Beanie Baby manufacturer’s corrupt labor practices

Ty Inc. relies on illicit labor brokers, or raiteros, to recruit immigrant workers who earn well below minimum wage VIDEO

Topics: ProPublica, ty inc, Labor, beanie babies, Chicago, Immigrants, Video, ,

Beanie Baby manufacturer's corrupt labor practicesA Beanie Babies display in Grand Central Terminal, in New York, N.Y., on April 21, 2013. (Credit: Krista Kjellman Schmidt, via ProPublica)
This originally appeared on ProPublica.

ProPublicaCHICAGO — Ty Inc. became one of the world’s largest manufacturers of stuffed animals thanks to the Beanie Babies craze in the 1990s.

But it has stayed on top partly by using an underworld of labor brokers known as raiteros, who pick up workers from Chicago’s street corners and shuttle them to Ty’s warehouse on behalf of one of the nation’s largest temp agencies.



Temp agencies use similar van networks in other labor markets. But in Chicago’s Little Village, the largest Mexican community in the Midwest, the raiteros have melded with temp agencies and their corporate clients in a way that might be unparalleled anywhere in America — and could violate Illinois’ wage laws.

The raiteros don’t just transport workers. They also recruit them, decide who works and who doesn’t, and distribute paychecks.

And it’s the low-wage workers — not the temp agencies or their clients, corporate giants like Ty — who bear the cost. Officially, the raiteros’ fee, usually $8 a day, is for transportation. But, workers say, anyone who doesn’t pay doesn’t get work.

From this crowded barrio, raiteros ferry as many as 1,000 workers a day to warehouses and factories in Chicago and its suburbs. Many of these workers end up making about $6 an hour, well below Illinois’ minimum wage of $8.25 an hour, because of the fees and unpaid waiting time.

“If you complain too much, they won’t take you to work anymore,” said Maria Castro, a Mexican immigrant who has worked on and off for Ty.

Like other workers, Castro said she has never been to Select Remedy, the temp agency that officially employs her. She knows Ty only as los peluches, Spanish for “the stuffed animals.”

To Castro, her employer is Rigo, a raitero whose full name is Rigoberto Aguilar. He tells her and other workers whether they have a job and picks them up in a school bus in an alley at 4:30 a.m.

Ty is among a long list of brand-name companies that benefit from the raitero system. Workers report packing products for Sony, Frito Lay, Pampered Chef, Smirnoff, Marlboro and Fresh Express, a subsidiary of Chiquita Brands where workers cut vegetables for bagged salads and fast-food restaurants like Burger King and McDonald’s.

The word raitero is a Spanglish invention that roughly means “a person who gives rides.” In fact, the raiteros are effectively agents for Select Remedy and other temp agencies, which have grown steadily since the 1990s and are approaching new heights after the recent recession. While not a household name, the Select Family of Staffing Companies, which controls Select Remedy, posted $1.8 billion in revenue last year and employs nearly 100,000 people every week — about as many as Starbucks.

Select and other temp agencies maintain that the raiteros are merely van drivers hired by the workers. They say they have no contract or connection to the temp agency.

Yet the agencies provide applications so the raiteros can recruit workers. They call raiteros with the number of workers needed at each worksite. At the end of the week, the raiteros pick up the workers’ paychecks from the temp agencies and bring them to check-cashing stores, where workers are charged $3 to $4 to cash them. In some cases, the raiteros say, the temp firms even provide the vans they use to drive workers to their jobs, or lend them money to buy the vans.

“Where there have occurred instances in which our well-established policies and protocols were not being followed, the appropriate corrective action was taken,” Select Remedy wrote in a response to questions. “For some time now, we have instructed the managers who work at our branch offices that they are not to have direct contact with private van drivers, to reaffirm our policy that Select Remedy is to have no involvement in how our associates decide to get to work each day.”

The company says it provides a valuable service to employers and employees: “In Illinois, Select Remedy puts thousands of people to work every year, and we are proud of that accomplishment.”

Using raiteros, temp agencies and host companies like Ty can get the right number of workers to the right place at the right time. With such certainty, Ty can limit overtime as well as avoid paying benefits and the other costs of employing workers full time.

After dropping off about 50 workers, Aguilar leaves his big yellow bus in Ty’s lot all day until he drives them back home.

Tania Lundeen, Ty’s vice president of sales, said, “We typically don’t do any kind of interviews.” No one from Ty responded to a list of questions.

Wage Theft?

Key parts of the raitero system, especially the transportation fee, may run afoul of Illinois’ temp labor law. But, ironically, that very law helped create the current system.

When he first started as a raitero, Aguilar said, he was employed directly by a now-defunct temp agency, Prime Staffing, which paid him $350 a week. In many cases, temp agencies recouped this cost by charging the workers, deducting ride fees from their paychecks.

Illinois changed its law in 2006, making it illegal for temp agencies to charge workers for transportation or to refer them to van drivers who did. The law already outlawed temp agencies from forcing a worker to pay a fee for cashing a paycheck.

As a result, temp agency managers say, most staffing firms did away with official, paid relationships with drivers. Instead, they developed informal arrangements with the raiteros, which insulated the temp agencies from responsibility.

In other parts of the country, the van systems have clearer ties to the temp agencies and the fees are legal, with some restrictions.

Throughout New Jersey, vans show up every morning right in front of the temp agencies. When hired, workers sign a waiver authorizing the agency to deduct the ride fee from their checks.

In Boston, vans sent by temp agencies pick up workers from street corners and shuttle them to fisheries and recycling plants throughout eastern Massachusetts. A new law that went into effect in January limits transportation fees to 3 percent of a worker’s daily wages and mandates that the fees can’t reduce pay below the state’s hourly minimum.

According to labor and employment lawyers, whether Select Remedy and other temp agencies have violated Illinois law depends on how free the workers are to choose their own transportation and check-cashing store and whether the rides and long hours of waiting are for the benefit of the worker or the company.

Miguel del Valle, the former state legislator who sponsored the day and temp labor act in Illinois, said that in his view the new transportation system still violates the law.

“We didn’t want to allow temp agencies to gouge people and take big chunks of money out of their paychecks,” he said. “They’re doing something that we tried to prohibit them from doing,” he added. “It’s abusive.”

A Tennis Court and a Pool

While Castro struggles to make her rent, Ty Warner, the chief executive of Ty, owns an oceanfront estate in Santa Barbara, Calif. He is the 206th richest person in the United States, according to Forbes, with an estimated net worth of $2.5 billion

D. Stephen Sorensen, the CEO of the Select Family of Staffing Companies, also lives in Santa Barbara. His 8,200-square-foot mansion features a tennis court and a pool.

Select was started in 1985. Beginning in the mid-2000s, it bought more than three dozen staffing firms, becoming a national chain. Its revenues skyrocketed from a little more than $300 million in 2002 to $1.8 billion in 2011, according to company press releases. In 2012, Staffing Industry Analysts, a research firm, ranked Select the 10th largest temp agency in America and the fourth largest in the industrial sector.

Select has supplied workers to Walmart warehouses, Bank of America, Toyota, Costco, Trader Joe’s, General Mills, Mattel and Fisher-Price, according to court records, trade journals and the company’s website.

In recent years, Select has weathered several controversies over its employment practices unrelated to its use of raiteros.

In 2011, it was hit with a $50 million jury verdict in a civil fraud case brought by the California state insurance fund. The lawsuit alleged that the company lowered its workers’ compensation costs by lying about its payroll and falsely claiming its employees worked for another company. Select appealed and in January announced it had reached a confidential settlement with the state fund.

The company has also faced several lawsuits accusing it of cheating workers out of their pay. In August, while denying the allegations, Select Remedy agreed to pay up to $400,000 to cover unpaid wage claims from a group of more than 200 workers in the Chicago area. None of these workers used raiteros or worked at Ty.

Select Remedy entered the Chicago market in 2007. There, the raiteros helped the agency satisfy corporate clients by getting large numbers of people to the worksite, according to five former managers.

“Recruiters are under a lot of stress to make sure they don’t lose out on the hours,” a former personnel supervisor for Select Remedy said, meaning recruiters needed to fill an order immediately or the client company would turn to another agency. Indeed, volume is key. In the industrial sector, according to analysts, temp firms typically average only about 4 percent profit on each worker.

The supervisor, who asked not to be named because she signed a nondisparagement clause, recalled office-wide emails calling for, say, 200 workers all of sudden. “They’re just trying to get bodies out there,” she said, and the raiteros are “the easiest way to do it.”

And one of the cheapest. In addition to not paying the raiteros, Select Remedy avoids the cost of maintaining and insuring the vans.

“It always bothered me,” said the former personnel supervisor. “Half these employees were making minimum wage.”

Temp agencies that don’t use raiteros face other added costs, such as employing neighborhood recruiters. They also have to depend on individuals who might get sick, run late, or have cars break down.

Robert Stack, owner of Custom Staffing, which has an office in Little Village, said using raiteros definitely gives his competitors advantages. A big one: not having to pay rent in the neighborhood, which can cost a few thousand dollars a month. Still, Stack said he prefers not to use raiteros.

“Simply put, it’s illegal,” he said.

‘Live the American Dream’

Promotional videos on Select’s website tell job seekers that the company can help them “get paid like a professional” and “live the American dream.” In one ad, the pitchman jokes, “Did you know that eight out of five economists say that working at Select is 6 bajillion times more effective than standing on a corner?”

In fact, Select employees in the raitero system start their workday by gathering on Chicago street corners before dawn. Many workers in Little Village don’t know the basics of where they work. They often had to refer to their paycheck stubs for the name of their temp agencies. The companies they served were known simply by the Spanish name of the product they were handling — galletas (cookies), vinos (wines) or lechugas (lettuces).

A ProPublica reporter followed buses and vans from the early-morning pickups in Chicago to the warehouses in the far suburbs, and conducted more than 60 interviews with workers, raiteros, temp agency recruiters, managers of check-cashing stores and others. We examined check stubs, court records, labor department files and undercover video shot by the Chicago Workers’ Collaborative, an advocacy group that opposes some temp agency practices.

Several workers agreed to speak for this story using their full names. Others like Maria Castro asked that only their second Spanish surnames be used for fear that they wouldn’t be able to find work in a labor market that is largely controlled by the raiteros.

“I would be homeless if they found out who I am,” she said.

Like many workers in this system, Castro is undocumented. However, companies must abide by most labor laws, such as minimum wage, for anyone they hire regardless of whether they are in the United States illegally.

Here’s how the raitero system works.

Little Choice But to Pay

Aguilar said he has been a raitero for seven years. Like many others, he said he started as a temp worker himself, packing video games for Sega. Another raitero asked him to help drive one of his vans, and soon after, Aguilar said he borrowed $1,000 from a temp agency, now out of business, to buy his own van. Eventually, he bought a school bus.

He and other raiteros recruit workers by advertising in check-cashing stores and by word of mouth. When workers call, they are told to come to Aguilar’s house to fill out Select Remedy’s application. The sign on the front door of his building says in Spanish, “Señor Rigoberto lives on the second floor. If you come looking for work, go upstairs.”

Castro originally applied to Select Remedy through Aguilar’s brother, Eugenio Aguilar, who is also a raitero, and went to work for Xentris Wireless, a company she knew as los celulares, packing iPhone cases and other accessories. She said Eugenio sent her to Rigo’s house, where she paid $5 to apply online. Rigo said people can come and use his computer, but he doesn’t charge.

Every day, the temp agencies call the raiteros, giving them the number of people they need for the next shift. The raiteros then pick the workers, tell them where and when to meet and drive them to the warehouse or factory.

Nearly 50 workers said they have little choice but to pay the ride fee. Several workers said they had their own cars, but their temp agency told them they had to go with the raitero. “There was a lot of pressure to use Rigo,” said Elizabeth Bellido, who worked for Select Remedy at Ty until March. “The first people who would get picked to work would be his people.”

Other workers said they were allowed to drive, but soon found that the raitero had given their spot to someone else.

Castro recalled working with a raitero named Cirilo, who was ferrying workers on behalf of the temp agency Most Valuable Personnel, or MVP. One day, Castro said, Cirilo tried to cram 44 people into two 15-passenger vans.

“They wanted me to sit on the lap of another woman,” Castro recalled. So she asked for a ride back from another raitero, who also served the plant and had a milk crate to sit on.

In retaliation, she said, Cirilo confronted her and told her she would never get work from him again. “If you work with another raitero, your raitero won’t take you anymore,” Castro said.

Cirilo declined an interview and hung up on a reporter.

MVP said it was unaware that Cirilo was charging the workers and said that it would investigate. While Select Remedy said it doesn’t pay raiteros, MVP operations manager Darron Grottolo said his company has been paying Cirilo Peralta Transportación $1,350 every week to transport workers to his client companies. Hearing that workers said that they also paid Cirilo, Grottolo said, “It’s disturbing. It’s against the law. It’s wrong.” He explained, “You can’t charge for transportation in Illinois.”

This January, told by Aguilar that she had work, Castro came to the corner of 26th Street and Drake Avenue with about 50 others before dawn. She walked through an alley behind a blue-neon-lit dentist clinic and a shop selling quinceañera dresses and got on Aguilar’s school bus. The bus took her 30 miles down Interstate 55 to the far southwest suburb of Bolingbrook, where the Ty warehouse is located.

A weekly paycheck from January for her work at Ty shows her take-home pay was $291.07, the state minimum of $8.25 an hour, minus taxes. Not mentioned on the pay stub, though, is the $40 she had to pay Aguilar to get to work that week. With those deductions, Castro’s actual pay was $7.22 an hour.

Aguilar said if workers didn’t pay him for the ride, they would still have to pay for gas or the bus. Select Remedy said in a written response that workers can get to a worksite any way they want.

“The cost of transportation to the job site, whether it is for public transportation, the cost of gas or maintenance on the associate’s personal automobile, or any other cost, is not a deduction from wages,” the company wrote.

Some raiteros deploy a network of drivers, many of whom work as temps in the factories themselves. Aguilar said he pays his drivers $100 a week. But several drivers for other raiteros said they don’t get paid. Their compensation is not having to pay for the ride to work. The workers they drive still pay the raitero.

One raitero said the temp agency itself pockets the workers’ transportation fees. Gabriel Espinoza said the only money he makes is the $8.25 an hour he gets as a temp for Triune Logistics at Fresh Express. He drives a van made for 15 people but says Triune has asked him to carry as many as 18 people. “It’s not my van. It’s the office’s,” he said, referring to Triune. “The temp workers pay the office through the check-cashing place.”

Triune CEO Alfred Garza denied that the company has vans or charges workers. “I feel like we’re doing the right thing and bending over backward for our employees,” he said. “And we get thrown in with the whole industry as doing things the wrong way.”

‘Rigo’s Checks’

Until recently, Aguilar would pick up the workers’ paychecks at Select Remedy and bring them to the 26th and Central Park Currency Exchange, a Western Union agent in Little Village, on Friday afternoons. The check-cashing store sometimes dedicated a window for “Rigo’s checks.”

On each check, Aguilar would write how many days the worker owed him for rides so the cashiers knew how much money to take out when changing the check.

“It’s a convenience they” — the raiteros — “are offering to the people, and they asked if we would help them out,” manager Rudy Polheber said. “People come in, we deduct the driver’s fee, makes it easier for the driver.”

For cashing their checks there, the workers get charged a reduced rate, $1 plus 1 percent of the check, he said.

Castro and others said they felt forced to cash their checks at the currency exchange. When they asked the store if they could pay for rides separately and get their checks without cashing them, the cashiers refused, they said.

“How is it they want to charge us more money?” asked Sandy Lopez, who worked at Ty for Select Remedy last fall. “I have my account at the bank. They don’t charge me anything.”

She said when she complained to Aguilar, “He said, ‘This is the last time I’m going to leave you the check there, but I’m not sure I’m going to have a job for you.’”

Polheber explained that they’re not in the business of handing out paychecks. “We don’t want to provide that service. We get no benefit other than tying up the lines for the people who do want to cash their checks here.”

Aguilar said that when workers don’t want to cash their checks at the currency exchange, he picks them up the following Monday, and workers can come to his house with the transportation fee to get their check. He said he has never withheld a job over check cashing.

Around the time ProPublica began asking workers about Select Remedy, the temp agency stopped giving the checks to Aguilar. Instead, a Select Remedy representative began passing out checks as the workers were leaving Ty. More recently, the agency has been depositing the workers’ wages on debit cards.

In addition, Aguilar said Select Remedy no longer calls him and tells him how many people they need for Ty. “The work that I used to do looking for people, they’re doing that now,” he said. “They call people,” who then call Aguilar for a ride to work, still paying him $8 a day.

Despite Select Remedy’s changes, nearly all the other raiteros still pick up checks from the temp agencies and bring them to check-cashing stores.

The system often results in lost checks and workers not getting paid. But when problems occur, workers who complain to the temp agency say they are often told to work it out with the raitero.

Juan Rodriguez Trujillo was waiting outside H Services Exchange on 26th Street one Friday night earlier this year, complaining that he hadn’t been paid for a week he worked at a chocolate factory more than a month ago. He said he was waiting for his raitero, Cirilo, to bring the check. Asked why he didn’t go to the temp agency, Rodriguez said he did, but the agency, MVP, told him to wait at the check-cashing store for Cirilo.

“They think it’s easier but it creates more problems,” Castro said. “You go to the raitero and they tell you to call the agency. You go to the agency and they say we already gave your check to the raitero. They treat us like a ball that they pass back and forth.”

MVP said it wasn’t aware of such a practice and has specific procedures for employees to pick up their checks at the agency with an employee ID.

‘Get There at 4 a.m., Get Work’

Finally, there is the unpaid wait time. To work at Ty, Castro must report in the alley no later than 4:30 a.m. In fact, many workers arrive earlier. “If you get there at 4 a.m., you get work,” said a tamale vendor whose food cart steamed against the cold one January morning. “If you come at 4:20, there’s no work for you.”

At Ty’s warehouse, every identifying aspect, from the official labor notices to the punch clock, said Select Remedy — not Ty. There was not even a name on the warehouse.

When workers arrived at 5:35, a Select Remedy employee made sure they signed in. But they had to wait another 20 minutes in the cafeteria before they could start getting paid.

Next to the punch clock was a sign that read in Spanish, “Please do not punch in until 5:55 a.m. This measure will be strictly enforced, and measures will be taken with employees that don’t follow the rule.”

Castro’s pay after the hour and a half of waiting was factored in: $5.98 an hour.

Select Remedy said it can’t control whether workers arrive early.

Leone Bicchieri, executive director of the Chicago Workers’ Collaborative, has been struggling with how to fix what he sees as an effort by big businesses like Select and Ty to pass costs on to the workers.

A solution, Bicchieri suggested, would be for the temp agencies to make the raiteros official agents and offer transportation for free or at a minimal cost.

“We don’t have any problem with this whole system becoming much more public and transparent,” Bicchieri said. “We have always had a problem with them being forced to get on the van or workers getting a preference if they take the van.”

Sitting in his home wearing a Select Remedy T-shirt, Aguilar said being a raitero provides a better life than when he worked as a temp in factories, but after paying for gas and maintenance, it’s not much more money. Indeed, he rents an apartment not much bigger than what the workers have, with peeling paint and mold in the bathroom. A few Chinese prints of butterflies and orchids hang above his couch.

His son, Victor, sitting next to him on the couch, grew angry as he reflected on how the temp agency deals with his father.

“They don’t want to pay him,” Victor said. “They have all the people come here. They don’t care. Screw you. You take the people. You give them the ride and you charge the fee. We don’t want to have anything to do with you.”

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