Chicago, IL, Jan. 23, 2014 – On the heels of a scathing report that GOP gubernatorial candidate Bruce Rauner’s firm GTCR has been linked to nursing home deaths and abuse, comes word that the firm's company, Cardinal Logistics, was sued by hundreds of employees who claimed they had been misclassified as independent contractors so the company could avoid paying millions in expenses and reimbursements.
Rauner, a multi-millionaire venture capitalist, has been portraying himself in his TV commercials as an “average Joe” in a Carhartt jacket. However, that rosy public persona is being sorely tested as reports about his companies’ financial activities and practices come to light. At issue is: how Rauner’s companies have operated, how they have treated (or mistreated) employees, and the public at large.
Burned by reports in the media, Rauner recently changed his position on cutting the state minimum wage. At a candidate forum in December, he said that Illinois should cut the state minimum wage to $7.25, down from $8.25.
“I will advocate moving the Illinois minimum wage back to the national minimum wage. I think we’ve got to be competitive here in Illinois,” Rauner said at the time.
Just days after his controversial remarks were reported; Rauner did an embarrassing U-turn on his stance, saying he now advocated the federal minimum wage being raised to $10 an hour and tying Illinois’ rate to national.
The flip-flop was revealing. Voters began asking: what does Rauner really believe? Can he be trusted? Or will he say and do whatever he needs to do just to get elected?
Even Rauner’s GOP opponents in the gubernatorial primary are asking whether he has any moral compass.
The class action lawsuit filed by the delivery drivers employed by GTCR-owned Cardinal Logistics provides some potential insight as to these questions.
Cardinal Logistics is a transportation and logistics management company and hires delivery drivers to service its clients, including Home Depot. At the time the suit was filed, Cardinal Logistics was receiving $240 million in revenue annually.
According to the Stockton Record:
The lawsuit claims that Cardinal directs and controls the work its delivery drivers perform, but have established an elaborate system and a series of documents to disguise the employeremployee relationship. For example, Cardinal requires the drivers to agree to provide their own equipment to perform deliveries, but also requires them to lease the trucks from the company and cover all costs, such as fuel and maintenance, the suit says. It also charges that as a condition of employment, the drivers are required to establish their own corporations or limited liability companies, which "serve no purpose other that to perpetuate and shield Cardinal's scheme."
Attorneys for the plaintiffs contended that the reclassification allowed Cardinal Logistics to avoid paying unemployment and worker's compensation insurance and reimbursements for supplies, uniforms, and equipment - shifting thousands of dollars in expenses each to hundreds of individual employees.
One plaintiff, Gerald Smith said he worked eight to 10 hours a day, six days a week at Cardinal’s direction, and that Cardinal deducted significant expenses from his weekly paycheck. Mr. Smith drove a Home Depot delivery truck and wore a uniform with both Cardinal Logistics and Home Depot logos.
The drivers also contended that Cardinal avoided giving them required meal and rest breaks and avoided keeping itemized wage statements.
Jennifer Whipple, an attorney for the plaintiffs, said the case was “one of the most blatant cases of deliberate misclassification” she had seen.
In September of 2011, GTCR-owned Cardinal Logistics agreed to pay $3.75 million in claims and settle the delivery truck drivers’ case.
Last July, the IRS began cracking down on U.S. companies that misclassify their workers as independent contractors to avoid taxes. The U.S. Treasury has reported that millions of workers are being misclassified, costing federal and state authorities billions in lost revenue.
According to Free Enterprise, a small business blog:
Companies that report employees as independent contractors avoid paying Social Security, Medicare and unemployment insurance taxes. But misclassifying workers also cheats workers out of their rights and benefits. Laws regarding overtime, workers' compensation, sick days and minimum wage don't apply to independent contractors....For employers who are caught misclassifying workers, consequences can include hefty fines, not to mention being forced to pay back taxes to make up for years of misclassification.
In 2007 – at the time the lawsuit was filed against Cardinal Logistics – the Government Accountability Office reported 10 million workers were classified as independent contractors, an increase of more than 2 million in six years.
GTCR-owned Cardinal Logistics might not have been the only company abusing the IRS’ classification of workers to avoid millions in taxes and shift costs to their employees but it certainly appears to have been one of them.
Rauner has stated repeatedly that he wants to “run Illinois like a business.” Voters would be prudent to question whether he means "like his business."