Published in the Asbury Park Press 1/17/05
Activists are putting more pressure on companies over the behavior of their subcontractors.
By MICHAEL L. DIAMOND
BUSINESS WRITER
Days before Christmas, members of the United Union of Roofers, Waterproofers and Allied Workers gathered outside the Middletown headquarters of Hovnanian Enterprises Inc., hoping to deliver a message to company executives.
Hovnanian Enterprises Inc., which is building this headquarters in Red Bank, was recently the subject or protests from a union criticizing one of its Arizona subcontractors. One of Hovnanian's subcontractors at a development in Arizona wasn't complying with federal labor standards, they said, and they wanted Hovnanian to do something about it. "We absolutely believe they are morally responsible," said Nghia Nguyen of the AFL-CIO in Washington, D.C., who helped organize the gathering. "This company made over $4 billion in (annual) revenue. This comes off the back of workers who build their homes."
Hovnanian officials turned the workers away without a meeting and made what's becoming an increasingly common argument: They shouldn't be held responsible for the alleged actions of another company. The issue is cropping up with regularity, forcing some companies to defend their practices in court and others to develop codes of conduct to govern subcontractors. Hovnanian likely is on solid legal ground, experts said, but the union's moral appeal may have a bigger effect.
"It's very rare -- almost never -- that a general contractor would assume labor law on behalf of its subcontractor. Why would you stick your neck out?" said Russell J. McEwan, a Jackson resident and employment lawyer with Grotta, Glassman & Hoffman in Roseland. But "they've got picketers out in front of their gate, and they don't need that."
Hovnanian found itself in the middle of a brewing controversy in 2003 when it bought Great Western Homes and entered the Arizona market for the first time. By then, the union was trying to organize the workers of one of Great
Western's subcontractors, Metric Roofing.
In 2002, four Metric workers filed a lawsuit, saying the company didn't pay them what they were owed and charged them for safety equipment. Both are violations of labor laws.
The lawsuit was eventually thrown out because it wasn't filed in time, union officials said. But they said the problems persist, and the workers, mostly Spanish-speaking immigrants who spend their days working in searing heat,
had little power to complain. "The workers are afraid to report (wrongdoing)," Carlos Duarte, the union's
lead organizer, said from Phoenix. "The only thing they know is they will be l aid off for a while."
Metric's attorney, Joe Clees, didn't return calls seeking comment.
The union decided to take its case to Hovnanian. Union President John
Martini said he sent the company two letters asking to sit down for a
meeting, but he didn't receive a response.
So the union organized a public relations event, inviting the media to watch Martini, dressed as Santa Claus, deliver a piece of coal to Hovnanian executives and try to convince them to stop doing business with Metric. Hovnanian officials refused to meet with the union.
"This is an issue with the roofing subcontractor used by operations in Arizona," Jeffrey O'Keefe, Hovnanian's director of investor relations, said. "At the corporate level we don't have a response. They came to our offices and that was kind of the end of it."
Legal experts said Hovnanian isn't responsible for the actions of its subcontractors if they are two separate companies with two distinct operations. But as corporations grow and rely on subcontractors, that relationship can be blurred. "Everybody is going elsewhere to have their work done because it's cheaper, and what constitutes an employment relationship is thrown up in the air," said Bruce Levine, an attorney with Cohen, Weiss and Simon in New York. "And who do you hold responsible?"
Wal-Mart Stores Inc., for example, has been sued in New Jersey by 17 janitors working for some of its contractors. The janitors were paid $350 a week and worked upwards of 60 hours a week with no overtime pay, the lawsuit contends.
The workers said Wal-Mart, not the contractor, established the working environment. "They were clearly being directed and controled by Wal-Mart stores," said James L. Linsey, the workers' lawyer and a colleague ofLevine's.
A federal judge last week allowed Linsey to pursue the case as a collective action, meaning all immigrants who worked as janitors at Wal-Mart stores since January 2000 are eligible to be covered by the lawsuit.
Wal-Mart attorney David Murray said: "They were employed by outside contractors, and to the extent they are owed unpaid overtime, those claims should be addressed to their employer, not to Wal-Mart."
Companies using subcontractors might be legally secure, but their reputation can take a hit. Consumer groups have targeted apparel companies such as Nike for using inexpensive labor employed by companies overseas in so-called
sweatshops.
It led many of them to develop codes of conduct in which they hire independent monitors to oversee the subcontractors' working conditions. David Boje, a management professor at New Mexico State University, said the
results have been mixed. "On the one hand, they can say, 'We have a code,' but on the other they can
put the screws to the subcontractors to the point they can't survive," Boje said. "The weakest link in the chain is the unrepresented workers. That's where you'll have the most pressure." Hovnanian keeps an eye on its subcontractors to ensure they are complying with labor standards, O'Keefe said, but he didn't provide specifics.
Union officials made no mention of holding Hovnanian legally responsible, but over and over referred to the company's morality. For those reasons, they said, Hovnanian needs to take action.
"We're going to continue to try to push it," Martini, the president, said. "We're just not going to walk away from it. If we have to advertise at model homes we will to help these workers get justice."