National Consumers League

Cash-register-tape ads: one more thing for consumers to worry about

Jane_Daugherty_mug_shot.jpgThis blog was submitted by guest blogger Jane Daugherty who is a doctoral candidate and instructor in the School of Communication at the University of Miami.

Those ubiquitous color ads printed on the backs of grocery store checkout receipts appear to be a boon to everyone: shoppers get special discounts at local businesses including mechanics, roofers and dry cleaners, the supermarkets get cash register tapes for free and the companies selling the ads make a tidy profit.

I’ve used them numerous times to save money on dry cleaning, oil changes for my Honda CRV and free tire rotations. The last coupons I got at my local Winn-Dixie supermarket in West Palm Beach even included an ad for the people who print the cash register ads and an invitation to visit them on Facebook and “download coupons on the go.”

And cash–register tape ads create jobs. Tens of thousands of people around the country get hired to sell the ads or work at call centers to contact potential advertisers while thousands of sales reps go to local businesses to sell the ads, I discovered with a little research. To my surprise, I also found that some of the sales managers for register-tape ads make six-figure salaries plus six-figure commissions, a lot more than I’ll ever make as a university professor. Executives and owners of register-tape advertising firms can make millions.

This piqued my ex-investigative reporter‘s curiosity. It turns out that hundreds, perhaps thousands of U.S. workers are employed by one of the largest cash-register tape advertising companies, Register Tapes United Inc. (RTUI) based in Houston, TX.

Many of RTUI’s workers get nothing or a fraction of what their would earn hourly for their fulltime and overtime work selling ads, according to two large class-action lawsuits filed against RTUI in Maryland and California. The lawsuits charged RTUI with illegal labor practices that deprive their sales representatives and call center employees of minimum wage pay, workers’ compensation, medical benefits, expenses, while RTUI promised hefty sales commissions and flexible working conditions. And although most of those who sued worked fulltime or more on a regular schedule, they also submitted evidence that they were also deprived of overtime.

But what about the discounts I’ve become accustomed to using those cash register ads in the past? A little more checking with the grocery stores where I shop showed that RTUI provides most of the free advertising-laden cash register tapes to supermarkets in Palm Beach County, where I live. In fact, the lawsuits charging them with cheating their workers by classifying them as contract employees say RTUI is likely the largest firm in the country producing advertising-backed cash register tapes for grocery stores.

So once again, as a consumer I face the dreaded decision I think of as my Walmart morality test. Sure, I can buy numerous products I need for my home, my car, my dog, even groceries and discounted gas at Walmart, often cheaper than I can buy them anywhere else.

But three years ago, after reading a case study on Walmart’s employment practices for a graduate school class showing the company skirts labor laws by employing mostly part-time employees with no benefits, I did what I knew I should do as a former union member, a worker in an underpaid profession (teaching) and someone who actually hears sad tales about Walmart working conditions from a young friend who currently works at a South Florida Walmart because he couldn’t find another job. I actually quoted Nancy Reagan to the Walton family in my mind so I could “Just say no.” And I don’t shop at Walmart anymore.

Also somewhat of a geek – it is not an accident that I am finishing my Ph.D. in Communication at the University of Miami in my early 60s -- I wanted to know more about the cash-register-tape ads. I poked around a little more to see if I needed to employ my “just say no” approach to those big-discount ads from RTUI.  As a journalist for almost 25 years before I became a university professor in 2005, I know my way around legal databases.

One of the recent class action lawsuits I found against RTUI was filed in Maryland District Court by Taj Grayson, who claimed RTUI routinely classified him and other hourly workers as independent contractors, although they worked regular, fulltime, employer-set schedules in RTUI call centers. The lawsuit said the workers were closely supervised and did not have the freedom to set their own hours or the special skills required to be independent contractors under U.S. labor laws.

RTUI has been the defendant in multiple lawsuits alleging that the company also fails to pay its sale representatives promised commissions, car expenses and overtime also by calling them  “contract employees.” 

One of the plaintiffs in the Grayson case, Sally Henson, then 53, worked for RTUI in Southfield, MI, just north of Detroit where I lived for nine years, so using the court file to find her, I called her up.

Now a sales representative for ADT, Henson said she “had extensive sales experience when she went to work for RTUI, which, she said promised her a sales job with commissions,  “I was promised an outside sales job. They seemed eager to get me because of my experience.”

But first Henson said she was told she had to work  “a couple of days in the call center to see how it works.” The call centers booked appointments with local business owners, then RTUI sales representatives would keep the appointments and to sign the business to multi-year contracts for their ads to appear on the cash register tapes of local supermarkets, she said.

“I worked 8 to 5 or 5:30,” Henson said, “Five days a week. You had to be in the office making calls reading the scripts the whole time. There was no lunch hour and workers were not allowed to leave, she said.

“I was an idiot. I worked there two or three months in the call center before I realized they were never going to keep their often repeated promises to let me be a outside sales rep where you earn commissions,” said Henson, who now works for ADT in Michigan doing outside sales. “Some weeks I literally got paid nothing. I think the most I ever made was $200 for a week.”

Without admitting any wrong-doing, RTUI settled the Grayson lawsuit last year. The 40 plaintiffs received $50,000 and their court costs and lawyers fees totaling $73,906 were also paid by RTUI under the agreement.

How widespread is the is misclassification of  workers charged in the class action lawsuits filed against RTUI, I wondered. At the National Employment Law Center, I contacted Catherine Ruckelshaus, general counsel and program director, to ask her about the labor practices Henson described.

A veteran labor lawyer, Ruckelshaus said, “Call centers have been a real hotbed of wage and hour abuses. The practice has become increasingly common, although it has been a problem for decades. The increase in (misclassifying) independent contractors has been driven by the downturn in the economy, which helps employers perpetrate these schemes.

“Greed is also a factor because often they can get away with it… There has been very little enforcement (of labor laws including the Fair Labor Standards Act).”

Ruckelshaus said unemployed workers who get contract employee jobs, then discover they are being exploited, are often reluctant to complain, which is often the only way the employers get caught. At the same time, she said, the federal and state governments lose billions of dollars every year that companies who misclassify hourly workers as contract employees fail to pay for Social Security withholding, payroll taxes, unemployment coverage and workers’ compensation taxes.

But the practice of illegally classifying hourly workers as independent contractors is so widespread today in construction, home care, sales, housekeeping and light manufacturing, that employers who violate labor laws gain an unfair advantage over businesses who use temporary employment agencies, Ruckelshaus said.

“Workers don’t feel they have any power today,” she said,  “And federal and state agencies who regulate labor practices are now under-funded and under-staffed.”

But many RTUI call-center workers did complain, including Henson and Grayson, who on April 5, 2011 filed their class action lawsuit. The lead plaintiff, Taj Grayson, worked for RTUI’s Columbia, Maryland’s call center fulltime, usually 46 hours a week, from August 2010 until January 2011, the suit alleges. Paid as an independent contractor, he received at total of  $2,560 from RTUI for five months’ fulltime work with no benefits, no federal or state taxes paid, and no choice of what hours he worked. In fact, Grayson was paid less than one third of what he would have been paid at the hourly minimum wage, the lawsuit said. What he received amounts to $98.46 a week take-home pay for a 46-hour workweek.

I did the math. If RTUI had paid Grayson as the hourly employee on a regular schedule, with supervision and no special skills required to read the company’s highly scripted pitches to local business to advertise with them, he would have been paid $8,671, plus benefits, plus Social Security credits, plus better working conditions, including regular breaks.

In Michigan, Henson said she took the 45-48-hour-a-week job with RTUI during the recession and if she had tried to live on her tiny paychecks, “I would have starved, if I didn’t have a husband who was working.”

But many RTUI workers, according to the lawsuits filed in Maryland and California, were hardly their own bosses. The class-action suits allege both sales and call-center workers were closely monitored by supervisors and required to literally read scripts to potential advertisers, trying to sign them multi-year contracts. Neither were they “growing their own businesses” or benefitting from sales commissions, which the legal definition of  “independent contractor” classification requires.

More research revealed that misclassification hourly workers as independent contractors has become so widespread nationally that the federal government has allocated $25 million for a joint IRS-Department of Labor initiative to attempt to make it harder, if not illegal, to class workers without the independent schedules and a share of profits as independent contractors. Texas, where RTUI is base, is one of the 16 states so far to join in the federal effort to prosecute businesses that misclassify hourly workers as independent contractors to illegally avoid paying federal and state taxes.

I also found that RTUI has run afoul of tax laws before.  Since 1995, nearly a million dollars in state and federal tax liens have been filed against RUTI including state liens in California Texas, Ohio, Mississippi, New York, Washington, Maryland, Wisconsin and Kentucky.

Ruckelshaus, who has represented numerous under-paid or unfairly treated employees, said companies who misclassify hourly workers as contract employees don’t just pay workers less than minimum wage and deprive them of benefit, they “cost the states billions in workers’ compensation non-payments… and cost the federal government billions in payroll taxes.”

Today an estimated 10.3 million people in the U.S. are employed as independent contractors, according to the U.S. Department of Labor. “Many, many of them are improperly classified to avoid taxes and to pay much lower compensation,” Ruckelshaus said.

Improper classification as contract employees is also claimed in the California in a still pending class action lawsuit against RTUI filed in 2011 in Los Angeles County. The lead plaintiff in the case is Allen Hamburger, employed as a RTUI sales representative since 2004 and fired without warning in 2009, when he was 66, for allegedly failing to meet his sales quota.

Joined by 50 other former RTUI employees, Hamburger’s lawsuit alleges that he and the others were improperly classified as contract employees, forced to work mandatory and unpaid overtime, denied payment for business expenses including mileage and tolls, not paid promised sales commissions, not provided with itemized wage statement in violation of California’s Labor Code and not paid for their final weeks of work.

A tentative settlement, in which RTUI makes no admission of “liability, culpability, negligence or wrong-doing,” would set up a settlement fund of $75,000 for the case, pay Hamburger an additional $2,000 for his work as the lead plaintiff, pay plaintiffs’ lawyers $30,000 and court costs of up to $6,368.18. The agreement awaits approval by a district court judge later this year.

Hamburger’s several attorneys did not return calls and emailed requests for comment. RTUI’s attorney in the case, David J. Hamilton, said when I talked to him on June 18 that the district judge has not yet signed the negotiated settlement , but RTUI did not break labor laws, “We take the position that they all independent contractors.”

Jane Daugherty, a doctoral candidate and instructor in the School of Communication at the University of Miami, is also a journalist who was a Pulitizer Prize Finalist at the Detroit Free Press. She is a four-time winner of the national Robert F. Kennedy Journalism Award for Coverage of the Disadvantaged and was a Nieman Fellow at Harvard University. From 2005-2010, she was Associate Professor of Journalism at Florida International University after working as an investigative reporter and editor at the Palm Beach Post, the Miami Herald, the St. Petersburg Times and the Austin (TX) American-Statesman.