Complaints Arise Over Subcontractors That Handle Storage, Shipping for Retail Giant


Wal-Mart Stores Inc. is planning to monitor subcontractors' U.S. warehouses, in the same way it tries to police conditions at suppliers' factories around the globe.

The monitoring program follows protests, fines and lawsuits stemming from complaints of poor worker treatment at the warehouses, where work is subcontracted out.

Warehouses that handle merchandise for Wal-Mart, shown above, often are staffed through subcontractors.

Warehouses that sort and ship merchandise to stores, as well as handle online orders, are one of the fastest-growing sources of U.S. retailing jobs. In many cases, store chains don't own the warehouses or directly employ their workers. The warehouses ramp up operations during the Christmas season, hiring thousands of temporary workers though third-party staffing agencies to help speed the high volume of holiday presents to doorsteps and store shelves.

Recent claims of poor working conditions and withheld wages at warehouses, primarily clustered around major transportation hubs in Illinois, New Jersey and California, have led to protests by workers and criticism by labor activists and state regulators, who say retail chains should ensure the warehouses comply with labor laws.

California Labor Commissioner Julie A. Su argues that retailers are trying to abdicate responsibility for their supply chains by hiding behind subcontractors. "It's not an accident that the more levels of subcontracting, the worse the violations we find," Ms. Su said. The subcontracting system creates "an underground economy where it's hard to determine who is responsible for the welfare of workers," she said.

In California, state regulators have been investigating warehouses for violations including failure to provide necessary safety shoes and other equipment, as well as allegations that workers with heatstroke were denied proper medical care.

In Illinois, workers have filed a class-action lawsuit alleging that a hiring agency cheated warehouse workers out of wages by rounding down hours and withholding overtime pay.

Helping to fund the workers' efforts is Warehouse Workers United, a group backed by a coalition of labor unions that includes United Food and Commercial Workers International Union, which has previously tried to unionize Wal-Mart employees. Many of the protests have been directed at Wal-Mart.

Wal-Mart has argued that many of the warehouse allegations should be directed at the third-party logistics companies with which it contracts; the logistics companies maintain that they require staffing agencies to comply with labor laws.

Nonetheless, the Bentonville, Ark., giant is developing an auditing system, similar to the one it uses to monitor overseas factories in places such as China and Bangladesh, to help ensure that the domestic parts of its supply chain are complying with safety and labor rules.

Wal-Mart spokesman Dan Fogleman confirmed the monitoring plan, which includes unannounced visits of all third-party operated warehouses by independent auditors, but he declined to elaborate on how the system would work.

"We take this seriously," he said.

State labor officials and activists called Wal-Mart's plan to monitor warehouses insufficient, saying that a fire at a Bangladesh garment factory that killed 112 workers last month underscored the shortcomings of such auditing systems.

Wal-Mart said it had banned suppliers from using the Bangladesh factory months earlier, after auditors discovered problems. But workers at the factory were still producing clothing for Wal-Mart at the time of the fire, because of unauthorized actions by a supplier that it subsequently fired.

The California Labor Commissioner's office issued more than $1 million in fines last year to temporary staffing agencies at warehouses operated by Schneider National Inc., which helps handle goods for Wal-Mart. Now some workers at the warehouses operated by Schneider have lodged a lawsuit alleging that Schneider and Wal-Mart are responsible for those labor violations, in addition to the temporary staffing companies that hired and paid the workers.

Schneider isn't liable for workers employed by staffing companies, which are responsible for issues including discipline and rates of pay, a spokeswoman said.

Workers at some of the warehouses, which often handle merchandise for multiple retailers, are often unaware of which retailers' goods they are handling.

"For months I didn't know I was working for Wal-Mart," saidDavid Garcia, 29 years old, who until recently worked in shipping and receiving at a Mira Loma, Calif., warehouse run on behalf of Wal-Mart by NFI Industries. Mr. Garcia says he was fired after he joined a half dozen other workers on a trip to Bentonville in June to meet with Tom Mars, Wal-Mart's chief administrative officer.

The group claimed that temperatures at the warehouse surpassed 125 degrees and that the staffing company deducted wages for workers who wanted safety equipment like goggles and dust masks. It pleaded that its members be protected from retaliation for reporting the claims.

"Mr. Mars said I wouldn't regret coming to talk to Wal-Mart, but after the meeting nothing changed and I was let go," Mr. Garcia said.

Wal-Mart confirmed the meeting. It has said it has had productive meetings with workers who are helping the retailer understand the issues in greater depth.

NFI Industries, a Cherry Hill, N.J., logistics company that operates the warehouse on behalf of Wal-Mart, denied Mr. Garcia faced retaliation but said it was the responsibility of Warestaff, a temporary employment agency that helped supply workers for the warehouse, to explain why he was let go.

Warestaff declined to comment.

The California Division of Occupational Safety and Health said it is investigating the Mira Loma warehouse where Mr. Garcia had worked. Earlier this year, Cal/OSHA issued more than $250,000 in fines to a warehouse in Chino, Calif., operated by NFI Industries. An NFI spokeswoman said it would appeal the fines.

The warehouse industry has a history of worker safety problems: With more than 670,000 workers, there are 5.5 injury and illness cases per 100 full-time warehouse workers, higher than the rate at industries such as mining (2.2 cases per 100 workers), construction (3.9) and manufacturing (4.4), according to the U.S. Department of Labor.

California Gov. Jerry Brown signed a law in September that expands protections for warehouse workers. It came on the heels of a Massachusetts law requiring temporary staffing agencies to inform workers of where they will be working and what they will be paid.

A version of this article appeared December 28, 2012, on page B4 in the U.S. edition of The Wall Street Journal, with the headline: Wal-Mart to Police U.S. Warehouses.