Public Works (“EOTPW”), in consultation with the Executive Office of Public Safety and Security (“EOPSS”), to promulgate regulations and guidelines on the use of police details at public works sites. This law, and the draconian analysis of it, should offend the intelligence of all Massachusetts taxpayers. It intends to lead one to believe that there is actual cost savings by utilizing civilian flaggers as opposed to well-trained men and women that protect Massachusetts communities.

The Cost Report & Analysis (“the Report”), completed by the Massachusetts Executive Office of Transportation and Public Works, uses data from four zones: Boston, Abington, Agawam and Adams. The EOTPW compares the hourly detail rates of police officers to the prevailing wage flagger rates for the four zones. The analysis is a bare-bone, ignorant declaration of potential cost savings, and stretches to support this impractical law.

Table 1Projected Flagger Prevailing Wage Savings

Zone                         Flagger                    Rate Police                 Rate Difference
Zone 1 Boston           $34.85                      $37.00                        $2.15
Zone 2 Abington        $33.45                      $40.00                        $6.55
Zone 3 Agawam        $31.83                      $42.40                        $10.57
Zone 4 Adams           $31.70                      $32.00                         $0.30

Prevailing wage rates are set by union collective bargaining rates in each area of the Commonwealth. The flagger rates are based on collective bargaining rates of Laborers. Initially, the rates of the flaggers do appear to be less costly than police officer detail rates, i.e. $34.85 flagger vs. $37.00 officer in Boston. See Table 1. With a cost savings of $2.15 per hour, the Commonwealth would save a significant amount of money by using flaggers. Many would still argue, including myself, that the additional $2.15 is worth having a law enforcement professional present. In these tough economic times, though, it is foreseeable for citizens to want that extra $2.15 an hour saved, even if it does mean trading off safety. If the argument were to end at the base hourly rate, I do not think there would be second-guessing of the new law. But sadly, the base rate is the complete depth of analysis in the Report, and it leaves much to be desired.

As stated, the prevailing wage rate is what must be paid to the worker. It is not the rate billed to the city or town. So, when a contractor decides to bid on a project, he must look at the cost for the worker ($34.85 hourly in Boston). But he must also add in other necessary costs, such as workers’ compensation insurance, unemployment insurance, the employer’s part of FICA and his profit. All of this is added on to the prevailing wage rate: it is not included. Performing a simple analysis of the added costs, it is apparent that the flagger rates are higher than officer detail rates. For instance, if the Boston rate is taken, and workers’ compensation is calculated at 15%, unemployment insurance is calculated at 6% and FICA is calculated at the standard 7.65%, the additional cost on top of the base rate for flagger is $9.99 per hour. See Table 2. Plus, the contractor is going to include a profit margin, and assuming it is 10%, an additional $4.48 would be added hourly. This computes to a $49.32 per hour cost to the taxpayer for a civilian flagger instead of a trained professional police officer. That is an additional cost of $12.32 per hour to the taxpayer, without the benefit of a police officer. See Table 3. Where is the cost savings? Where is the value?

Table 2
Actual Flagger Costs

Zone         Rate           Comp.       * Unemp.    * FICA*      Cost    Profit     * Cost
Zone 1      $34.85       $5.23          $2.09           $2.67      $44.84     $4.48          $49.32
Zone 2    $33.45         $5.02          $2.01           $2.56      $43.04     $4.30          $47.34
Zone 3    $31.83         $4.77          $1.91           $2.43      $40.94     $4.09          $45.04
Zone 4    $31.70         $4.76          $1.90           $2.43      $40.79     $4.08          $44.86

Table 3
Actual Savings by Using Officers

Zone                            Flagger Actual Cost     Police Detail Rate     Savings
Zone 1 Boston                  $49.32                             $37.00                   $12.32
Zone 2 Abington               $47.34                             $40.00                  $7.34
Zone 3 Agawam               $45.04                             $42.40                   $2.64
Zone 4 Adams                  $44.86                             $32.00                   $12.86


If the EOTPW analyzed this information on the whole, and had not extrapolated convenient figures, it would have reported that there is a substantial cost benefit to cities, towns, and especially the taxpayer by continuing to use police officers instead of civilian flaggers. Without getting into the public safety argument, there is irrefutable evidence that civilian flaggers will cost us more – much more.

The EOTPW Report states that there will be a cost savings, on average, of 13.01%. See Table 4. The savings, again, is false. There is no way that that cost savings could exist, unless companies cheat and cut corners.

Table 4
Base Road Flagger and Base Police Detail - Rate Comparison

Average police detail rate           $38.43
Average road flagger rate           $33.09
Average percent savings              13.01%

If the Report was done properly, and there was an attempt to display the truth, it would show that civilian flaggers are costly – not just in the taxpayers’ pockets, but to their safety as well. See Table 5.

Table 5            ACTUAL Average Flagger and Police Detail - Rate Comparison

Average police detail rate          $38.43
Average road flagger rate          $46.64
Average percent savings            -21.36%

We can even look at a bid that has been awarded for road work in the town of Essex, MA. Essex advertised the bid with the estimated cost of a flagger at $40.00 per hour. The rate for a detail officer in Essex is $43.00 per hour. One bid was submitted with a rate for flagger of $20.00 per hour, which is significantly lower than the prevailing wage rate. In essence, the company is bidding at a rate that is illegal because it is below the flagger prevailing wage rate. Even with that bid included, the average bid per hour for a flagger was $47.50. If the absurd bid was removed from the calculation, the average bid for a flagger would have been $51.43: $8.43 higher than the detail rate for a trained officer. Other than the illegitimate bid, the next low bid was $45.49 per hour. That is still $2.49 higher than an actual police officer would cost. It is not practical to have these flaggers on the roads in Massachusetts, and the costs are compounded with the loss of public safety. The EOTPW has done the taxpayers an injustice by attempting to support this reckless law. An unbiased, conservative analysis demonstrates that well-trained police officers on details not only save lives, but money as well for the taxpayers of the Commonwealth of Massachusetts.

Retail Worker Exploitation

Retail workers seem to be exploited more and more these days. Various retailers, such as Walmart, Home Depot and Lowes have been sued all around the country for the same types of issues – wage and hour violations. While there does not appear to be any large judgments against these types of companies, employees are collecting back wages through settlements at a record pace. Let’s take the above-mentioned employers out of the picture, and ask the question, “Why are retail employees being taken advantage of on a daily basis, especially since their wages are so modest to begin with?”

Simple economics shows that there is a high demand for employment, and workers are plentiful. This makes it harder for abused workers to speak up about their pay discrepancies. They fear that if one mistake is made, their jobs will go to the next applicant in line. And why wouldn’t they feel this way? Workers are out there just trying to support themselves and their families. If they complain about not receiving their owed wages, the monopolistic companies will send them away with a pink slip and no supper.

Today, most families in America are less than one paycheck away from going broke. Not paying their rents. Not paying their mortgages. Not able to buy groceries. Sadly, many of these cut-throat retailers don’t care.

They don’t care how you pay for food, medical or housing. They only care about their bottom lines. By coercing you into working one hour off the clock, instead of spending that time with your family, or God forbid pay you, they add an extra $11 to their bottom line. But, that extra hour is supposedly your tax for keeping your job. I thought that type of abuse was taken care of after the Great Depression, when this country decided that working standards were a necessary part of human rights?

Employee Availability After Hours Comes at a Price

The Wall Street Journal reports on a potential boom in lawsuits relating to unpaid overtime. The culprit--company issued smart phones combined with lean workforces requiring fewer employees who handle more responsibility. With new technology, employees are capable, and often expected, to handle work related communication anytime and anywhere, whether they are off the clock, sick, or on vacation. The article reports on two recently filed lawsuits claiming unpaid overtime under the Fair Labor Standards Act (FLSA) . In one case, retail employees of T-Mobile USA claim they were required to use company issued smart phones to respond to messages and customer complaints after hours. In the second case, a maintenance employee for CB Richard Ellis alleges he was not paid for after hours time spent sending and receiving messages on his cell phone.

Under the FLSA, whether an employee is who is required to carry an employer issued mobile phone, pager, or smart phone after hours remains on the clock depends upon many factors, including the nature of the job and how frequently the employee actually has to use the device for work related purposes. Depending upon the number of employees involved, failure to comply with FLSA's overtime requirements can result in substantial financial liability. To avoid running afoul of these overtime requirements, prudent employers are urged to develop clear practices concerning employee's use of company issued technology.

Company Officers May Be Held Personally Liable for Unpaid Wages

A bankrupt company does not necessarily relieve corporate officers of liability for unpaid wages under FLSA. So held the U.S. Court of Appeals for the Ninth Circuit in Boucher v. Shaw, decided on July 27, 2009. In Boucher, a group of former employees of the bankrupt Castaways Hotel, Casino, and Bowling Center in Las Vegas sued the CEO, Chief Financial Officer, and manager in charge of labor relations, claiming the individual officers and managers were liable for their unpaid wages. Rather than getting in line with other creditors in the bankruptcy proceedings, the plaintiffs decided to pursue the officers individually.

The Court noted that the definition of "employer" under FLSA is not limited by the common law understanding of the term, but "is to be given an expansive interpretation in order to effect FLSA's broad remedial purposes". The test, according to the Court, is whether the individual exercises "control over the nature and structure of the employment relationship", or "economic control" over the relationship. In this case, the Court noted that the CEO held 70% of the company shares, the manager in charge of labor relations owned 30%, and the CFO had responsibility for cash management. Under these facts, the Court held the plaintiff's stated a claim against the individuals under FLSA. The Court rejected the defendants' argument that any claims for unpaid wages by former employees belonged in the bankruptcy court.

While there is no similar precedent in the Eighth Circuit, the Boucher case nonetheless should put company officials on notice that wage claims may exist against them individually, even after the corporation is bankrupt or otherwise defunct.

Article by Iowa Employment Law Blog

Ooops...ABC Panelist at Michigan PLA Conference Admits Project Labor Agreements Can Be a Good Thing

10/15/2009

Credibility of the Associated Builders and Contractors Called Into Question

WASHINGTON, DC – A panelist who formally appeared with other representatives from the Associated Builders and Contractors during a conference on Project Labor Agreements (PLAs) held at Michigan State University openly admitted that PLAs can be “a good thing.”

Frank Mamat, an Attorney with Foster, Swift, Collins and Smith, PC, located in Michigan, appeared on a panel titled, “The Open Shop’s Views on PLAs” at the Understanding PLAs Conference held October 12th at Michigan State University. The conference was jointly sponsored by the School of Labor & Industrial Relations and the School of Planning, Design & Construction. The conference was attended by over 100 construction users, contractors, academic experts, and others. It featured presentations by prominent construction project managers; construction owners; and academic researchers with expertise on the subject of PLAs.

During his presentation, Mr. Mamat incurred the discomfort of his fellow panelists when he related to how the construction of a project on which he was involved, and which utilized a project labor agreement (that resulted in both union and non-union contractors gaining work) caused him to believe that PLAs can “be a good thing.” Mr. Mamat even went so far as to publicly praise the local Building and Construction Trades Council involved on this job for its efforts to work with the construction owner and contractors to ensure a level of productivity and skilled manpower that resulted in an on-time, on-budget delivery of this casino.

This is just one more example of how the ABC’s opposition to PLAs is rooted more in philosophical spin than it is in the actual realities of the construction marketplace – where increasing numbers of public and private entities are choosing the PLA model represented by increased jobsite efficiencies; a safe, skilled and productive workforce; and opportunities for career training for local residents…over a “race to the bottom” business model predicated upon assembling a low-wage, low-skill, oftentimes vulnerable and exploitable workforce no matter the collateral damage it does to workers, their families and whole communities.

Source: Building & Construction Trades Department, AFL-CIO

Low Costs Versus High Wages?

In a radical cost-cutting move, Circuit City announced recently that it was dismissing 3,400 of its most experienced employees. While Circuit City's offer to hire many of those salespeople back at lower wages puts a surreal twist to the tale, in fact, the company is just one of many trying to gain competitive advantage by lowering labor costs.

In the last few years, Detroit automakers have laid off more than 70,000 workers, and most of the nation's grocery, discount, fast food and mall chain stores have undertaken "innovative" approaches to reducing employee wages and benefits to lower their costs. Wal-Mart Stores' CEO argues that he has "no choice" but to pay low wages to meet his customers' demand for low prices.

Although offering minimal wages and benefits is the most common way companies try to lower their costs, our recent study of American management practices reveals that such bottom feeding may not be the most effective strategy. In fact, low wages paradoxically generate a variety of negative employee behaviors that add to the overall cost of doing business.

Although managers rarely calculate these costs, they often turn out to be substantial. For example, employees at low-wage companies have significantly higher turnover rates than those at well-paying companies: Wal-Mart has nearly a 50% turnover rate, and at many fast food, retail and service companies, the rates are even higher. Researchers have computed the total costs of such turnover as the equivalent of one month's salary for unskilled workers and more than a year's salary for skilled ones.

In almost all industries, research shows that the most profitable companies are those with the lowest overall operating costs, and not those that pay the least. For example, pilots at "low-cost" Southwest Airlines actually are paid more on average than their counterparts at "high-cost" United Airlines.

The difference between these two unionized airlines--the first highly profitable, the second not--is found in their pay rates and the way they manage their people. Southwest managers do a better job recruiting the right employees, and Southwest employees at all levels are able to make managerial decisions and to work with a minimal amount of supervision.

In almost all industries, productive, higher-paid workers can more than cover the costs of their salaries and benefits, if they are managed appropriately. For example, Costco Wholesale pays its workers $17 an hour on average, while its competitor, Wal-Mart's Sam's Club, pays only $10 an hour on average; 85% of Costco employees enjoy company-provided health insurance, compared with less than half of the workers at Sam's Club. Significantly, these high wages and benefits do not come out of the pockets of Costco's shareholders. In fact, Costco has outperformed Wal-Mart on the stock market over the last five years. The real reason for the difference in compensation and benefits is that Costco employees have much lower turnover, better interaction with customers and are more productive than Wal-Mart's workers.

Because Sam's Club employees require layers of close supervision, they are much less productive than Costco's largely self-managing workers. The results speak for themselves: Costco generates slightly more sales than Sam's with 38% fewer employees. Moreover, Costco's engaged and motivated workers are organized in ways that encourage, and reward, them for adding value to their enterprise by way of their ideas and extra effort. Also, at Costco, there is a deep managerial understanding that the correct metric to be used with regard to labor productivity is "total overall labor costs" and not "unit labor costs."

Costco exemplifies a small but growing number of businesses whose labor practices are predicated on the understanding that competitive advantage increasingly is realized through the effective mobilization of an engaged and committed workforce.

These "high-involvement companies" offer workers challenging and enriching jobs and a say in the management of their own tasks. They also make commitments to low turnover and few layoffs. Found in manufacturing as well as services, these companies are relatively egalitarian, with few class distinctions between managers and workers and relatively small ratios between the salaries of the CEO and the average worker.

Typically, their workers are organized into self-managing teams; all employees are made to feel they are members of a supportive community; and all receive extensive, on-going training and education. Importantly, workers in these companies tend to be paid salaries, as opposed to hourly wages, and all participate in company stock ownership and share in company profits.


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In our recent review of the performance of high-involvement companies, we found that the productivity of their workers more than justifies the high pay and good benefits they receive. In fact, when managed correctly, highly paid American workers are far more productive than even low-wage overseas workers. That's because managers at high-involvement companies organize work processes and systems in ways that allow employees to contribute significant amounts of "added value" to the products and services they make and provide.

When U.S. managers give their employees the organizational structure, resources and authority needed for them to contribute their ideas and efforts, they routinely outproduce their counterparts in less-developed countries, as witnessed by the ingenuity, initiative and efforts of the Americans who productively and efficiently make steel at Nucor, motorcycles at Harley-Davidson, consumer goods at Proctor & Gamble and high-tech products at W.L. Gore and Associates.

Waterloo, Wisc.-based Trek Bicycle is able to export bikes to the world because its American workers are empowered, and rewarded, to make continual improvements to their products and work processes. Trek's workplace system creates a constant stream of new products that forces the poorly paid, under-educated, and micromanaged workers making copy-cat bikes in South Asian factories to continually play catch up. Our research shows that the comparative advantage of having trained, motivated and committed workers enjoyed by Trek can be realized by a wide variety of businesses, both low-tech and high-tech.

Evidence of the positive potential of employee involvement doesn't rest on a few company examples. Analysis of the results of the 2002 U.S. Census of a cross-section of American workers shows that in all industries and among all demographic groups, the greater the extent to which employees participate in profit sharing, stock ownership and other forms of financial gains that derive from their efforts, and the greater the extent to which they also participate in organizational decision making, the more they are committed to, engaged in and satisfied with their jobs.

The existence of such data gives rise to an important question: Given the manifest benefits to shareholders, employees and society alike, why aren't there more High-Involvement Companies?

The High-Involvement model has not spread further largely because managers believe their companies have to be highly successful before they can offer good working conditions to their employees. As one CEO recently explained, "I would treat my employees as well as Starbucks treats theirs--if I could charge the equivalent for my product of $3 for a cup of latte!" But managers who assume that higher profits drive better working conditions have their logic backward.

Contrary to conventional wisdom, we have identified companies in virtually every industry that are profitable because they provide good jobs. As Starbucks CEO Howard Shultz explains, the high-quality customer service that makes it possible for his company to charge a premium for its coffee results from the investments it makes in employee welfare and training. This is true as well for the productive contributions of employees at such diverse high-involvement companies as package courier United Parcel Service, grocery chain Whole Foods Market and Circuit City's competitor in discount electronics, Costco.

In light of this evidence, we are left to wonder what might have happened at Circuit City had its executives appropriately rewarded individual, team and organization performance at all levels; invested heavily in the development of their human capital; and created conditions in which their workers could add large amounts of value?

Despite the evidence to the contrary, most American managers continue to believe they face a painful choice between offering high employee wages on the one hand or low customer prices on the other. In fact, their real alternative is between staying with conventional management or adopting high-involvement management practices.

James O'Toole and Edward E. Lawler III are professors at the University of Southern California's Marshall School of Business and authors of The New American Workplace (Palgrave-MacMillan, 2006).

Article from Forbes.com

$28 Million Settlement In Wal-Mart Wage Case

An up to $28 million settlement has been reached in a wage case against Wal-Mart in Indiana. The class action lawsuit, like numerous others filed around the country, claimed that Wal-Mart forced workers to work through meal breaks and to work off the clock. The settlement applies to current and former Wal-Mart and Sam's Club hourly employees who worked from March 17, 1994, to March 2009.

This settlement is part of Wal-Mart's settling of a number of class action lawsuits filed around the country.

Source: Louisville Courier-Journal

Day-Pay Violations

I received a question today about daily pay, minimum wage and overtime. The specific scenario is as follows:

Bill works for a landscaper five to six days per week. He is paid $80/ day, and works an average of 14 hours in a day. The minimum wage in the state, Massachusetts, is $8/hour. So, for a five day week, Bill receives $400, and for a six day week he is paid $480. Bill wants to know if there are any violations.

In Massachusetts, overtime is not required until work is performed in excess of 40 hours per week, not for work in excess of 8 hours per day. If 40 hours is exceeded, the employee is to be paid one-and-one-half times his or her normal rate of pay.

In Bill’s case, there is no set hourly rate. That means that the only way he would be underpaid is if he was not paid the minimum wage. In his 5-day week, Bill is working 70 hours (14 hrs x 5 days). Minimum wage would require Bill to be paid $560 (70 hrs x $8/hr) for straight time, and $120 (½ the hourly rate x 30 hrs in excess of 40) for overtime for a total of $680/week. Because Bill is being paid $100/day for 5 days, he is being shorted $280 ($680-$500) for that week.

Bill should be paid $672 ($8/hr x 84 hrs) for straight time, and $176 (½ the hourly rate x 44 hrs in excess of 40) for overtime for a total of $848. Bill is being underpaid by $368 for the 6-day week.

Because minimum wage rates vary in different parts of the country, the restitution figure is not definite. But, if the worker is an employee, and said jurisdiction is Massachusetts, he would be owed the above stated amounts.

Also, because statutes vary in each state, there are different ways of attaining the restitution. Please check with your local state statutes, or the Fair Labor Standards Act to determine the appropriate course of action.