AT&T ON THE LOW ROAD: Outsourcing and Offshoring, Employment Law Violations, & Customer Dissatisfaction

Published by Communications Workers of America

PRELIMINARY REPORT

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I. INTRODUCTION

AT&T has a history of providing good, middle-class, union jobs with employees delivering

high customer satisfaction—but that history may be turned around if the company

pursues a new path. This report details recent AT&T employment practices that, if

expanded, portend a drastic and misguided, change in its long tradition as a “high road”

employer that offers quality jobs and sets positive community wage standards.

This report details a disturbing trend of AT&T’s exploration of “low road” options—

outsourcing to companies that pay low wages and cheat workers out of earned wages,

as well as violating wage and hour laws itself. This approach is practised by non-union

telecommuncations employers and throughout the non-union call center industry. But

until recently, AT&T has held itself to a higher standard.

The “low road” approach to its employment practices is not just bad for AT&T employees;

it’s also bad for AT&T shareholders and the communities where AT&T employees live and

work. Importantly, AT&T’s new path is having a clear impact on AT&T’s customers. The

low wages, high turnover and lower quality stemming from the company’s outsourcing

strategy contributes to AT&T’s low ranking in customer satisfaction compared to its

competitors.

As it looks to the future, AT&T must refocus on the history that made it a great company:

good wages, good service and satisfied customers. That will only happen if the company

sticks to the high road.

II. AT&T’S OUTSOURCING AND WAGE LAW VIOLATIONS

Outsourcing to Low-Road CompaniesAs AT&T outsources formerly in-house jobs to unscrupulous low road companies, often

sending these jobs to overseas, it has encouraged increasingly lower standards across

its network of contractors.

Many of these contractors pay low wages, offer inadequate training and provide poor

working conditions that ultimately undermine customer service. AT&T employees often

interface with customers who have been forced to deal with these contractors. In

interviews they have shared stories of inaccurate service orders and repeated complaints

about the difficulty understanding the accents or English spoken by overseas contractors.

My big complaint is that orders are being placed, specifically out of the Philippines, for services for a customer, that the customer didn’t ask for and I keep seeing this more often…I get the call when the service gets changed and they get it on their bill and the [customer] is furious. — Julie, AT&T Customer Service Rep

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Even at U.S.-based contractors, the working conditions for employees are extremely

poor and far below the historical standards of AT&T. Some of the contractors have been

charged in multiple class action lawsuits with egregious violations of employment laws.

Three significant examples:

VXI Global — paying workers in debit cards: In May 2011, employees of AT&T call

center contractor VXI Global filed a class action lawsuit in California alleging that the

company paid workers in debit cards riddled with excessive bank fees and violated

wage and hour laws.1 California law requires that employees be able to cash paychecks

without incurring bank transaction fees, yet as the complaint by employees argues, they

were “assessed fees for transactions such as withdrawal, balance inquiry, and debit card

transactions… in addition to the fees charged by the banking institution.” The lawsuit also

claims that VXI Global has failed to pay employees for hours worked, overtime and meal

breaks. The lawsuit is pending.

Arise Virtual Solutions — Illegal misclassification of employees as independent contractors: Another pending lawsuit involves “virtual call center agents” also in

California who, according to a class action lawsuit filed against AT&T and its contractor

Arise Virtual Solutions, were illegally misclassified as independent contractors to lower

the company’s overhead and labor costs.2

According to the lawsuit, AT&T used Arise Virtual Solutions to hire customer support

agents to work from home to provide services to AT&T’s wireless customers. While AT&T

and Arise required all of these Virtual Call Center Agents to incorporate as independent

businesses, they were required to login to AT&T systems to perform their duties and were

barred from working for AT&T wireless competitors.

As the suit argues, the arrangement between AT&T and Arise illegally misclassified

employees as independent contractors in order to shirk the responsibility to pay overtime,

provide meal and rest breaks, and to avoid contributing to payroll withholding taxes,

workers’ compensation insurance premiums, unemployment insurance payments, and

Social Security taxes.

1 Robinson Jr. v. VXI Global2 Perry v. AT&T Mobility LLC, et al

“ We as the frontline call reps have to interface with that customer on the phone and always present that it’s a rosy picture and we’re able to seamlessly solve the problem for that customer when behind the scenes is a complex web of outsourced vendors and people that are not worried about that customer—they have no vested interest in that customer because they’re removed.” — Joe, AT&T Customer Service Rep.

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Convergys national call center overtime lawsuit: At one of AT&T’s largest contract

call center operators, Convergys, thousands of employees at more than 60 call centers

in 23 different states mounted a class action lawsuit in 2010 alleging the company

owes them millions in unpaid wages.3 The complaint alleges that Convergys illegally

requires call center employees to work without pay every day before and after their

official shifts. This includes starting up their computers and other preparation for their

shift, as well as closing down their systems and finishing necessary paperwork. This can

often take a lot of time since typically call center workers are afforded little time during

the normal work day to complete orders and follow up on service requests.As a result,

call center employees argue they were forced to work without overtime, which cost call

center employees thousands of dollars a year in illegally unpaid wages and overtime

individually—and millions of dollars collectively.

Convergys is currently in settlement negotiations with the plaintiffs in this suit.

AT&T’s Own Employment PracticesNot only has AT&T been hiring contractors engaged in illegal employment practices,

AT&T itself is also facing a rising number of lawsuits by its own employees over the

company’s employment practices.

Recently settled class action lawsuits: In recent years AT&T has been forced to settle

at least eight major class action lawsuits over alleged overtime violations.

• In 2010, AT&T settled three class action lawsuits brought by outside plant engineers in

Wisconsin, Illinois and Michigan over wage and hour violations. While the terms of this

settlement are confidential, AT&T was reportedly forced to pay out “untold millions.”4

• AT&T settled two separate class actions since 2010, brought on behalf of IT workers in

California who alleged they were cheated out of overtime. These settlements require

AT&T to pay out $29.5 million to the affected workers. 5

• In 2009, AT&T settled a class action brought by sales representatives who alleged

overtime violations of $1.5 million. 6

Pending class action lawsuits: AT&T is currently facing at least six additional major

class action lawsuits seeking hundreds of millions in unpaid overtime for thousands of

employees located in Illinois, California, Georgia, Florida, Mississippi, Tennessee, North

3 Shofner, et al. v Convergys Corporation4 Id.5 Stoll Berne. “AT&T Blue Sky Project overtime pay class action settled.” April 21, 2001; http://www.stollberne.com/

ClassActionsBlog/2011/04/21/att-blue-sky-project-overtime-pay-class-action-settled/; Schonbrun DeSimone Seplow Harris Hoffman & Harrison. “AT&T Class Action.” http://www.losangelesemploymentlawyer.com/AT-T-Class-Action/ (accessed on April 2, 2012).

6 Yelena et al. v. Pacific Bell Telephone Company. “Notice Of Proposed Settlement Of Class Action.” United States District Court (ED-CA). CASE NO. 2:07-CV-00392-FCD; http://www.kcrlegal.com/PDFs/Lebedchik_Notice%20of%20Proposed%20Settlement_V7.pdf

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Carolina, Alabama, Louisiana, South Carolina and Kentucky. 7 These lawsuits include

allegations that AT&T illegally misclassified workers as exempt from state and federal

wage and hour laws and refused to pay them overtime wages they were due under the

law. Classes of employees filing lawsuits include frontline managers, cable splicers,

account managers8 and customer service representatives9 demonstrating the apparent

breadth and depth of this practice at AT&T. Two lawsuits filed by frontline managers

could cover 5,000 active workers owed as much as $1 billion in overtime.10

Case Study: Cable splicers cheated out of overtime: Cable splicers at AT&T filed a

class action lawsuit in 2011 that alleges that not only were they cheated out of overtime,

but they also faced punishment for speaking up for their legal rights. Blakes v. Illinois Bell is the class action lawsuit filed by these AT&T employees who install, repair and maintain

the company’s telecommunications network. It alleges that these employees were

required to work “in excess of forty hours per week” but were never paid the additional

half-time pay required for such overtime.

Making clear this was not an accounting mistake, the lawsuit alleges AT&T management

“routinely disciplines” employees “for seeking compensation for overtime that has not

been preapproved. The result is that cable splicers are cowed by “fear of retaliation and

discipline” and “do not report all hours worked.” 11 The pending lawsuit covers 2,200

cable splicers in Illinois owed between $5000 and $70,000 each, with AT&T facing

between $11 and $154 million liability for the unpaid wages. 12

III. THE RESULTS OF THE LOW ROAD ON THE COMPANY, COMMUNITIES, AND CUSTOMERS

If AT&T expands its adoption of low-road employer strategies as documented above—

outsourcing, misclassification of employees as independent contractors, and illegally

pushing employees into overtime – its practices will hurt not just the workers involved but

also the communities in which AT&T operates and the quality of service for customers.

For AT&T, shortchanging employees may help the company to boost its bottom-line and

earnings per share, but it’s a short-term solution that comes at a long-term cost. For the

employees affected, the wages lost to wage theft by AT&T and its contractors represent

a direct financial loss. For the communities where those employees live and work, the

7 Sanford Wittels & Heisler. “Phone Company Dials Wrong Number On Employees’ Overtime.” Press Release. Dec. 16, 2009; http://www.swhlegal.com/data/public/ATT_Overtime_Class_Action_Press_Release_12-16-09_FINAL-63924-1.pdf

8 Goldstein, Demchak, Baller,Borgen & Dardarian. “AT&T.” Announcement of Casas v. Pacific Bell Telephone Company dba AT&T California case http://www.gdblegal.com/Cases/Current_Cases/Wage_Hour/Casas_v_AT_T.aspx (accessed on April 2, 2012).

9 Goldstein, Demchak, Baller,Borgen & Dardarian. “Pacific Bell (dba AT&T California).” Announcing Ellis, et al. v. Pacific Bell Telephone Company dba AT&T; http://www.gdblegal.com/Cases/Current_Cases/Wage_Hour/Ellis_v_AT_T.aspx (accessed on April 2, 2012)

10 Id., Sanford Wittels & Heisler. “Phone Company Dials Wrong Number On Employees’ Overtime.”11 Blakes v. Illinois Bell12 Information compiled by Locker Associates.

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impact of the hundreds of millions of dollars in wages lost to wage theft compounds into

an economic loss, exacerbating the effects of the recession. When those workers cannot

spend the wages lost to wage theft, then they cannot pay rents, they spend less on food

and clothing, they don’t travel. The company’s current low road path undermines the

economic and social dynamics that help a community to thrive.

There are serious danger signs for AT&T in the rising customer dissatisfaction being

registered in multiple consumer surveys. According to both the American Customer

Satisfaction Index13 and Consumer Reports14, AT&T ranked last in customer satisfaction

in 2011. Similarly, the American Customer Satisfaction Index rated AT&T landline below

average in customer satisfaction as well.15

Reinforcing the suspicion that this customer satisfaction problem is related to recent job

cutbacks and falling employee morale, AT&T’s ranking are not just low but have been

falling in recent years. According to the American Customer Satisfaction Index, AT&T’s

wireline customer satisfaction fell 5.3% from 2010-2011.

The connection between employee layoffs and lower customer satisfaction has been

well documented in recent years, particularly in the call center sector. One recent study

by Rosemary Batt and Alexander Colvin detailed how the “combined level of quits and

dismissals [at a company] is significantly negatively related to customer satisfaction.”16

Noting the wide variation in pay and conditions in the call center industry, they found

strong evidence that the short-term savings some companies like AT&T may be reaping

by outsourcing to low-road options are resulting in long-term costs in the form of

dissatisfied customers.

13 American Consumer Satisfaction Index. “May 2011 and Historical ACSI Score.” May 17, 2011; http://www.theacsi.org/index.php?option=com_content&view=article&id=205:acsi-scores-may&catid=14&Itemid=261

14 David Goldman. “AT&T still worst carrier, Consumer Reports says.” CNNMoney. Dec. 6, 2011; http://money.cnn.com/2011/12/06/technology/att_worst_carrier/index.htm

15 American Consumer Satisfaction Index. “Scores by Company.” http://www.theacsi.org/index.php?option=com_content&view=article&id=149&catid=14&Itemid=214&c=AT%26T+&i=Fixed+Line+Telephone+Service (accessed on April 2, 2012).

16 Batt & Colvin. An Employment Systems Approach To Turnover: HR Practices, Quits, Dismissals, And Performance. February 2010.

“ They don’t appear to be spending the money to help benefit the customers ultimately, I mean that’s who it really hurts- you know, increased service outages, their downtime, repair times are increased due to this, but they’re not investing in the plant, and obviously we don’t have the workforce…Construction is reducing their head count, we don’t have the employees to do the work even if the company would spend the money. — James, AT&T employee

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IV. CONCLUSION

The pattern of AT&T business behavior detailed in this report is a departure from the

company’s traditions— and that is a bad sign for the health of the company in the future.

Outsourcing, offshoring, not paying employee overtime, misclassification of employees

as independent contractors or management employees—all of these low road practices

may result in short term savings for the company but they aren’t the way to deliver

long term growth. They are not only unjust for American workers; they are also bad for

local economies, bad for consumers and, in the end, bad for company stakeholders

of all kinds. In a time of massive job losses in the United States, companies like

AT&T need to have a commitment to keeping good jobs in our communities not shipping

them overseas.

Given the overall strength of the company, AT&T can turn the problem around—if it

chooses to. The question is what path AT&T’s management wants to take: the low road

to litigation and consumer dissatisfaction or the high road to being partners with its

workforce in continuing to build a great company.