How Secret ‘Bondage Fees’ Trap Contracted Workers in Low-Wage Jobs
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Author: Sarah Lazare
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Workday Magazine

For almost six years, Raymond Pearson has been working as a front-desk concierge at one of the Galaxy Towers condominiums in Guttenberg, New Jersey, answering phones, getting packages to residents, dealing with food delivery, and developing bonds with the people who live there.

“The residents become your family,” says Pearson, who is 34 years old and lives in nearby North Bergen. “You’re spending a lot of time with them. I’ve seen some of the residents’ kids graduate. I’ve seen some leave for prom. The same ones who left for prom, I’ve seen them leave for college.”

But it wasn’t until this year, he says, that he learned that this whole time his livelihood has been subject to a contract—made without his participation or consent—that contains a poison pill.

The troubling provision is not in Pearson’s own employment contract, but the one between his employer Planned Companies—a contractor that hires concierges, janitors, maintenance, and other building service workers—and the Galaxy Towers Condominium Association. According to Pearson’s union, SEIU 32BJ, the provision says that, if Galaxy Towers ever terminates its contract with Planned, the condo—or any of its affiliates—is prohibited from hiring employees of Planned, directly or through another contractor, for six months following the termination, unless it pays three months’ salary for every worker it keeps on. The penalty would also apply if Pearson were fired or quit; he would then not be able to work at an affiliate of Galaxy Towers for six months, unless Galaxy Towers were willing to pay the fee.

This arrangement effectively makes it cost-prohibitive for a building to keep on Planned employees, outside of direct business with Planned.

Under this kind of “restrictive covenant,” Planned is effectively able to say that, if a condo wants to get rid of them, it will have to get rid of their workers, too. And if their workers want to quit, they’ll have to find a job site that has no affiliation with the condo.

This means that—no matter how much specialized knowledge Pearson develops about the building, how many years of experience he accumulates, or how many residents he counts as friends—he is trapped as an employee of Planned, and stuck in relatively low-wage work, if he wants to keep working in the building. This is despite the fact that Planned advertises itself to prospective employees as “not just a job,” but a career. And, if residents don’t want to part with Pearson and other workers, they, too, are stuck with Planned.

Pearson says he is dismayed by the built-in limits to his career. In the years he has worked at his building, Pearson says he has worked hard to earn the trust of residents. He has even had to gracefully handle the unfortunate news when residents passed away in their units, including some by suicide. “This job has its ups and downs,” he says. “But residents like me. They know they can depend on me.”

“The part that upsets me,” Pearson says, “is that [Galaxy Towers] can just decide to get rid of the company, and we just get tossed aside.”

Noncompete clauses in workers’ contracts, which prevent them from accepting employment with a competitor, have drawn public scrutiny in recent years, and the Federal Trade Commission (FTC) is proposing to ban them. But worker advocates say restrictive covenants that constrain the mobility of workers are noncompetes by another name.

In some respects, restrictive covenants like Pearson’s are a more extreme version. They appear in contracts that the worker is not party to, and workers are typically unaware that they exist at the point of hire. They affect a highly exploited stratum of the U.S. workforce: those employed by intermediaries like staffing agencies, subcontractors, and brokers. And they erode the bargaining power of those workers even further, by restricting their ability to seek higher-paying jobs, no matter how valuable their skills.

Stuck in Low-Wage Work

Pearson is now part of an effort to challenge these practices, which are overseen by some of the biggest companies in building management. Planned is a subsidiary of the Toronto-based FirstService Corporation whose branch, FirstService Residential, calls itself “North America’s largest manager of residential communities.” On April 6, Pearson joined with two other Planned Companies workers to deliver a petition to a FirstService Residential office in Fort Lee, New Jersey, calling for an end to its restrictive covenants.

Last year, SEIU 32BJ filed a complaint to the FTC on behalf of Planned workers, charging that the company’s widespread use of restrictive covenants constitutes an “unfair method of competition,” which the agency has the authority to prevent.

Planned, which is headquartered in Parsippany, New Jersey, wields considerable market power in the Northeast and Mid-Atlantic, where it is among the biggest building management contractors. In northern New Jersey where Pearson lives, Planned accounts for almost half of all contracted workers who run doors and concierge services for buildings, according to the complaint.

SEIU 32BJ says that Planned “has a history of paying people poverty wages with few meaningful benefits.” According to SEIU 32BJ, the company has faced fines over the past ten years for wage theft from hundreds of New Jersey workers. The FTC complaint charges that workers could earn considerably more if they were employed directly by a building, or by one of Planned’s competitors.

Planned’s goal with restrictive covenants, the complaint says, is “to keep both buildings and workers captive to Planned, and to prevent competing contractors from hiring the most experienced workers.” Planned provides “minimal” training, yet exercises considerable power over workers’ lives. The penalty, the complaint says, is tantamount to a “bondage fee.”

Pearson says he is one of about 40 Planned workers in his building who are bound by such “bondage fees.” After six years, Pearson says he is among the higher earners at $20 an hour, but he labors alongside people who do not make much over the state minimum wage. The health insurance is so bad and employee premiums so high, he explains, that he decided to opt out and buy his own private insurance. Planned’s insurance, he says, would not have been much help for an upcoming surgery he needs.

Pearson’s workplace voted to unionize in the spring of 2019, and has been stuck in contract negotiations since that fall. Workers won elections at other Planned buildings, and now Pearson’s bargaining unit hovers around 150 people. These workers are fighting to improve their conditions and security in an industry that is increasingly embracing a labor model of worker precarity.

A Fissured Labor Model

“It used to be that fancy luxury buildings directly employed lots of people to help run the building,” says David Seligman, who filed the FTC complaint on behalf of SEIU 32BJ, and serves as the executive director of Towards Justice, a nonprofit law firm. “Those jobs were often union jobs, where you had the opportunity to retire. Over time, we saw those jobs become increasingly precarious, especially as the buildings shifted toward the use of intermediaries who would directly hire workers and directly employ them.”

Such changes have contributed to what is known as the “fissured workplace,” described in a 2014 book by David Weil. Workers are increasingly employed by labor intermediaries like subcontractors or brokers, subject to the monitoring and control of the lead company but deprived of key protections and job security. This arrangement is abetted by a suite of provisions that disadvantage workers: traditional noncompetes, which bind around 1 in 5 U.S. workers, but also restrictive covenants similar to the one Pearson is subject to.

It is common for temporary staffing agencies, for example, to have contracts with worksite employers that include “conversion fees,” or fees the worksite employer must pay if it wants to turn a temp into a direct employee. (These are the functional equivalent to the penalties and restraints Pearson is subject to.) Though temporary staffing agencies often market themselves as a pathway to a permanent job, conversion fee arrangements make that unlikely.

Temp agencies justify conversion fees by arguing that the money helps them recover expenses associated with recruiting and referring temporary workers. But, as Jane Flanagan pointed out in a 2020 article, this justification is weakened by the fact that “significant fees or damages persists even after a temp has performed work at a worksite employer for many months, or even years.”

The real purpose, advocates say, is to enable middlemen to drive down the costs of labor. “These intermediaries, subcontractors, are competing with each other on one thing: the price of services, which is essentially the price of labor,” says Laura Padin, director of work structures at the National Employment Law Project, a worker advocacy group. “That really puts downward pressure on wages and working conditions.”

“It exacerbates occupational segregation,” she adds, “because people of color and immigrants are more likely to be hired into subcontractor jobs.”

The secrecy around such provisions is a barrier to those trying to research them, says Jonathan Harris, associate professor of law at LMU Loyola Law School in Los Angeles. “We don’t know how common conversion fees are, because these contracts are secret, and generally the only way they come out is through litigation between worksite employer and staffing industry, or through FOIA requests if a worksite employer is a public agency,” he explains. “Anecdotally, every single contract I’ve ever seen with major temp staffing agencies has had these conversion fee provisions in there.”

Widespread Use by Planned

SEIU 32BJ confirmed the existence of Planned’s restrictive covenant after the owners of another building, The Beacon, in 2020 declined to keep on the unionized Planned workers, and replaced them with non-union workers employed by a different contracting company, Adamas Building Services. In the subsequent National Labor Relations Board case, Adamas claimed that its refusal to take on that union workforce was born not from anti-union animus, but from the requirement in Planned’s restrictive covenant that Planned workers not be rehired.

Through that case, SEIU 32BJ learned about Planned’s widespread and broadly similar use of these covenants. In an April 2021 hearing, Astrit Gorana, chief operating officer for Planned Building Services (a division of Planned Companies), said that the company has included the restrictive covenant in the “vast majority” of its 1,400 contracts. (The administrative law judge in the Beacon case eventually ruled that Adamas had acted with anti-union animus, and the company has filed an appeal, which is pending.)

The restrictive covenant that binds Pearson and his co-workers was further confirmed as Planned workers negotiated their first contract. “In bargaining with six buildings, including Galaxy Towers, we proposed they rescind the restrictive covenant,” says Brent Garren, deputy general counsel for SEIU 32BJ. “And they refused.”

“No Hire” Agreements in FirstService Residential Contracts

There is evidence that these secret agreements that restrict worker mobility are used by other titans in the building maintenance industry, raising concerns not only for employees, but also for residents who find themselves stuck with companies, lest they part ways with the workers they’ve come to know and rely upon.

Workday Magazine and the Prospect viewed contracts between FirstService Residential, part of FirstService Corporation, which is the parent company of Planned, and two homeowner associations for condos in downtown Minneapolis. The first states that, if the contract with FirstService Residential is terminated, the HOA will not hire FirstService Residential employees, either directly or through a contractor, for two years. The second includes similar restrictions, but extends for one year instead of two. Such provisions are referred to as “no hire” agreements, which have the same functional effect as the restrictive covenant Pearson is subject to.

FirstService Residential in the Twin Cities has come under fierce criticism for its treatment of workers, who have been organizing for months to form a union with SEIU Local 26. (All of the FirstService Residential buildings in downtown Minneapolis are included in this unionization campaign.) Workers say FirstService Residential is refusing to agree to a union election free of intimidation, prompting workers to go on two unfair labor practice strikes, in October and March. (Neither FirstService Residential nor Planned immediately responded to a request for comment.)

In January, FirstService Residential fired Kevin Borowske, the live-in caretaker at Centre Village, one of their buildings in Minneapolis. Borowske had been actively trying to organize a union, along with his wife Larisa. Because they lost their jobs, they were forced out of their housing. The company initially sought to enforce a noncompete agreement against the couple, but, after negative press, said it would release him from the agreement and stop enforcing noncompetes against caretakers and desk attendants in Minnesota.

But Borowske says the company’s existing no-hire agreements violate the spirit of the company’s pledge that it won’t enforce noncompetes, and are terrible in their own right. “You can’t make that stuff up,” he says. “Leave it to FirstService Residential to have something like that.”

According to a spokesperson from SEIU Local 26, it is generally unknown among FirstService Residential workers in Minneapolis that this “no hire” language exists.

“This is Exhibit A for why employees need a seat at the table, because employers are reportedly giving away their workers’ rights without their consent,” says Greg Nammacher, president of SEIU Local 26. “Even when an HOA wants to do the right thing by retaining trusted staff when they change management companies, this stops them from doing that.”

Pressing for Change

New Jersey lawmakers are currently weighing state legislation aimed at extending labor protections to some service workers during ownership changes. And on April 13, Sen. Cory Booker (D-NJ) announced at a Zoom event with SEIU 32BJ that he is planning to reintroduce the End Employer Collusion Act, which aims to “prohibit agreements between employers that directly restrict the current or future employment of any employee.”

Seligman says that he believes restrictive covenants should be unlawful under the labor laws of many states and federal antitrust law, but there’s ambiguity and lack of enforcement, as well as a lack of case law to draw upon.

While he awaits a response to his FTC complaint, he says he is also involved in efforts to broaden the agency’s proposed ban of noncompetes.

The FTC’s proposed rule, introduced in January, is aimed at “preventing employers from entering into non-compete clauses with workers and requiring employers to rescind existing non-compete clauses,” and would apply to direct employees or independent contractors. However, the rule defines a noncompete clause as “a contractual term between an employer and a worker,” a definition that leaves out workers who are subject to agreements that exist in contracts they are not party to.

“The FTC needs to be broad and clear enough to reach constraints that operate as de facto noncompete agreements,” says Seligman. “We are seeing how employers are moving away from traditional noncompetes and [toward] different models to restrain worker mobility.”

According to Harris, “this is like a game of whack-a-mole with federal and state regulators. If they outright ban noncompete agreements and don’t rein in other kinds of agreements, companies are going to just start using those instead.”

Following a review of comments, the FTC will issue a final rule, which may then be challenged in court, something conservatives have already threatened to do. “We’re hopeful the rule would go into effect,” says Seligman, “but we think the proposed rule should be even stronger.”

In the meantime, Pearson, who is on the bargaining committee for his union, says he is frustrated with the situation he finds himself in. Before his current job, he was working at Macy’s, and he says he would have stayed there had he known of the restrictive covenant that came with his employment at Planned.

During his free time, he likes to listen to music and hang out with his nieces and nephews, he says. But lately, he has found it difficult to make plans during the week because “I’m forced into a double shift sometimes.” The demands of his job have made him more moody, he says, when he is off the clock. “I’m just a little more snappy and short with people. Once I did it to my own brother.”

“Working there, I have grown thicker skin. That’s a good thing,” says Pearson, “but it’s a bad thing, too.”

Note: Planned Companies has three divisions: Planned Building Services, Inc.; Planned Security Services, Inc.; and Planned Lifestyle Services, Inc. Because Planned Companies is the overarching entity, we refer to that entity throughout. According to SEIU 32BJ, the actual contracts in which the restrictive covenant appears are generally in the name of Planned Building Services and Planned Lifestyle Services.

This article is a joint publication of Workday Magazine and The American Prospect.

Sarah Lazare is the Editor for Workday Magazine.

Workday Magazine holds the powerful to account while bringing the perspectives of everyday workers, and the organizations that defend their rights, to focus. We emphasize long-form investigative journalism to unearth the concealed and buried. Our publication is based in Minnesota and covers the greater Midwest, along with international issues that affect workers, like climate change and U.S. militarism.

Workday Magazine fulfills the mission of the Labor Education Service at the University of Minnesota by providing a public outlet to examine the conditions that workers face on a day-to-day basis. We began publishing in the summer of 2000 with support from Minnesota’s labor community. 

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