Woke Capitalism or Sleepy Oversight?

Some of the same people who are trying to convince us that January 6 was a peaceful sightseeing outing and that the situation in Ukraine is a minor territorial dispute have come up with a remarkable explanation for the collapse of Silicon Valley Bank. They claim it is the result of what they call “woke capitalism.”

Politicians such as Florida Gov. Ron DeSantis and House Oversight Chair James Comer are echoing claims by propagandist Tucker Carlson that SVB’s collapse was the result of its involvement with ESG—environmental, social and governance policies meant to promote objectives such as sustainability and diversity.

There are two problems with this claim. The first is that SVB was hardly a leader in the ESG world. The bank’s preoccupation was apparently to ingratiate itself with venture capitalists, private equity investors and start-up entrepreneurs, whether or not they were pursuing social goals. It was also chummy with California wineries. SVB wanted to be a power in Silicon Valley, not a crusader. Like most banks, it made some ESG-type investments, but they were a small part of its portfolio.

The other problem is that there is no connection between ESG practices and the forces that led to SVB’s demise. Based on what has come to light so far, it appears what happened at the bank was largely a result of poor risk management. SVB failed to pay adequate attention to the consequences of having loaded up on long-term government debt securities that were rapidly losing value at a time of escalating interest rates.

Along with that poor internal risk management, there was apparently a failure of regulatory oversight. To some extent, this was the fault of the Trump Administration and Congress, which in 2018 watered down the Dodd-Frank Act and exempted banks of SVB’s size from intensive scrutiny.

As pointed out by the New York Times, Moody’s was more alert to the perils at SVB than the regulators or the bank’s own executives. Last week the credit rating agency contacted the bank’s CEO Greg Becker to warn him that SVB’s bonds were in danger of being downgraded to junk status.

This set off a scramble by SVB to raise more capital. Once depositors got wind of this, they began emptying their accounts, many of which had balances above the $250,000 limit normally insured by the FDIC. Soon there was a full-blown run on the bank, prompting regulators to take over SVB and shut it down. The Biden Administration then bailed out the depositors in whole, using assessments from other banks. ESG has nothing to do with any of this.

As this is being written, the business news is focusing on problems at Credit Suisse. It will be interesting to see if the U.S. Right tries to apply the woke label to that situation as well. Although it gives lip service to ESG, Credit Suisse has a track record of less than enlightened practices. Two decades ago, it was being sued over its investments in apartheid-era South Africa. It has a history of lending to oil and gas projects and has been slow to respond to demands to reduce that exposure.

As shown in Violation Tracker, Credit Suisse’s record in the U.S. includes numerous cases in which it paid penalties to resolve allegations relating to the facilitation of tax evasion, foreign bribery and other misconduct. Its U.S. penalty total is over $11 billion.

Come to think of it, the Right will probably decide that a bank with a history of making money from racism, fossil fuels, tax evasion and bribery is worthy of support.

The woke capitalism critique cannot be taken seriously as an explanation of what happened at SVB. Yet there is the danger that it will serve to divert attention for some away from the real problems: reckless bank management and sleepy financial regulation.

Ill-Gotten Gains

The Justice Department has just announced a pilot program in which corporate executives involved in wrong-doing would be personally penalized. This is meant to alter the usual practice of having the company – and theoretically the shareholders – assume all of those costs.

As described in recent speeches by Deputy Attorney General Lisa Monaco and Assistant AG Kenneth Polite, DOJ would not go after the executives directly. Instead, companies that adopt executive-pay clawback policies would receive reductions in the penalties they have to pay.

Clawbacks are not a new idea, but their use has been limited. DOJ is now adding them to a package of efforts to create incentives for better corporate conduct. In this case, the company gets the carrot while misbehaving executives get the (financial) stick.

There are limitations with this approach. For one, it assumes that misconduct happens when executives go rogue. In reality, the offenses often occur as part of company policy. It is unclear whether in those cases the board of directors could compel everyone in the C-suite to surrender chunks of their compensation. Nonetheless, the DOJ program could help end the assumption of many unscrupulous corporate executives that they are shielded from personal liability.

As it turns out, this DOJ initiative comes just as we are starting to learn more about the true magnitude of executive compensation. To comply with new SEC rules, publicly traded companies are issuing proxy statements with additional calculations reflecting the value of stock awards based on changes in share prices over the course of the year.

These new calculations, dubbed compensation actually paid, show that some executives are effectively receiving even more lavish pay packages than we thought. The Wall Street Journal notes the example of Eli Lilly, which recently reported that the compensation of CEO David Ricks last year under the new approach amounted to $64.1 million, well above the $21.4 million reported using the traditional measure.

I found another example in the proxy of AbbVie, also a pharmaceutical producer. The compensation actually paid to CEO Richard Gonzalez was over $67 million (compared to $26 million under the old calculation).

The compensation-actually-paid figure is not always far in excess of the traditional total compensation amount. Among the limited number of proxies that have been issued so far, the new amount is sometimes lower than the old one.

Bloated compensation, whether measured by the new method or the old one, is most problematic when it occurs at companies with tainted track records. AbbVie is a case in point. Last year its subsidiary Allergan agreed to pay over $2 billion to state attorneys general to settle litigation concerning the improper marketing of opioid medications. In Violation Tracker, AbbVie has cumulative penalties of nearly $6 billion.

There are many other examples of companies with long rap sheets that go on paying their top executives far too much. One is tempted to think that those individuals are in effect being rewarded for breaking the rules when that fattens the bottom line.

It is unclear that the new DOJ clawback program will do much to change this dynamic, but it may serve as a stepping stone to more aggressive measures to rein in corporate misconduct.

Strings Attached

The Biden Administration is causing a stir with its decision to place some conditions on the massive subsidies that are to be awarded to semiconductor companies under the CHIPS and Science Act.  A front page story in the New York Times quotes some economists and business advocates expressing concern that the requirements will detract from the main objectives of the law.

What has these critics upset are provisions that would require giant corporations such as Intel to provide child care for employees, pay union wages to construction workers, run the plants on low-emission sources of energy and avoid stock buybacks. An official at the U.S. Chamber of Commerce told The Times that such practices would “increase cost and delay bringing production online.” Not surprisingly, he argued that the administration should instead focus on “removing regulatory barriers.”

What these protestations ignore is that there is nothing new about attaching strings when government provides financial assistance to corporations. This is done frequently at the state and local level, where agencies providing tax abatements, cash grants, loans and other aid to companies in the name of economic development require the firms to meet job quality standards relating to wages and benefits. The practice is not universal but neither is it uncommon.

Until now, the federal government has tended not to offer large subsidy packages to individual companies, yet it has applied strings when bailouts were provided. For example, in 2009, amid the financial meltdown, the Obama Administration issued guidelines restricting executive compensation at large companies receiving help through the Troubled Asset Relief Program.

In the related area of federal procurement, there are long-standing policies promoting job quality standards. The Davis-Bacon Act, which became law in 1931, requires that contractors on public works projects pay their workers the prevailing wage in the area. The Walsh-Healey Public Contracts Act of 1936 set certain minimum labor standards for companies providing goods to federal agencies, and the McNamara-O’Hara Service Contract Act of 1965 did the same for service providers. In 2021 the Biden Administration raised the minimum wage federal contractors have to pay to $15 an hour, and it mandated project labor agreements, which usually raise pay to union levels, for federal construction projects costing more than $35 million.

This is not to say that the laws are always effective. Worker advocacy groups frequently point out employment abuses committed by federal contractors. Violation Tracker contains more than 9,000 cases in which employers were fined for failing to obey federal or state prevailing wage regulations. Hopefully, these fines led to higher levels of compliance.

Those challenging the CHIPS Act provisions promoting job quality and other public policy objectives are repeating arguments that have been made for decades by Big Business and its defenders. Despite all their free market-rhetoric, large corporations are happy to accept taxpayer-funded financial assistance.  Yet they cannot accept the idea that the aid might come with some obligations.

The strings the Biden Administration is attaching to the semiconductor subsidies are actually not very radical, but they are a helpful step in the direction of making sure that companies receiving government assistance meet higher standards in their treatment of workers, communities and the environment.

A Harebrained Response to Labor Shortages

At a time of widespread labor shortages, one might expect policymakers to welcome asylum seekers and economic migrants eager for an opportunity to make a living in the United States. Instead, as the Washington Post reports, legislators in some states have come up with a harebrained proposal for filling those jobs: loosening the restrictions on child labor.

Lawmakers in Wisconsin lifted restrictions on working hours during the school year, but the measure was vetoed by the governor. The Ohio Senate passed a similar bill but it died in the House. Even worse are bills introduced in Iowa and Minnesota that would allow teens as young as 14 to work in dangerous occupations such as meatpacking and construction.

It is unclear whether these legislators are aware that labor activists and social reformers fought for many years in the 19th and early 20th centuries to restrict the exploitation of children in factories, mines, mills and other workplaces. They eventually made progress at the state level, leading to the passage of the federal Fair Labor Standards Act in 1938. The FLSA barred young workers from some occupations and limited the hours they could work in others, both for safety reasons and to prevent adverse effects on educational attainment. Adoption of strong child labor laws came to be viewed as one of the hallmarks of a humane society.

While the FLSA and state regulations eliminated the worst forms of child labor, they did not end abuses entirely. Violation Tracker documents more than 4,000 cases over the past two decades in which an employer paid a penalty for breaking the rules. The fines imposed in these cases amount to $99 million, or an average of about $24,000 per case—a reflection of the fact that penalty levels are far from harsh.

Most child labor violators are small firms, but some large corporations have also committed the offense. Chipotle Mexican Grill has the highest penalty total, mainly due to a $7.75 million settlement the company reached in 2022 with the New Jersey Department of Labor and Workforce Development. An audit conducted by the agency of Chipotle outlets had found over 30,000 violations across the state. Two years earlier, Chipotle reached a $1.87 million settlement with the Massachusetts Attorney General over child labor and other wage and hour violations.

Among the other big companies with substantial child labor penalties from multiple cases are: CVS Health ($464,099), Albertsons ($337,790) and Walmart ($317,378).

Most child labor violations are related to potential harm to young workers, but there are also cases in which the harm is real and even deadly. A 2018 report by the Government Accountability Office cited estimates that workers aged 17 and under sustain thousands of injuries each year. That same report included data showing that work-related fatalities for that same age group totaled 452 for the period from 2003 to 2016. The largest numbers of deaths were in agriculture, followed by construction and mining.

The sensible response to all these statistics would be to tighten the rules regarding child labor, not to weaken them. There are better ways to address labor shortages.

Two-Faced Corporations

illustration from Corporate Knights

The new issue of Corporate Knights, a magazine which usually focuses on celebrating environmental initiatives in the business word, has a cover story with a different angle. Headlined “The Climate Blockers,” the piece highlights major companies with split personalities: They talk a good game when it comes to matters such as sustainability while directly and indirectly promoting policies that impede decarbonization.

Among the corporations deemed to be most guilty of this hypocrisy are U.S. petroleum giants Chevron, ExxonMobil and ConocoPhillips and U.S. utilities Sempra Energy, American Electric and Southern Company. Others on the ten-worst list are BASF, Nippon Steel, Gazprom and Toyota.

This assessment is based on the work of InfluenceMap, a UK-based non-profit which seeks to hold large corporations accountable for their climate practices. Its Climate Policy Footprint report identifies the “most negative and influential” companies globally, based on lobbying and other influence activities—whether carried out by the corporation itself or by its trade associations.

InfluenceMap also identifies the trade associations with the worst track record on climate policy. The biggest culprits are said to be the American Petroleum Institute, American Fuel & Petrochemical Manufacturers, the U.S. Chamber of Commerce, and BusinessEurope.

Some of the companies on the ten-worst list are not only members of these associations but also part of their leadership. Chevron CEO Mike Wirth is also the chairman of the American Petroleum Institute. Chevron and ExxonMobil have representatives on the board of American Fuel & Petrochemical Manufacturers. Chevron, ConocoPhillips and Sempra have representatives on the board of the U.S. Chamber.

InfluenceMap provides a vital service at a time when growing numbers of large companies are professing adherence to ESG principles—especially the environmental component—while quietly working to discourage legislators and policymakers from moving ahead on aggressive climate initiatives.

Strangely, it is also a time when rightwing public officials in the U.S. are trying to gin up public opposition to what are being labeled “woke corporations.” This effort exaggerates the significance of ESG in the business world and ignores the divergence between sustainability p.r. and regressive influence efforts.

There are actually two types of environmental hypocrisy rampant in Corporate America. Not only are purportedly enlightened companies pushing bad policies—they are failing to comply with existing environmental safeguards. This includes not only climate practices, which are not heavily regulated, but also conventional pollution.

This is part of what we document in Violation Tracker. Take, for example, the companies in the InfluenceMap ten-worst. Over the past two decades, Chevron has racked up over $1 billion in fines and settlements. These include a fine of more than $1 million in red Texas last year. ExxonMobil’s total since 2000 is more than $2 billion, including a $9.5 million settlement last year with New Jersey over PCB contamination. They are surpassed by American Electric Power, whose penalty total is nearly $5 billion.

No company that repeatedly breaks environmental laws—nor any company that uses its influence to block or slow down climate-friendly initiatives—should be able to depict itself as an environmental white knight.

The Bank from Hell

Perhaps because it was announced just days before Christmas, the Consumer Financial Protection Bureau’s giant enforcement action against Wells Fargo has not received all the attention it deserves. The agency imposed a whopping $1.7 billion civil penalty and ordered the bank to provide more than $2 billion in consumer redress.

CFPB took these steps in response to what it called illegal practices affecting over 16 million consumer accounts. Wells was found to have repeatedly misapplied loan payments, wrongfully foreclosed on homes, improperly repossessed vehicles, and incorrectly assessed interest and fees, including surprise overdraft charges. Wells Fargo, it seems, was behaving like the bank from hell.

CFPB’s action does not come as a complete surprise. Wells already had a dismal track record. As shown in Violation Tracker, the bank has paid over $20 billion in fines and settlements during the past two decades. It has been especially tainted since 2016, when the CFPB revealed that bank employees, pressured to meet unrealistic sales goals, had been secretly opening unauthorized accounts in the name of unsuspecting customers who found themselves paying fees for services they had not requested.

Wells was initially fined only $100 million by CFPB, but the controversy over the bogus accounts continued. In 2020 the bank had to pay $3 billion to resolve criminal and civil charges brought by the Justice Department and the SEC. The impact of the case was diminished by the fact that DOJ offered Wells a deferred prosecution leniency agreement and by the decision not to prosecute any individual executives.

A different approach was taken by the Federal Reserve in its capacity as a bank regulator. In 2018 it announced that Wells would be subject to restrictions on its growth until it sufficiently improved its governance and internal controls. The Fed also pressured the bank to replace four members of its board of directors.

The new CFPB case suggests that neither the DOJ nor the Fed action was sufficient to get Wells to change its ways. Other evidence comes from private class action lawsuits. These include a $386 million settlement to resolve allegations the bank added unnecessary insurance fees to car loan bills and a $30 million settlement of allegations it improperly charged interest on Federal Housing Administration-insured loans after they were paid off.

All of this leads to two questions: Why does anyone continue to do business with Wells Fargo? And why do regulators allow it to continue to operate? The answers to both have a lot to do with the enormous concentration in the U.S. banking sector. In some parts of the country, Wells may be one of only a tiny number of full-service commercial banks doing business.

Size is also a factor in how Wells is treated by regulators. As outraged as they may be about the bank’s misconduct, they are not inclined to take any punitive action which might threaten its viability. A villainous Wells Fargo is apparently seen as preferable to the collapse of a bank with nearly $2 trillion in assets.

It is difficult to avoid the conclusion that Wells is taking advantage of this situation by pretending to reform its practices while continuing to conduct its dubious form of business as usual. Regulators need to find a way to bring this rogue bank under control once and for all.

Note: The new CFPB action was announced right after we completed an update of Violation Tracker. It will be added to the database as part of the next update later this month.

The 2022 Corporate Rap Sheet

The prognosis for the U.S. economy remains uncertain, but it is clear that 2022 has been a bumper year for corporate penalties. Including an update that will be posted soon, Violation Tracker will end up documenting more than $56 billion in fines and settlements. Among them are a dozen individual penalties in excess of $1 billion.

Many of the largest cases were brought by state attorneys general against large drug companies and pharmacy chains for their role in fueling the opiate crisis. Teva Pharmaceuticals entered into a settlement worth up to $4.25 billion to resolve allegations it deceptively marketed opioid products. Allergan paid $2.37 billion in a similar case.

Settlements were even higher in cases involving the failure of large pharmacy chains to question extraordinarily high volumes of suspicious opioid prescriptions. Walgreens paid $5.7 billion, CVS $5 billion and Walmart $3.1 billion.

The biggest Justice Department penalties were imposed on foreign companies in criminal cases. Allianz, the German insurance company and asset manager, paid $5.8 billion to resolve allegations that it misled public pension funds into investing in complex and risky financial products, causing them to suffer heavy losses. Denmark’s Danske Bank A/S paid $2 billion to settle charges that it lied to U.S. banks about its anti-money-laundering controls in order to help high-risk customers in countries such as Russia transfer assets.

Glencore, a commodity trading and mining company headquartered in Switzerland, paid $1.2 billion in a case involving international bribery. In another case brought under the Foreign Corrupt Practices Act, ABB Ltd, also based in Switzerland, paid DOJ a penalty of $315 million. It was also offered a leniency agreement called a deferred prosecution agreement, even though it was not the first time the company had been caught up in a bribery case.

In another case in which DOJ targeted a foreign company for actions abroad, the French building materials company Lafarge (part of the Holcim Group) paid $777 million to resolve allegations that it gave material support to terrorist groups such as ISIS when it made payments in exchange for permission to operate a cement plant in Syria.

Coming in just under a billion was the $900 million settlement DOJ reached with the drug company Biogen to resolve allegations that it paid illegal kickbacks to physicians to induce them to prescribe its products. This was the largest penalty among some 200 resolutions of cases brought under the False Claims Act during the year.

The biggest environmental fine of 2022 was the $299 million paid by automaker FCA US LLC (formerly the Chrysler Group and now part of Stellantis) to resolve criminal charges that it defrauded regulators and customers by making false and misleading representations about the design, calibration, and function of the emissions control systems on more than 100,000 of its vehicles. The allegations were similar to those faced by Volkswagen in its emissions cheating scandal, for which it paid around $20 billion in fines and settlements in previous years.

This year also saw an environmental settlement of $537 million paid by Monsanto (owned by Bayer) in a case involving the contamination of water supplies with polychlorinated biphenyls, or PCBs.

Privacy was the focus of numerous large cases, especially ones involving the tech giants. Google paid $391 million in a settlement with 40 state attorneys general of allegations the company misled consumers about the collection and use of their personal location data. Twitter had to pay $150 million to resolve allegations by DOJ and the Federal Trade Commission that it misrepresented how it employed users’ nonpublic contact information.

Employment-related cases tend to have lower regulatory penalty amounts, but private class action cases can result in sizeable settlements. This year saw Sterling Jewelers pay $175 million to settle a lawsuit alleging that for years it had discriminated against tens of thousands of women in its pay and promotion practices. Business services company ABM Industries agreed to pay $140 million to settle litigation alleging it failed to keep accurate records of time worked by its janitor employees, causing them to be underpaid.

There were also cases that overlapped employment issues and antitrust. Cargill, Sanderson Farms and Wayne Farms agreed to pay a total of more than $84 million to settle allegations that they violated antitrust laws by sharing poultry workers wage and benefit information, thereby depressing compensation levels.

In 2022 large corporations once again paid vast sums of money in connection with a wide range of misconduct. At the same time, they are spending more than ever to tout their supposed social responsibility credentials. The country would be a lot better off if big business focused less on ESG PR and more on compliance.

Update: After this blog was posted, several other major penalties were announced. The Consumer Financial Protection Bureau announced the largest penalty in its history against Wells Fargo, which was ordered to pay a fine of $1.7 billion and provide $2 billion in customer restitution to resolve allegations that the bank imposed illegal fees and interest charges on borrowers for automobile and home loans. The Federal Trade Commission fined software company Epic Games $520 million for violating online privacy protections for children. And a subsidiary of Honeywell was fined more than $160 million for paying bribes in Brazil.

Derailing a Strike

The Biden Administration and Congressional Democrats purport to be pro-union, but in their desperation to prevent a rail strike they fail to understand something fundamental about collective bargaining: Sometimes workers have to inconvenience the public in order to achieve their legitimate goals.

A strike is a form of disruption. It is designed to put direct economic pressure on an employer by curtailing operations. Yet it also uses indirect means. The hope is that customers, suppliers, creditors and other stakeholders will press management to settle its differences with the union, resulting in better terms for workers. The louder the public uproar, the more likely there will be concessions by employers.

By trying to prohibit a strike by rail workers dissatisfied with the agreement previously negotiated with the help of the Biden Administration, Congress is eliminating both the direct and indirect pressures management might feel to improve on those contract provisions. It is trying to impose a clean solution in a conflict that is inherently messy.

At the insistence of progressives, Speaker Nancy Pelosi agreed to an add-on bill that would compel the railroads to provide additional paid sick days—a key point of contention—but as of this writing it seems unlikely that measure will pass the Senate.but that measure failed in the Senate.

Passage of a measure imposing the previous agreement and banning a strike would amount to one of the most egregious cases of strike-breaking by the federal government since Ronald Reagan busted the air traffic controllers union in 1981. It would also constitute an outrageous giveaway to a group of employers with a dismal track record on working conditions and safety.

As documented in Violation Tracker, the five U.S.-owned Class I railroads — BNSF, CSX, Kansas City Southern, Norfolk Southern and Union Pacific—have been fined more than 9,000 times by the Federal Railroad Administration and the Occupational Safety and Health Administration over the past two decades. They have paid over $100 million in penalties. The biggest offender is Union Pacific, with over 3,400 citations and $42 million in fines over safety issues.

The hazards indicated by these repeated violations—along with the grueling schedules imposed on rail workers—make the demand for ample paid sick leave all the more urgent.

That urgency applies not only to railroad employees but to the public. The safety lapses cited by the Federal Railroad Administration can lead to accidents such as collisions with cars and trucks at grade crossings or derailments in which hazardous materials spill out and endanger nearby communities.

Railroads have a history of trying to suppress information about dangerous working conditions. For example, in 2019 and 2020 BNSF, which is part of Warren Buffett’s Berkshire Hathaway conglomerate, was ordered to pay more than $1.7 million in damages and compensation to an employee who faced retaliation after reporting track defects.

CSX has been fined several times for whistleblower retaliation. For example, in 2021 OSHA found that the company violated the Federal Railroad Safety Act and demonstrated a pattern of retaliation after firing a worker in December 2019 for reporting safety concerns. The agency ordered the company to pay $71,976 in back wages, interest, and damages, and $150,000 in punitive damages.

In 2020 Norfolk Southern was ordered to pay $85,000 and reinstate an employee who was fired for reporting an on-the-job injury. Union Pacific has paid over $700,00 in five retaliation cases.

The rap sheets of the Class I railroads also include multiple environmental penalties. For example, in 2009 Union Pacific had to pay more than $31 million to settle alleged violations of the Clean Water Act in Nevada. In 2019 it paid $2.3 million to four California counties to resolve allegations relating to the mishandling of hazardous wastes.

In 2010 Norfolk Southern paid over $8 million to the Environmental Protection Agency in connection with a derailment and spill of hazardous chemicals in South Carolina. Three years earlier, it paid over $7 million to Pennsylvania to help pay for the restoration of waterways and wetlands affected by a lye spill.

In 2018 CSX paid $2.7 million to federal and state agencies to resolve liabilities related to water pollution caused by a 2015 derailment and oil spill in West Virginia. In 2004 BNSF paid North Dakota $29 million to resolve litigation relating to a massive underground leak of diesel oil.

The Biden Administration and Congressional Democrats may not have intended it, but their approach to the rail conflict ended up providing an extraordinary benefit to one of the least deserving industries.

Reducing Exploitation in the Gig Economy

On October 10 the San Diego City Attorney announced that the grocery delivery service Instacart had agreed to pay $46.5 million to settle a lawsuit alleging that it violated California’s labor code by misclassifying some 308,000 of its workers over a five-year period.

The following day, the U.S. Department of Labor announced a proposed new rule for determining when gig workers should be classified as employees rather than independent contractors.

These events represent two fronts in the widening war between regulators seeking to bring traditional workplace protections to the gig economy and companies such as Instacart that have come to rely on low-cost flexible labor.

In the middle are the workers themselves, who do not line up neatly on either side. Some of those doing gig work value flexibility over things such as overtime pay and may view the DOL proposal and the stricter rules adopted by states such as California as threats to their livelihood.

Yet there are also large numbers of people toiling for the likes of Instacart and Uber who struggle to make a decent living and feel exploited. Many of them would welcome the benefits that come with employee status, even if it means more rigidity in their working arrangement.

The proposed DOL rule seeks to better identify who belongs in which category by replacing the narrow criteria adopted during the Trump Administration with a multi-factor test that it takes the department 184 pages to detail. For example, the DOL would look at whether the worker had the ability to set prices for the services provided.

These additional tests would likely make it more difficult for companies to classify workers as independent contractors. Yet even if the new rule is implemented in some form, the gig giants will resist changing their ways. In all likelihood, they will go on treating workers as independent contractors and wait to be challenged. That’s the approach they have taken under current law

As shown in Violation Tracker, four of the largest ride-sharing and delivery services have together paid over $88 million in class-action wage and hour lawsuits. Uber leads the pack with $49 million in such settlements, followed by Lyft with $28 million. Instacart and DoorDash have each paid about $5 million.

That is on top of what they have paid to state and local agencies in misclassification cases such as the one brought in San Diego. Uber, for example, recently paid $100 million to New Jersey.

If the rules are changed, these settlements will become even larger and more frequent. The gig companies will go on paying them in the hope of staving off something they see as much worse.

Once gig workers become employees, it will be a lot easier for them to seek the additional protections that come with collective bargaining. Employee status is an important stepping stone to unionization, which would mean an end to the worst forms of exploitation.

It is possible to imagine an economy that combines labor flexibility with strong worker protections, but it would require the gig employers to cede some of the one-sided control they now exercise.

Non-Profit Hospitals Need to Heal Themselves

Providence, a gigantic non-profit health system with more than 50 hospitals in five Western states, describes itself as “steadfast in serving all, especially those who are poor and vulnerable.” According to a recent New York Times investigation, Providence has also preyed on those populations by using aggressive techniques to get payments from patients who should have been given free care. Those techniques, dubbed Rev-Up, were developed with the help of the consulting firm McKinsey, which the Times said was paid more than $45 million for its advice.

Now Providence is trying to repair the damage to its image. The Times reports that the health system is providing refunds to more than 700 low-income patients who were hounded into making payments for their care. Providence is not disclosing how much its is refunding, but the amount is likely to be a small fraction of what ruthless efforts such as Rev-Up brought in. A lawsuit filed by the Washington State Attorney General accuses Providence of improperly siccing debt collectors on more than 50,000 patients.

Failing to live up to its obligation to provide free care is just one of the ways in which Providence has acted as something less than a model non-profit institution. As documented in Violation Tracker, the health system has paid out more than $380 million in regulatory fines and class action settlements. These include cases involving issues such as wage theft, workplace safety and privacy. It has paid out over $28 million in False Claims Act cases, which involve submitting fraudulent bills to federal programs such as Medicare. Providence’s biggest payouts have involved cases in which it was accused of mismanaging employee retirement plans.

Providence is just one of dozens of large non-profit health systems that show up in Violation Tracker with large penalty totals from multiple cases. The system that tops the list is California-based Sutter Health, which has racked up $749 million in penalties from 46 cases. The largest of these was a $575 million settlement with the California Attorney General and other parties, which accused Sutter of engaging in anti-competitive practices that drove up healthcare costs. Sutter has also paid $170 million in False Claims Act cases.

Apart from Providence and Sutter, about 20 other non-profit health systems have paid out at least $50 million in penalties. These include Trinity Health ($328 million), RWJBarnabas Health ($277 million) and Northwell Health ($208 million). About 120 others have paid at least $1 million.

Many of these penalties result from a preoccupation with the bottom line, which leads the health systems to cut corners on compliance, shortchange their employees and cheat the government. The non-profit hospital systems may not have shareholders, but they seek to generate ever-larger surpluses that can be used for building new facilities and buying up competitors. Expansion seems to be the ultimate goal.

Their behavior makes them increasingly indistinguishable from the giant for-profit health chains HCA and Tenet, each of which has well over $1 billion in penalties. The difference, of course, is that the public is subsidizing the non-profits by relieving them of the obligation to pay taxes. The time has come to force the giant hospital systems such as Providence to focus less on empire-building and more on their social obligations.