When U.S. truck driver Edgardo Villatoro received his paycheck in November 2015 from XPO Logistics Inc., his gross pay was $2,054.05.
The number on his paycheck, however, was $337.26. The remainder of his earnings went to expenses such as fuel, insurance, parking, maintenance and administrative fees.
XPO is a transportation and logistics service provider with 1,425 operations in 34 countries. Because Villatoro is considered an independent contractor by XPO, he assumes costs and risks that a company would pay if he were classified as an employee. Yet Villatoro’s situation is one example of millions of workers worldwide who are caught up in the controversy over misclassification, which can result in employees shouldering expenses that should, by law, be paid by their employers.
Misclassification occurs when workers are considered contractors but do not have autonomy from the companies that pay them. At times unintentional and at times deliberate, employer misclassification of employees as independent contractors is one of the most prevalent – and contested – forms of precarious work. Often considered a North American phenomenon, workers and governments alike are now challenging misclassification in Europe, Australia, New Zealand and parts of Asia.
Misclassified workers face a loss of social security benefits and workplace protections, including the right to join a union, bargain collectively and – in some cases – earn a minimum wage. Commonly associated with the rise of the “gig economy” and its drive to reduce labour costs, misclassification occurs across many sectors and companies, from small startups to established multinationals.
Increasingly, however, companies that rely on misclassified workers have encountered trouble – trouble that matters to investors. On one hand, governments grappling with billions of dollars in lost tax revenue and increased social service provision costs have turned to courts and regulators. On the other hand, a growing number of workers have filed individual and class action lawsuits, often resulting in significant financial penalties for companies.
Many high-profile misclassification lawsuits have targeted online platform economy companies, such as service marketplace startup Homejoy or Uber, whose string of lawsuits across the globe are estimated to have cost the company $161.913 USD million. Yet misclassification lawsuits have also hit more traditional companies. These includeFedEx’s $240 USD million misclassification settlement, as well as pending lawsuits against Google and Amazon. XPO Logistics – the company that Edgardo Villatoro drives trucks for – is facing at least 10 pending class action misclassification lawsuits in the U.S. seeking back pay and damages. In Spain, XPO truck driver Jesus Abad went on a hunger strike to protest misclassification.
For investors, the reasons misclassification matter extend beyond the financial and legal risks specific companies face. It has broader implications for whole portfolios and for the ability to build sustainable, productive and inclusive economies over the long-term. A growing number of studies suggest that the increasing use of precarious employment practices by companies may be a contributing factor to growing income inequality, which in turn, contributes to systemic risk and weak economic growth.
The OECD, for example, found in a 2015 report that an increase in the number of households that depend on precarious employment has contributed to high overall rates of inequality, which hamper long-term economic growth and limit investment opportunities in OECD countries. The International Monetary Fund (IMF), for its part, concluded that increases in the income share of the top 20 percent is associated with declining GDP growth over the medium term. Meanwhile, researchfrom institutions that include the IMF, the Economic Policy Institute and the Center for Economic and Policy Research indicates a relationship between decreasing union density and growing inequality.
It is increasingly recognised that managing assets in the long-term necessitates thinking beyond materiality at the company level and a consideration of systemic risk factors, such as social and political stability. And while accounting for many of these macro issues in investment-chain decision-making is hardly a simple task, some forward-thinking initiatives, such as the Investment Integration Project, have started linking issues such as workers’ rights with a system-level approach to investment.
For its part, the Committee on Workers’ Capital (CWC), an international network connecting trade unions and worker-nominated pension trustees on responsible investment issues, is joining the Teamsters in generating support for a shareholder proposalat XPO at its AGM in May 2017. Recognising that how companies manage their human capital has a profound impact on long-term shareholder value, the proposal asks XPO to issue an annual sustainability report that includes information on the company’s approach to its workforce. For more information on the proposal and campaign, please contact Tamara Herman at the CWC or Louis Malizia at the Teamsters.
 2016, December 5. He demands his rights: An independent (contractor) in the region on hunger strike and willing to finish it as a corpse. EDCM/Efe.
*This blog was published on the SHARE website