Last week President Obama urged businesses to “give America a raise.”  But even if the minimum wage were raised, it wouldn’t necessarily help a huge class of low-wage employees.  That’s because firms like Walmart don’t directly employ the workers hauling or selling their goods.  Outsourcing allows these retailers to boast high wages for their own employees, while ignoring the labor violations and meager pay occurring lower down in their supply chains.  A higher minimum wage won’t address this problem. 

What could?  A little-known lawsuit in California. 

In 2012, Everardo Carrillo and a group of other warehouse workers who loaded goods for Walmart sued the company, claiming they were paid less than minimum wage, denied overtime pay, and routinely compensated for fewer hours than they worked.  The workers haven’t named a fixed amount but are seeking millions of dollars in claims extending back to 2001.  True to Walmart’s business model, the workers weren’t direct employees of the company.  They were employed by two temporary staffing agencies, which in turn were hired by Schneider, a logistics company retained by Walmart to manage its warehouses in Mira Loma, part of southern California’s Inland Empire, which receives goods from the country’s two largest ports.  Still, the workers claim the labor violations they experienced were a direct result of policies set by Walmart, and that the company—along with Schneider—should be held accountable as a “joint employer.” 

Garment workers, farm laborers, and janitorial staff have all brought these kinds of joint employer cases in the past, with mixed success.  Walmart contractors and subcontractors, though, have never had much luck in court.  But that could soon change: last month a judge rejected Walmart’s request for dismissal, ruling that the workers had a sound basis for pursuing the case and the company would have to stand trial.  Around 1,800 warehouse workers will file for class certification later this month, and, if the case proceeds, it will go to trial around summer of 2015. 

The ruling doesn’t mean the case is a slam dunk for the workers, but lawyers say it’s significant for it to even reach this stage. 

“It’s an outlier,” said Noel Tripp, an associate at Jackson Lewis who specializes in employment law.  Establishing Walmart as a joint employer “would be huge,” setting a notable precedent for low-wage contract workers around the country, said Michael Harper, professor at Boston University of Law and expert on labor issues. 

This case is all the more notable because it tries to hold liable a company, not just one but two contractors removed from the violation.  In a 2003 case, for example, a court ruled a clothes manufacturer was responsible for the wage theft committed by its contractor.  In the Walmart case, the workers were employed not by its direct contractor, but its contractor’s contractor.  In December, Schneider settled a separate lawsuit filed by workers at the same warehouse for $4.7 million. 

Sheheryar Kaoosji, an organizer with Warehouse Workers United, estimates there are around 85,000 warehouse workers in the Inland Empire and 20% of the containerized goods passing through the region are owned by Walmart.  Around 5,000 of those workers move goods only for Walmart, he said.  The company hires none of them directly. 

In Carrillo’s case, the arrangement worked like this: Walmart owned or leased the warehouses where the workers loaded and unloaded goods for the company, as well as all the equipment they needed to perform the work.  Walmart would set productivity standards for workers to meet, as well as screening requirements for Schneider to apply when hiring.  Schneider also had to submit organizational staffing charts to Walmart, and receive approval from the company on its operating budget and before adjusting how much it paid subcontractors. 

The workers argue that the terms of Walmart’s contract with Schneider made it impossible for the logistics company to meet Walmart’s standards, make a profit, and still pay the workers the full amount due to them.  They also allege that Walmart’s degree of oversight over Schneider and the facility meant it exerted effective control over the workers, a key factor in establishing joint employment and thus making Walmart liable for damages.  For example, the lawsuit documents Walmart managers instructing Schneider to pressure workers to perform faster and handing Schneider “improvement plans” that shifted around their work hours.  One email shows a Walmart manager expressing concern that some workers were being paid at an hourly rate rather than per-container, a scheme the workers say shirked them of pay.  And until the lawsuit, all Schneider managers at the warehouses used walmart.com e-mail addresses. 

Walmart argues that it had no direct involvement in determining workers’ pay and conditions, and never instructed Schneider to take specific actions with respect to any specific worker.  It cites previous cases where courts ruled that setting operational standards and close supervision by a company did not establish it as a joint employer. 

In her ruling, Judge Christina Snyder was skeptical of Walmart’s position.  She wrote there was evidence of “Walmart’s extensive oversight and enforcements of its own guidelines and standards at the Mira Loma warehouses” and that it was a “reasonable inference that Walmart indirectly influenced [the workers’] method of compensation by pressuring [Schneider] to minimize its costs and continue to pay its subcontractors on a per-container basis.” 

Walmart did not reply to a request for comment. 

Michael Rubin, a partner at Altshuler Berzon who is representing the workers, sees the case as part of a bigger fight. “ We’re trying to create a new model to protect the rights of low-wage workers in industries that are structured this way, where the ultimate employer outsources instead of hiring directly,” he said. 

The case highlights how many low-wage workers struggle to receive the minimum protections they’re already guaranteed by law, said Catherine Fisk, professor at University of California-Irvine School of Law and scholar on labor law. “ Raising the minimum wage won’t do anything unless it’s enforced,” she said. 

Who should bear ultimate liability for violations of labor law isn’t a new question: courts have been asking some form of it since at least the 1938 Fair Labor Standards Act.  There is no single standard for what constitutes “effective control,” and courts look at various factors that try to gauge the bargaining power between players.  A subcontractor that serves only one company, for example, is seen as being largely subject to its terms.  In this instance, Schneider and the two staffing agencies did have other clients. 

There’s no guarantee that a defeat for Walmart in this one district-level case would necessarily lead to better conditions and pay for its warehouse workers, let alone those in retailing or other segments of its business.  But for the judge to saddle the company with legal and financial liability would send a powerful message to other big companies that they can’t use subcontracting chains to avoid paying a fair wage.  More importantly, the case is a good reminder that raising the minimum wage won’t help workers unless we also address the structural and legal mechanisms that deprive workers of receiving it.