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Meet the customer service reps for Disney and Airbnb who have to pay to talk to you
October 2, 2020 6:45AM ET
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Airbnb, battered by the pandemic recession, announced in May that it would be laying off a quarter of its workforce. In a post hailed for its empathy and transparency, CEO Brian Chesky wrote, “We will have to part with teammates that we love and value.” He outlined a generous severance package. Departing employees would receive 14 weeks of pay plus an extra week for each year at the company; help from professional recruiters to land new jobs; and 12 months of continued health insurance.
Around the time Chesky made this announcement, another group of people working with Airbnb also lost their jobs. But these weren’t called layoffs and weren’t accompanied by a compassionate note from the CEO. And the workers, who handle the day-to-day tasks of bookings, cancellations and keeping the peace between guests and hosts, got no severance. There was no health insurance plan to be extended.
These American workers — cheap, disposable and isolated — worked through a company called Arise Virtual Solutions, a little-known business that has helped some of America’s best-known businesses shed labor costs.
You may not have heard of Arise, but chances are, you’ve talked to an Arise agent — perhaps when you thought you were talking to a Comcast employee about a bill or a Disney employee about a reservation. Arise lines up customer service agents who work from home. It then sells this network of agents to blue-chip corporations.
Arise and most of its corporate clients consider preserving the secrecy of this arrangement to be vital. An Arise company manual says, “The confidentiality of information related to Arise and its clients must be maintained forever.” Arise’s agents are forbidden from publicly identifying the brand-name companies whose customers’ calls they answer. Even commiserating in a private Facebook group, they avoid typing out Airbnb, opting instead for rather flimsy code. The “bed and breakfast client,” some write. One used “sky bnb.”
Arise’s workers not only don’t work for its clients, they also don’t officially work for Arise. Like Uber drivers or TaskRabbit gofers, they are independent contractors. To get gigs, they first absorb substantial expense, paying for their own equipment and training, and then have fees deducted from every paycheck for the “use” of Arise’s “platform.”
Arise has faced, and lost, legal challenges alleging that its arrangements with agents violate federal labor law and cheat workers of what they are rightfully owed. One judge called the arrangement an “elaborate construct” created by Arise to get around labor law. Nevertheless Arise has been able to avoid altering its model in any significant way, aided in part by a 5-4 ruling from the Supreme Court, written by Trump appointee Neil Gorsuch.
Arise not only creates separation between its corporate clients and individual agents, it also allows those companies to quickly add or subtract workers. In March, Instacart needed all kinds of agents. By May, those jobs had largely disappeared. “I was there for a week. We’re disposable,” one Florida agent dropped from Instacart assignments told ProPublica.
The “biggest benefit” Arise provides is to help companies “squeeze wastage out of a typical workday,” as John Meyer, a former Arise CEO once explained to a trade publication. Meyer, who has remarked that “business is sports for adults,” said that “a typical employee has a utilization rate of 65 percent because you’re paying for their lunch, breaks, and training.” Without that “low utilization” and other overhead, Arise costs up to 30% less than a traditional call center, Meyer said.
With American roots going back to the 1990s, Arise’s list of corporate clients, past and present, includes not only Airbnb, Comcast, Instacart and Disney, but also Amazon, Apple and AT&T. There’s also Barnes & Noble, eBay, Intuit, Home Depot, Staples, Princess Cruises, Peloton, Signet Jewelers, Virgin Atlantic and Walgreens. It is now owned by Warburg Pincus, the private equity firm where former Treasury Secretary Timothy Geithner is president.
Arise has been a pioneer in driving two currents roiling the American labor market. Ever more people are working from home, and workers are increasingly treated as independent contractors, stripped of the right to minimum wage, overtime and other legal protections provided to employees.
The pandemic has accelerated these forces. Many physical call centers have closed but companies still need someone to answer their customers’ calls, chats and emails, a need answered by Arise and its peer companies like Liveops, NexRep and Working Solutions. The work-from-home customer service business, in which an estimated 500,000 Americans worked even before the pandemic, is booming.
For this story, ProPublica obtained transcripts of arbitration hearings, financial slides, corporate contracts and other records that provide an unusually close look at Arise, a major player in this underground industry. Arise requires agents to sign nondisclosure agreements as a condition of working, but ProPublica was able to interview dozens of former or current agents and employees at Arise’s corporate headquarters.
Arise executives declined to be interviewed for this story, as did Meyer, the former CEO. In legal proceedings, Arise has consistently said that it follows the law and that its practices are “transparent every step of the way.” The company provided ProPublica a written statement that said Arise’s system was a boon for those who work through it, people it calls “Service Partners.”
“The Arise® Platform is not necessarily a guarantee of success — the work can present challenges like any other, and it can be dependent on demand like many independent contractor arrangements — but it offers significant flexibility” for its customer service agents, the statement said. “In our 25-year history, our platform and the opportunities it provides have overwhelmingly shown positive outcomes for Service Partners who use the Arise® Platform to do the meaningful work they love and choose to do.”
ProPublica reached out to 38 corporations that have contracted with Arise over the years. After being contacted by ProPublica and asked about Arise’s labor practices, Signet, the corporation that owns Zales, Kay and Jared jewelers, “paused” its relationship with Arise “pending further due diligence,” according to a company statement that noted almost all of Signet’s customer service agents are in-house.
The vast majority of the corporations either didn’t respond or declined to answer our questions. From Home Depot: “We ... don’t have anything to add here.” From Airbnb: “We do not have additional comment here.”
Arise isn’t so reticent when talking itself up to potential clients. In a webinar this spring, CEO Scott Etheridge talked about Arise’s explosive growth during the pandemic. In April the company saw a surge of new agents, bringing its network up to 70,000. Arise, Etheridge said, is “changing the way the world works.”
Between 400 and 740 Seconds
After paying about $1,500 for home office equipment: a computer, two headsets and a phone line dedicated to Arise; after paying Arise to run a check on her background; after passing Arise’s voice-assessment test and signing Arise’s nondisclosure form; after paying for and passing Arise’s introductory training, to which she devoted three days, unpaid; after paying for and passing a certification course to provide customer service for Arise client AT&T, to which she devoted 44 unpaid days; after then being informed she had to get more training yet — an additional 10 days, for which she was told she would be paid, but wasn’t; and then, after finally getting a chance to sign up for hours and do work for which she would be paid (except for her time spent waiting for technical support, or researching customer issues, or huddling with supervisors), Tami Pendergraft spent three weeks fielding telephone calls from AT&T customers, after which she received a single paycheck.
For $96.12.
To understand what happened to Pendergraft, picture a hanging chain. The first link, at the top, is a big company with many customers who have questions about their bill or some product or service. This big company contracts with Arise, the second link. Arise contracts with smaller businesses, the third link. These small businesses are often a lone person who incorporated because Arise’s business model demanded yet another corporate layer. They contract with an agent — such as Pendergraft — who is the fourth and bottom link. So the agent assisting the big company’s customers doesn’t work for the big company: she is three links removed.
For playing the middle link, Arise charges both sides: the corporate clients, who often pay millions, and the network of workers, composed overwhelmingly of women and people of color.
To prospective agents, Arise touts that you can “be your own boss,” as its website says. “Set your own schedule.” “No commute, no suit!” Arise targets its pitch to those who might have limited mobility or options: stay-at-home mothers, caretakers, military spouses or people with physical disabilities. Some agents do find freedom and a reliable source of income. Arise has produced several videos of business owners praising the platform. The president of Girlicity, which, according to its blog, is Arise’s largest business partner, praised the company in a video as “a perfect fit.”
But often people discover that despite the layers of legal paperwork between them, the brand-name company at the top can still retain strict control over agents at the bottom. Rigid workplace formulas often govern everything from length of calls to frequency of refunds. Deviate from these standards and an agent can lose her job.
Control over the agents in Arise’s network can extend beyond work-performance measures. Some contracts require agents to work a set number of weekends and holidays. In multiple contracts reviewed by ProPublica, Arise reserved the right to make agents submit to drug testing “at any time.” And one former agent, testifying in an arbitration hearing, said: “Arise sent two instructors to my home, to audit my home. I’m not sure exactly what they were looking for, but they checked my ID. They looked around, too. They took a look at my internet connection.”
And the work often isn’t as lucrative as people hope. Many agents find that the pay, after the cost of training and fees to Arise, dips well below minimum wage.
When Tami Pendergraft first heard of Arise, it was 2012. She was in her 40s and unemployed. She had attended college in Missouri and gone on to live in Houston. For 20-plus years, she had worked in information technology sales. Then she hurt her back and sought work from home. Arise offered her that chance. It was her first job in customer service.
Pendergraft, citing her nondisclosure form with Arise, declined to be interviewed for this story. But her account can be found in arbitration hearing transcripts.
Pendergraft testified that she put in “50, 55” unpaid hours a week during the AT&T training, which cost her $199. “Practice, practice, practice, practice,” instructors told trainees, who had to pass a succession of tests to keep moving on. Her class — or “wave,” as each was called — had about 60 people at the start. All paid to take the course. Only half finished. They did not get their money back.
Once Pendergraft was certified, she was obligated to work at least 20 hours a week. But come her turn to sign up for shifts, “there would be nothing left,” she said. Any slots available to her were chopped up, “30 minutes here, 30 minutes there. It was all broken up.” She realized she couldn’t have a life and meet her contractual requirements. When she did get hours, she was paid for time talking, not waiting, even though she was tethered to her computer and headset: “Sometimes I wouldn’t get a call for 30, 40 minutes, sometimes an hour, and I’d just have to sit there.”
Disgusted, Pendergraft quit.
“I felt like I did my part in good faith,” she testified, but “nobody really cared.”
Then she sued.
Around the country, other agents did, too, joining federal class-action lawsuits filed against Arise in 2011, 2012, 2013 and 2016.
A woman from Douglasville, Georgia, filed a declaration saying her initial Arise training had cost her approximately one week and $99. She then worked with six companies that contracted with Arise. To be eligible for each gig, she paid an upfront training fee, and for each, her training time was unpaid. She approximated the training commitments and fees:
Jewelry TV: one week; $50
Sears: 30 days; $200
Walgreens: 30 days; $159
TurboTax: 30 days; $59
Rogers (a Canadian telecom): six weeks; $279
AT&T: 90 days; $179
Added up, she had spent about $1,000 for about eight months of training, unpaid.
A woman in Orange County, Florida, reported working 117.5 hours in one two-week period. That would have entitled her to 37.5 hours of time-and-a-half overtime — if she were an employee. But since she was labeled an independent contractor, there was no OT.
This same agent had signed with Arise in 2015 to help AT&T customers with questions about bills, rate plans and other matters. Her contract listed 25 performance measures that she had to meet:
Her Average Handle Time, the industry term for average length of call, had to fall between 6 minutes, 40 seconds and 12 minutes, 20 seconds. Commitments to get back to a customer to resolve a particularly complicated issue had to be kept at or below 0.5% of the calls. If she put a customer on hold, the average hold time had to remain below 30 seconds. She could offer a credit on a customer’s bill no more than once per 15 calls, and if she determined a customer was indeed owed money, any refunds or deductions had to average less than $2.50 per call.
Failure to meet any one of these 25 requirements “shall be deemed a breach,” the contract said, allowing Arise to terminate her job.
An agent who worked in Florida testified that he answered calls from customers for Barnes & Noble. Someone hired by Arise would listen to some of the agent’s calls and then send him a scorecard — with 40 items.
Did the agent express genuine interest in helping? If so, he received 3.75 points. If he provided “complete information,” he received 7.1429 points. If he “kept control of the call,” he got 2.857143 points. He received one bonus point for addressing the caller by name and two bonus points if he used an “empathetic statement.”
While Arise declined to comment on specific cases, the company said in its statement that it doesn’t mislead any prospective agents: “The Arise® Platform is built on the basis of transparency and freedom of choice. How the platform works and the specific requirements and needs of each opportunity are clearly laid out every step of the way.”
For corporate clients, the arrangement offers contractual distance without loss of control. Arise also provides assurance that American consumers will hear American voices on the line’s other end, helping to reverse the exportation of call center jobs to places like the Philippines.
At an industry conference in February, Intuit’s top customer service executive noted that the company had had trouble achieving its “cost goals” in the pre-pandemic context of low unemployment and rising wages.
The solution was an army of workers — not employees — provided by Arise and several peer firms. Internal documents obtained by ProPublica show the level of control Intuit has over call agents, even when they’re three contract hops away. Intuit provides the training materials that Arise and other contractors distribute to agents. Intuit staffers receive, in return, detailed performance data showing, for example, the percentage of “non-talk time,” or NTT, on each agent’s calls. The higher the NTT, the worse the agent’s performance, in the view of Intuit. Much of the data is generated automatically by analytics software, and Intuit staffers can also listen to audio of any call. Some agents, according to a former Intuit employee, figured out a clever way to fool the software: They would turn up their TV so there wasn’t much NTT.
If a particular agent isn’t doing well, the agent can be, in Intuit’s parlance, “deskilled,” according to the former Intuit staffer. That means fired. Intuit documents lay out “Deskillable Behaviors” that include “patterns of excessively short calls” and incorrectly categorizing calls. “1st Violation = Warning,” an Intuit document says. “2nd Violation = Deskilling/Removal.”
Intuit ultimately built an outsourced customer service workforce of more than 20,000. That’s more than double Intuit’s employee workforce. The company shifted from under 10% to over 65% work-at-home labor for its customer service, said Balakarthik Venkataramanan, Intuit’s director of global partner management. Most of the agents who work from home are contractors. Intuit was able to cut its customer service costs by more than 15% in just a few years, even as its needs increased, he said.
An Intuit spokesman did not respond to questions about Arise’s labor practices. The company said in a statement its vendors are responsible for their workers.
Arise can’t assign regular schedules to individual agents because they’re not officially employees. So to guarantee it can deliver the labor force that corporate clients are paying for, the company over-recruits agents for each client, a former Arise executive told ProPublica. That way, the former executive said, “when the need comes, you have people with extra capacity lying around.” For the agents, that means spending hundreds of dollars on training equipment and fees and potentially never getting enough hours to make the investment worth it.
Arise began in the late 1980s in Toronto as Willow Corp., founded by serial entrepreneur Richard Cherry, who has authored several books including “Money NOW Safely: Ka-Ching!” and “The Silver Bullet Obesity Terminator.” He believed he could unlock a workforce of people with disabilities to answer customer service calls from home.
By the mid 1990s, Willow went belly up and Cherry and his wife relaunched in Florida. An early client was the Home Shopping Network. Early investors included media mogul Barry Diller and the Hunt family of Texas.
Over time, Willow, which eventually changed its name to Arise, gained traction. Virgin Atlantic, JetBlue and Staples became customers. In 2006, “Good Morning America” featured the company in a segment on moms working from home. In 2009, the CEO was invited to a jobs summit at the White House where she received a personal shoutout from President Barack Obama.
Arise is privately held, so its finances are not public. But a 2017 confidential slide deck obtained by ProPublica shows quarterly revenue of $40 million and a gross profit margin of nearly 30%. Intuit, Carnival, Disney and Comcast were among the largest revenue generators.
Arise was acquired last year by Warburg Pincus, the New York private equity firm. A report the firm published this year said it seeks, in its investments, to “support the payment of competitive wages and benefits to employees.” A spokeswoman for Warburg Pincus declined to comment.
“Mouse Client”
If a customer with a question about Intuit’s TurboTax software had reached out for help in the fall of 2018, the agent who answered might have been Krystin Davenport. The customer, seeing Davenport on video chat, would not have known she was working from home. She wore a white polo shirt and sat in front of a TurboTax-blue screen that she attached to the back of her chair. Nor would the customer have known she wasn’t an employee of Intuit. By design she was far removed, working at the end of a chain that went from Intuit Inc., in Mountain View, California, to Arise Virtual Solutions Inc., in Miramar, Florida, to Client Virtual Solutions LLC, incorporated in Nevada, to Davenport, who lived in Las Vegas.
The job paid $12 an hour and allowed Davenport to stay home with her two kids, who took classes online. The trainers at Arise had made the job sound fun. “They were saying as long as you’re wearing your polo shirt, you can rock out in pajamas if you wanted to,” Davenport told ProPublica. “That was basically how they were advertising it, making it sound, like, so cool.”
Part of Arise’s value to its corporate clients is in making itself invisible. Arise training materials say that most Arise clients — that is, the big companies — “do not want their customers to know that the handling of the call has been outsourced or that it is being answered in someone’s home.” To the caller, it must appear the agent is working “from a professional office environment,” with no dog barking, no baby crying, no mower mowing. The training materials advise agents to consider investing in carpet and a solid-core door to muffle sound.
Arise agents take this seriously. In private online forums they discuss their preferred lies for why their pretend call center seems so silent. One agent tells callers she works in the back, where it’s quiet. Some agents use manufactured sound to drown out the sounds of home: a whirring fan, a space heater’s hum or white noise, courtesy of Google Home or Alexa. Some learn the weather each day wherever it is they’re pretending to be, in case it comes up with a caller. Some even turn to YouTube and play a long recording of a call center’s background noise.
The most important secret that agents must keep is the identity of the companies that use Arise. Beyond “skybnb,” agents adopt code names such as “Diva Cruise” for Princess Cruises and “The Fruit” for Apple. Some code names create confusion among agents when autocorrect does its thing, turning “Funship” (Carnival Cruise Line) into “Gunship.”
Yvonne Corder worked as an agent with Arise for seven years, through 2016. She helped Disney (code name: “Mickey” or “Mouse Client”) customers wanting restaurant reservations at Disney parks. Corder lived just outside Hot Springs, Arkansas. But if a caller asked where she was, she’d say Orlando, Florida. Picking up, she had to say, How can I make your trip more magical? Hanging up, she’d say, Have a magical day. The words became so wired she’d be on the phone with friends or family, saying, Goodbye, I love you, have a magical day. She would have to say that even to the mom who had waited too long to reserve Cinderella’s royal table for her daughter’s second birthday. The mom screamed and cried and threatened Corder with a bad review, which could jeopardize her job.
Corder worried constantly about losing the $9-an-hour job, which she needed to support her family of four. She kept watch on her metrics and tried never to take so much as an unauthorized bathroom break. One night, sick with food poisoning, she remembers putting callers on hold to throw up. “I prayed there were no extra monitors listening that day.”
Some callers were creepy, Corder said. “Want to come do something?” she would hear. Agents across the industry interviewed by ProPublica said sexual harassment was a constant problem. Some corporations don’t allow agents to hang up without permission, no matter what the caller is saying. One young woman in Florida said the same man would call on Saturday nights to say: “I can hear your typing. I really like the way you type.” Another longtime agent said she couldn’t believe how many “perverted calls” she had to field on Sunday mornings. “They’d say: ‘What are you wearing? Are you naked? Can I do things to you?’ I figured they got a thrill from skipping church.”
Customers sometimes assume, reasonably enough, that agents are plugged into the system of the company they appear to work for. A former Arise agent who assisted eBay callers (she asked not to be named because of a nondisclosure agreement) told ProPublica she received calls from eBay sellers fuming about a site-wide glitch. But having no access to eBay software or personnel, the agent had no way of restoring auction items taken down by accident. “I was screamed at and cussed at,” she said. A few weeks later, she lost her job because her customer-satisfaction scores had tanked.
In its business model, Arise refers to the third link — the corporate layer between Arise and the agents — as Independent Businesses. Arise markets them at every turn as an entrepreneurial opportunity. “We are fostering the growth of American small businesses run by women and minorities,” a former Arise CEO said in a 2016 press release. Arise reported that 64% of the owners were people of color and about 89% were women.
That same year, however, another Arise executive, testifying in a legal proceeding, disclosed that most of these businesses are hardly businesses at all. He estimated that 60% have only one agent — the very agent who created the business, as a condition of working with Arise.
Those who opt instead to work under someone else’s Independent Business typically have to give up another slice of their paychecks. Say you sign up with Girlicity, the Independent Business that bills itself as Arise’s largest partner and claims to have 9,000 Arise agents. Arise charges $19.75 for each agent, twice a month, for the use of its platform. On top of that, Girlicity will charge you $25, twice a month.
For Arise, these corporate go-betweens offer a second advantage in addition to being a legal defense. Arise has its Independent Businesses help recruit agents. Arise advises people to post flyers at intersections, print up school banners, and contact churches, temples, universities and associations “for the handicapped or disabled.” Some Independent Businesses, in turn, offer referral fees to agents who recruit other agents.
Those who have run Independent Businesses include a minister in Georgia, who talked up Arise at her church; others who pitch potential agents on YouTube; and even Omarosa Manigault Newman, the former “Apprentice” contestant who later worked in the Trump White House.
ProPublica worked on this story with the NPR show “Planet Money.” Though Arise did not offer the show an interview with any executives, it did give “Planet Money” the names of three Independent Business owners who would talk about their experiences with Arise. In interviews, two said that while Arise’s system has its flaws, it can be a good opportunity for people working from home. (The third agreed to be interviewed, then canceled.) But Arise’s selection raises questions about its vetting. Federal court records show that one of the three owners had previously been convicted of felony wire fraud while working in a similar job. As an administrator for a company that books cruises online, she manipulated the payment system so that commissions for travel agents were double paid, with the second sent to her mother’s bank account, court records show.
Some Independent Businesses have been accused of shortchanging their agents. In 2014, Work at Home Solutions, which works with Arise, was cited for 44 violations by the U.S. Department of Labor, all but one for failure to pay minimum wage or overtime. Work at Home Solutions, just like Arise, had argued that its agents were independent contractors, not employees. But the Labor Department, after analyzing the relationship, found otherwise, and the owner agreed to pay back wages. (The owner declined to comment for this story.)
Agents have little ability to take complaints to Arise itself. Arise typically tells agents who have concerns about the Independent Business they work under that it has no responsibility for adjudicating any disputes.
Arise carefully monitors the language agents use to reinforce that it does not have an employment relationship with them. Stung by lawsuits that claimed Arise had actually employed agents but didn’t pay them fairly, Arise’s legal department has become a kind of word police, one former staffer told ProPublica.
“You don’t schedule ‘hours,’ you schedule ‘intervals,’” the former staffer said. Agents were not to be addressed as “you,” but “your business.” They were not “working,” they were “servicing.” There were no “supervisors,” only “performance facilitators.” Agents were not “coached.” Rather, their services were “enhanced.”
Once, an Arise manager, testifying in an arbitration hearing, was asked about meetings that performance facilitators have with agents. “They’re not meetings,” he said. “They’re informational sessions, or hosts.”
In an internal announcement in 2012, Arise listed “new terminology” for eight terms to avoid “the misconception” that agents are Arise employees. The corporate link between Arise and the agents went from being called Virtual Services Corporations to Independent Businesses. Service Fees became Service Revenue. Central Operations became Support Operations.
Arise seems particularly unable to settle on a term for the agents. Early on, the company called each a CyberAgent. Later came Arise Certified Professional. In 2012, that was changed to Client Support Professional. Nowadays, Arise’s website calls agents “onshore brand advocates or Service Partners.”
“Arise-speak,” as one opposing attorney called it in legal proceedings, could be a wonder to behold. Client Support Professionals (CSPs) would work with Quality Assurance Performance Facilitators (QAPFs) in a Performance Enhancement Session (PES), or they might reach out to Chat Performance Facilitators or Escalation Performance Facilitators, and none would be an Arise employee, all would be independent contractors.
This was the world in which Krystin Davenport, the agent in Las Vegas, found herself while assisting customers for Intuit.
The owner of Client Virtual Solutions, the Independent Business under which Davenport worked, emailed her to say: “It is an Arise and Client Virtual Solutions policy to NEVER discuss pay with other CSP’s from other Independent Businesses.” If Davenport was caught comparing pay, she could be terminated.
Davenport quit in November 2018 after working for about a month. She then received a final invoice from Client Virtual Solutions. In her last two weeks Davenport had worked 23.2 hours, earning $278.40. From that amount, $69.95 was taken out as a charge for Arise’s and Client Virtual Solutions’ services. On top of that, Client Virtual Solutions added another charge. The invoice deducted $150 as a “Contract Termination Fee.”
Davenport’s total pay came to $58.45. Per hour, that’s about $2.52.
“Elaborate Construct”
Agents have pursued claims against Arise and won. Yet the company has been able to stay the course, even as its business model has been found in violation of federal law.
Tami Pendergraft, the Houston woman who worked for Arise after hurting her back, joined a federal class-action lawsuit filed against Arise. But a judge kicked the class action out of court. The plaintiffs were bound by waivers, required by Arise, mandating that any legal claims be handled through arbitration, he ruled. In arbitration, the proceedings are private.
Arise knew firsthand the risks of being sued by a collection of agents. In 2013 it had settled a class-action lawsuit brought by California residents who claimed they had been misclassified as independent contractors rather than as employees of Arise or its client companies. Arise agreed to pay $1.245 million while admitting no wrongdoing, according to court records.
Pendergraft’s arbitration hearing lasted two days in September 2014. She had two lawyers. Arise had three. That was a lot of lawyers for an individual case that did not involve “an awful lot of money,” as Pendergraft’s attorney put it. Pendergraft was represented by Shannon Liss-Riordan, a Boston attorney who has litigated similar worker misclassification claims against Uber, FedEx, Amazon and other companies. Liss-Riordan argued that for Arise, the inefficiency of individual arbitration was the point. Arise, she asserted, probably didn’t think anyone would go to all this trouble for so little return.
At the hearing, Pendergraft testified to the various ways Arise dictated her work. But an Arise attorney argued that Pendergraft had signed legal agreements stating, explicitly, she was not an employee of Arise. Pendergraft, the lawyer said, never submitted a job application to Arise. Never had an Arise business card. Never had an Arise email address. Never went to Arise’s offices in Miramar. Never met anyone in person who works at Arise. Never received a paycheck from Arise. Any pay she received came from the independent business in between her and Arise.
To determine if a worker, no matter how labeled, is actually an independent contractor or an employee, courts have fashioned an “economic realities test.”
In Pendergraft’s case, the arbitrator, Deborah Hankinson, a former justice on the Supreme Court of Texas, weighed the test’s six factors, checking off those that suggested Pendergraft had been an Arise employee. Did Arise exercise significant control over Pendergraft? Check. “Arise closely monitored all aspects of her work,” Hankinson wrote. Were agents like Pendergraft vital to Arise’s business? Check. “Without CSPs, Arise would have no service to sell,” the arbitrator wrote. Was Pendergraft’s work the kind that required no specialized skill? Check. In the end, Hankinson checked five of the six factors — and the sixth, she determined, could go either way. “Ms. Pendergraft was an employee of Arise,” the arbitrator concluded.
In her ruling issued in February 2015, Hankinson found that Arise, as Pendergraft’s employer, had been required by federal law to pay her the minimum wage of $7.25 an hour. The company also had to pay for her training time and equipment expenses.
Added up, that came to $5,841.82.
But that wasn’t all. Employers who violate the Fair Labor Standards Act face lower damages if they can show they had reason to believe they were in the right. An employer, for example, could present evidence that it had consulted labor law experts and followed their advice. Since Arise made no such showing, Hankinson doubled the damages, ordering Arise to pay Pendergraft $11,683.64.
In another case Liss-Riordan brought against Arise, a different arbitrator came to the same conclusion, ruling in 2015 that Arise owed an agent $6,526, and then doubling it for damages.
For Arise, these individual arbitration awards were dribs and drabs compared with the potentially large payouts that could come from a class-action lawsuit. So as Arise continued to classify agents as independent contractors, Liss-Riordan tried a different legal tactic, turning to the National Labor Relations Board, a federal agency that enforces labor law.
The NLRB had previously concluded that employers cannot make employees waive their rights to class action. But that did not cover independent contractors. So the issue again became: Were agents independent contractors or Arise employees?
A two-day hearing was held in May 2016, before an administrative law judge in Miami. The NLRB’s general counsel took and argued the side of Liss-Riordan’s client, Matthew Rice.
Rice said he worked out of his bedroom, in his mother’s home, helping customers for Arise’s clients, including Barnes & Noble, Disney and Sears. While testifying, Rice referred to performance facilitators in the Arise network as supervisors. This elicited a challenge from a lawyer for Arise.
“Where’d you get that term from, supervisor?” the lawyer asked.
“Growing up in America,” Rice said. “That’s the term people use for people that are above you.”
“… You never referred to them as supervisors while you were providing services, did you?”
“Well, yeah,” Rice said.
“You did? To who?”
“Well, obviously I’m on the phone with a customer, I’m not going to say, ‘OK, let me go check my chat performance facilitator.’ Usually I just said, you know, ‘Let me just talk to my supervisor.’”
Rice didn’t incorporate in order to work for Arise. Instead, he worked as an agent through a company his mother had formed. Under questioning by an Arise lawyer, Rice’s mom, Patricia, said her corporation had probably signed up “at least 50” agents over 10 or 11 years.
If that sounded impressive, it sounded less so when the lawyer for the NLRB followed up.
“Did you perceive yourself as a big business owner?” the lawyer asked Patricia Rice.
“No.”
“Why not?”
“To me, big business means you’re making money and you’re — and you have stuff. And I don’t have all of that. I’ve just — I work from home. Like still today, I live in a two-bedroom apartment with a roommate and my son. And now my daughter’s there, so I’m still on a couch, with no car. So no, I don’t consider myself big business.”
Arise’s lone witness was Robert Padron, whose title at the time was senior vice president and general manager. He described Arise’s platform as “connective tissue” that linked Arise’s corporate clients with its network of small businesses and their agents.
In August 2016, an administrative law judge, Charles Muhl, issued his ruling. He called Arise’s business structure an “elaborate construct” designed to portray the agent as an independent contractor. “However, that construct cannot hide the reality of the relationship,” Muhl wrote. Like the two arbitrators before him, Muhl concluded that Arise was in fact an employer and the agent an employee.
Finding that Arise’s mandatory class-action waiver violated federal law, he ordered Arise to stop requiring agents to sign it. What’s more, he ordered Arise to rescind all waivers already signed and to notify all of its current and former employees that the waivers were no longer in effect.
Muhl’s order could have had a dramatic impact, allowing Arise’s agents to join in litigation rather than being forced to go it alone, in private.
But three months later, the United States elected Donald Trump president. Trump nominated Neil Gorsuch to the U.S. Supreme Court. In May 2018, the U.S. Supreme Court ruled, in Epic Systems Corp. v. Lewis, that federal law allows corporations to use arbitration clauses that bar employees from class-action lawsuits. The vote was 5-4, with Gorsuch writing the majority opinion.
Justice Ruth Bader Ginsberg wrote the dissent. In an oral statement from the bench, she said the effect of the court’s ruling “will be huge under-enforcement of federal and state statutes designed to advance the well being of vulnerable workers.”
In August 2018, Muhl’s ruling in the Arise case was overturned. A three-member panel wrote that in light of the Supreme Court’s Epic Systems ruling, Rice’s claim now had to be dismissed. The panel’s decision didn’t address whether Arise had misclassified Rice as an independent contractor, because now, for the purpose of determining the proper forum, that no longer mattered. Even if he were an employee, he would have to pursue his claims in arbitration, alone.
Arise has continued to require class-action waivers. It has also continued to categorize agents as independent contractors. But the company does not enlist agents who live in certain states. Currently on that list: California, Connecticut, Maryland, Massachusetts, New York, Oregon and Wisconsin, nearly all of which have tighter rules protecting workers.
This spring, Arise announced that it would honor Juneteenth as an official company holiday, a day off for all employees to commemorate the end of slavery. The company said it would donate a portion of its revenue “for every hour serviced through [its] platform” that day to the NAACP Legal Defense and Educational Fund.
Of course, the customer service agents, many Black, didn’t get the day off. Employees get holidays. Independent contractors do not.
Mollie Simon and Doris Burke contributed reporting.
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