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Striking New Ground: Union Files NLRB Charges Against Company Even Though It Doesn’t Employ Affected Workers

Published by on December 15, 2015

A recent dispute in New York City demonstrates that employers must think carefully about the potentially unintended consequences of their workforce management decisions. A routine choice to subcontract support services can quickly become a complicated fight over work rules, fair wages and union representation, given conditions such as those experienced by WeWork, a fast-growing startup.

A fast-growing, socially conscious new economy startup would hardly seem a likely target for an intensive battle with organized labor, especially when the company has built a solid reputation for paying above-market wages and benefits. But today’s labor environment is unlike any that has come before it, as the founders of global coworking company WeWork recently discovered.

WeWork is a venture-backed provider of open-concept workspaces for startups, mature technology companies, creative firms and independent freelancers. With origins in both New York City and Tel Aviv, the company has built a worldwide reputation for being an innovative leader in the future of workspace, establishing new locations rapidly across markets as diverse as Boston, Austin, San Francisco, London and Amsterdam.

At the heart of the company’s recent growth has been its reputation for presenting impeccably maintained coworking centers. The team responsible for executing on this brand promise had historically consisted of community managers who were direct employees of WeWork, and cleaning staff who (in most markets) were employed by third-party cleaning contractor firms. In much of the Northeastern U.S., these personnel were contracted through a cleaning services company known as Commercial Building Maintenance, or CBM.

As it turns out, this routine business decision created a ’two-class’ culture at WeWork, where direct employees of the company received $15-20 per hour wages, full benefits and stock options. However, cleaners employed by CBM generally received $10-$11 per hour (compared to a unionized prevailing wage of $23 per hour), with no benefits, no paid time off and none of the other advantages that were accruing to their direct-hire colleagues.

In the summer of 2015, the issue came to a head at the heart of WeWork’s operations in New York City, the firm’s largest market. The Kafkaesque result was that the cleaners organized a campaign to protest their situation and aimed it, not at CBM (their employer), but instead at WeWork.

Put another way, labor organizers and employees chose not to pursue their grievances against the actual company they worked for, but instead elected to pursue a high-profile public relations campaign against the company that contracted with their employer instead.

WeWork initially attempted to stay clear of the controversy by reiterating that employees of CBM should, logically (and legally), pursue their concerns with CBM. However, the cleaners’ response was that they had worn WeWork-approved uniforms (logo T-shirts in this case), had “gotten to know the company’s staff and customers”, and therefore concluded that WeWork “had a responsibility to them”.

Ultimately, Service Employees International Union (SEIU) local 32BJ, the largest property services union in the United States, chose to pursue a labor organizing effort on behalf of the CBM employees, but to do so by targeting its public relations campaign squarely at WeWork, reasoning both that WeWork’s brand would be more significant in the public consciousness than that of CBM — and that WeWork would be more likely to pressure CBM to accept unionization and other related labor concessions than CBM would otherwise be on its own.

WeWork was painted into a corner. Essentially barred by legal advice and contractual requirements from publicly entering a dispute between another company and its employees, WeWork nonetheless found itself at the receiving end of a charge filed by SEIU 32BJ with the National Labor Relations Board (NLRB).

In its complaint to the NLRB, the local claimed that a WeWork executive had suggested in a meeting that the company was opposed to any unionization efforts at CBM and would terminate employees who participated in a unionization drive. WeWork attempted to ameliorate the issue not only by denying the charge, but also by pointing out that WeWork would never have been in a legal position to fire CBM’s employees anyway. Nonetheless, the NLRB initiated an investigation against WeWork in the matter.

The next outcome was that WeWork ultimately elected to cancel its contract with CBM and replace the CBM employees with a smaller workforce of direct-hire personnel who were given higher wages, full benefits and equity in the company. However, since these higher-level positions also held a wider range of responsibilities and a broader scope of work, there were significantly fewer of them to fill. Economically, the company essentially doubled its cost of labor but cut in half the number of positions required to meet its needs. Nonetheless, the union didn’t back down and in fact ratcheted up its campaign against WeWork.

When WeWork required strong English-language proficiency in its new direct-hire positions, the union denounced this as discriminatory against immigrants.

When WeWork indicated that it could not re-hire CBM personnel because its contract with CBM specifically disallowed it, the union claimed intentional labor bias.

Then later, when WeWork negotiated an agreement with CBM to strike that clause and announced that it would interview all existing CBM contractor employees for new WeWork positions, the union blasted the company for not guaranteeing work to the existing personnel.

WeWork ultimately hired just a fraction of the 120 CBM-employed workers who had been cleaning its offices, which means that a majority of the original cleaners were ultimately left without work as a result of the turmoil.

The union then filed a new unfair labor practices charge claiming that WeWork must have simply chosen not to employ any of the original CBM workers who were pro-union. This despite the fact that the company had specifically altered its business model to create fewer, higher-paid positions by design, and even though there was no evidence that WeWork would have had any way to know what a given employee’s views were on the matter.

During this period, WeWork also hired a new Chief Operating Officer who possessed extensive experience in dealing with the complexities of the New York labor market (he had previously served as CFO of Time Warner Cable, another high-profile New York City company).

One thing that the new COO quickly figured out: While CBM had an outstanding reputation for providing high-quality cleaning services throughout the Northeast, WeWork was one of only a handful of clients that CBM served whose offices were primarily located in New York City.

Whereas office space cleaning is generally not unionized in the vast majority of the U.S., the SEIU claims that 90% of commercial office cleaning in New York City — and an astounding 98% of office cleaning in Manhattan — is performed exclusively by unionized personnel.

In other words, WeWork made one fatal mistake: It hired a non-union firm to provide services in a union-dominated market, and in response the SEIU was more than happy to do whatever was necessary to remind this emerging ‘new economy’ company of its transgressions.

The final result: The Wall Street Journal announced that in late October of 2015, WeWork changed course again and reached an agreement with SEIU that stipulated the following:

  • WeWork would exclusively contract for cleaning services with unionized vendors in the Northeast (primarily New York and Boston).
  • WeWork would give hiring preferences to former contract cleaners with CBM for future positions.
  • WeWork would set aside $250,000 in severance payments for former CBM-employed cleaners who were not rehired by WeWork.

As SEIU 32BJ president Hector Figueroa stated upon the announcement, the agreement with WeWork is “unprecedented” since WeWork “operates differently than the other companies with which the union has agreements”.

Considering that the agreement ultimately means that a union successfully pressured one private business to terminate its contract with another private business despite there being no reason to do so, and that a company elected to create guarantees and even a severance payment fund for people it never actually employed — the union’s statement is certainly accurate.

Welter Insight:

Fast-growing companies who operate in highly unionized labor markets need to understand and appreciate that their contractual decisions and vendor selections can unknowingly subject them to intense scrutiny from organized labor, and even result in charges and investigations by the National Labor Relations Board (NLRB).

In an environment where joint-employer decisions and increasing skepticism in the courts about the classification of workers in the ‘sharing economy’ is intense, it is critical that COOs and CFOs be fully informed on the nature of the legal, political and labor environments in which they choose to operate.

In addition, this is a powerful reminder that matters relating to the National Labor Relations Act can quickly result in legal actions even if a company is not serving as the employer, and even if unionization is not the core issue at the heart of the grievance or dispute.

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