If you work a job that lasts from 9am to 5pm, 25 minutes may not seem like a lot of time in context, but if it's the end of the day and you just want to get home, 25 minutes can quickly feel like an eternity. For workers at Amazon's warehouse in Nevada, 25 minutes represents time spent in a security line to make sure they didn't steal and of the warehouse's items without being paid for it because it was off the clock. Now, these workers are taking the matter to the Supreme Court to see if they should be paid for the time spent in the security line, and while 25 minutes might translate to less than $6 in additional wages per worker (the litigants are temporary workers who make $11-12/hour depending on when the shifts are), the results of the case could mean huge additional labor costs not just for Amazon, but for the whole retail industry in the United States regarding employee compensation, affecting future profit margins in a traditionally tight part of the economy.
Integrity Staffing Solutions v. Busk
It is important to note that the case itself doesn't directly affect Amazon's labor costs at the moment. The litigants are paid by a staffing group called Integrity Staffing Solutions, which contracts with Amazon (NASDAQ: AMZN) to pay and hire temporary workers who are paid an hourly wage by the staffing agency before Amazon makes the decision to hire the employees full-time under a set salary. The salaries the workers are paid covers the principal duties at the Nevada warehouse; such as the sorting and fetching of items for shipment, but it doesn't cover the time spent waiting to go home because of Amazon's policy of checking workers for stolen items. Officially, this is considered "non-essential" work, and the staffing group does not have to pay the workers for time spent in line.
The workers disagree on that point, claiming that the time spent in line still counts as being at work because Amazon requires all employees, temporary or permanent, to participate. Supporters of the workers, such as the AFL-CIO, claim that allowing this to continue would set a precedent where workers would be forced to perform tasks around the office under threat of dismissal without being compensated for them, such as taking out the trash or locking all the windows.
Supporters of the staffing group, such as the US Chamber of Commerce, the National Retail Association, as well as the US Departments of Justice and Labor contend that the practice would result in billions of additional labor costs for retailers having to pay employees for doing non-principal work, or even for lunch breaks which are unpaid in some companies by law. They point to a past Supreme Court case, Steiner v. Mitchell from 1956, which allowed employers to only pay workers for "principal activities" related to their job descriptions.
Why investors should care
While non-essential work is a relatively minor part of many employees' workdays, especially in the retail industry, it does allow retailers like Amazon, as well as CVS (NYSE: CVS) and Apple (NASDAQ: AAPL)(who have their own court cases on hold pending the results of this one), to save money on hiring additional labor just for these tasks, which keeps overall costs down and profit margins intact. For companies like Amazon, which despite large sales has very small reported profits, it could result in higher costs for goods and services, or cuts in other areas of the company (such as R&D) to meet the additional labor commitments. This would invariably lead to lower net profits and non-GAAP revenue in the short term for retailers, and a decline in the share prices if this practice is ruled unlawful.
On the other hand, stock prices may go up as a result of the practice being upheld, meaning that future cases would have the law on their side. This would benefit shareholders, and possibly give retailers more room to cut labor costs by moving more "non-essential" work on existing workers rather than having to hire new ones. Expect investors in retail companies, especially Amazon, to watch the Supreme Court closely in the days ahead, this could be one of the most important modern labor law cases we've seen so far.
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