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NY Times, Sept. 13 2015
At WeWork, an Idealistic Start-Up Clashes With Its Cleaners
By DAVID GELLES
Adam Neumann bounded through the downtown Manhattan headquarters of
WeWork, beaming as he pointed out the amenities of the open floor plan.
Over in the communal area, entrepreneurs mingled. Here was the shared
kitchen, with cold-brew coffee and organic snacks. How cool is that?
Over there was the quiet room, with mood lighting and hammocks. Wasn’t
it awesome? Mr. Neumann pulled out his iPhone and checked WeWork’s app,
where members — as WeWork calls its customers — can find jobs and team
up with one another on new socially responsible ventures. Talk about
disrupting business as usual.
In just five years, Mr. Neumann and WeWork’s other co-founder, Miguel
McKelvey, have built their start-up into an office-space rental empire,
with 52 locations in 16 cities around the globe. An office utopia
designed for millennials — at first mostly freelancers trying to escape
their apartments, but now also small businesses and corporations trying
to lure the creative class — WeWork was, until recently, valued at $5
billion. Then in June, it sought another round of financing, getting
huge investments from Fidelity Management and others. Its new valuation:
$10 billion.
Mr. Neumann grew up on a kibbutz in Israel; Mr. McKelvey grew up in a
collective in Oregon. They frequently cite their origin stories in
explaining their belief that office space should emphasize community and
serendipitous connection — and that the company is a force for good.
They call their customers the We Generation.
“If you understand that being part of something greater than yourself is
meaningful,” Mr. Neumann said, “and if you’re not driven just by
material goods, then you’re part of the We Generation.”
So Mr. Neumann seems more than a little perplexed to find himself
defending WeWork against charges that it is a callous, anti-labor
corporation, less concerned with people than profits.
WeWork’s headaches stem from a complicated dispute with a group of men
and women who once cleaned WeWork locations. With its aspirations to be
an office-rental paradise, it couldn’t have sticky floors by the free
craft beer keg, or trash collecting under the Ping-Pong tables.
It needed cleaners — lots of them — to keep its locations tidy. Looking
for help, it turned to contractors to provide cleaning services. In
Boston and Washington, as well as New York, the contractor was
Commercial Building Maintenance Corporation, or CBM, which provided
hundreds of janitors to those locations.
But that routine decision came back to haunt WeWork. When the New York
City cleaners — who made about $10 an hour and received no benefits or
paid time off — tried to unionize in June, CBM terminated its contract
with WeWork and eliminated the jobs. WeWork decided to hire its own
in-house cleaning staff but will not hire all the former CBM workers,
leaving about 100 people jobless.
The result has been a showdown between new economy and old. All summer,
the cleaners protested outside WeWork offices around New York, blowing
whistles and chanting: “WeWork, shame on you! WeWork, shame on you!”
On a humid night in late August, a few days before Mr. Neumann gave his
office tour, the protesters were outside company headquarters on West
18th Street. After months of avoiding direct confrontation, Mr. Neumann
decided to try to convince his antagonists that he was a good guy who
had done nothing wrong.
At first he cited the letter of the law. “WeWork was not hiring any of
you. It was all done through CBM,” Mr. Neumann pleaded. “They were your
employers, not me.”
That didn’t work. The cleaners said they had worn WeWork T-shirts,
gotten to know the company’s staff and customers, and believed WeWork
had a responsibility to them.
Next, Mr. Neumann tried empathy. “When I was a little kid, me and all my
family lived in a house the size of my daughter’s room,” he said.
The cleaners were not impressed.
Finally, Mr. Neumann explained that WeWork was now hiring its own
cleaners, paying them $15 to $18 an hour, and offering health care along
with equity in the company. “This company is going very far,” he said.
“The stock, God willing, is very valuable.”
Mr. Neumann seemed to believe his logic and magnanimity would make the
problem go away: If only the cleaners had all the facts, they wouldn’t
be so upset. But to the now unemployed janitors who had toiled for low
wages and with no benefits, all while wearing WeWork uniforms, the
company’s wonderful new terms felt like a slap in the face.
When one protester reminded Mr. Neumann that his company was worth $10
billion, he waved the thought away, his hand swatting the air. “That has
nothing to do with this,” he said, turning to the next question.
Perhaps they are separate issues for Mr. Neumann. But to many onlookers,
it’s hard to understand why a company with so much money won’t help the
unemployed men and women who once cleaned its floors.
Who’s the Boss?
WeWork may be a fast-growing darling of the so-called sharing economy,
but it is also one that leases lots of conventional real estate — about
two million square feet. And by simply doing business as usual and
hiring a contractor to provide cleaning services, it inadvertently
stumbled into a fight that exposes the paradoxes of today’s lopsided
labor market.
In recent decades, outsourcing cheap labor for tasks like security, mail
sorting and food services has become routine for American corporations.
“Many parts of what used to be integrated businesses are now handled
through subcontracting,” said Jennifer Gordon, a professor at the
Fordham University School of Law specializing in immigration and employment.
Subcontracting makes plenty of economic sense. Companies can keep the
head count down and avoid health care and benefit obligations.
Contractors can do what they do best — provide specialized services at
competitive rates. But by striving to win assignments, contractors often
pay employees as little as possible.
For workers, this dynamic can be maddening. Ivan Castelan began cleaning
WeWork spaces three years ago. He started out tidying kitchen areas and
keeping the coffee fresh; over time his responsibilities expanded to
include managing inventory and placing orders for supplies. Yet when he
wanted to negotiate a raise, Mr. Castelan was stymied at every turn.
“When I asked WeWork for more money, they told me to talk to CBM,” he
said. “When I asked CBM for more money, CBM said WeWork had to approve
the raise. It was frustrating.”
Such situations are typical in subcontracting situations. WeWork may not
have been Mr. Castelan’s direct employer, but it was the one with the
ability to improve conditions for him — and other cleaners. It could
have paid CBM more and then insisted CBM pay its workers higher wages,
or it could have hired a new contractor that paid better. CBM,
meanwhile, had little incentive to push WeWork, a powerful client, to
raise salaries.
“The law says CBM is the employer, but if you look at the reality of how
wages are set, it’s the firms higher up the chain that really control
what the wages will be,” Ms. Gordon said. “WeWork has all the power. It
has the money, and it has the control.”
Companies, workers and contractors have been wrestling with these issues
for decades. During the 1980s and 1990s, the Justice for Janitors
movement fought to improve wages and benefits for cleaners after
competition eroded their salaries and benefits. Today, fast-food workers
— who most often work for franchisees — are campaigning for a new
minimum wage of $15 an hour. And in a decision that could have
far-reaching implications, the National Labor Relations Board ruled last
month that more companies could be considered “joint employers” of
workers not directly on their payroll.
But for now, a company like WeWork has no obligations to look out for
the employees of a contractor like CBM. “Morally, I would argue that
they absolutely have a responsibility,” Ms. Gordon said. “But legally
it’s much more complicated.”
Idealism Meets Mops
Mr. Neumann is a tall, exuberant 36-year-old Israeli who wears his dark
hair to his shoulders. He came to the United States in 2001, “chasing
the American dream,” he told the protesters during their showdown in the
street last month. “I came wanting to change the world.”
He founded a baby clothing company but walked away from it after his
wife observed that he wasn’t passionate about apparel. Next, he started
an eco-friendly co-working space in Brooklyn with his friend Mr.
McKelvey and other investors. Wanting more control of the product, he
sold his stake in that company and founded WeWork with Mr. McKelvey, a
former store designer for American Apparel.
The official mission of WeWork is “to create a world where people work
to make a life, not just a living.” And as a spokesman for the
altruistic We Generation, Mr. Neumann is dismayed that the union is
demonizing him. “We care about this topic so much,” he said.
The cleaners, however, say that Mr. Neumann passed up a critical
opportunity to demonstrate his concern. When they began organizing this
summer, CBM asked WeWork to change its contract in order to pay the
cleaners higher wages and allow them to join a union — though a union of
CBM’s choosing. But WeWork declined to renegotiate, saying the CBM
proposal was “sketchy.” CBM terminated its contract with WeWork.
CBM did not respond to numerous emails and phone calls.
Mr. Neumann said CBM’s action only accelerated the inevitable: Even
before the protests began, WeWork had been planning to make the cleaning
jobs in-house.
CBM was hired years ago as WeWork was quickly growing throughout New
York, its home base. “It was one of a thousand decisions we were making
at the time,” Mr. Neumann said. “It was about who can supply us a
service and what can we afford.”
But this year, Arthur Minson, who had been the chief financial officer
of Time Warner Cable, joined WeWork as chief operating officer. Mr.
Minson quickly soured on CBM and determined that WeWork should hire its
own staff. “We were a five-star brand with one-star cleaning,” he said.
Though hiring in-house cleaners would fly in the face of decades of
conventional business wisdom, Mr. Minson said it was a necessary move
for WeWork. Janitors interact with WeWork members constantly and need to
be steeped in its corporate culture. Mr. Minson also wanted to give
cleaners expanded responsibilities, like preparing offices for new
tenants and delivering food to conference rooms.
“I’m a big believer in in-sourcing member-facing functions,” Mr. Minson
said. “If you want to build a powerful brand in the services industry,
you have to.”
After CBM terminated its contract, WeWork began hiring about 100
so-called community service associates to clean its New York offices. It
offers $15 to $18 an hour, as well as benefits, sick days and a small
amount of stock. Over all, the cost per employee is about twice as much
as what WeWork was paying CBM. Mr. Minson said WeWork would expand the
model to other cities. (WeWork still uses CBM in Boston and Washington.)
As the new positions were filled, WeWork refrained from hiring CBM
workers because of a no-hire clause in its contract. WeWork said that it
asked CBM to waive that restriction, but that CBM initially declined.
When CBM finally did waive it, WeWork had already hired many new
cleaners, leaving few open jobs.
The local Service Employees International Union chapter, which has been
working with the former WeWork cleaners, contends that WeWork
intentionally avoided hiring former CBM workers so it could prevent
pro-union cleaners from joining the company and trying to organize. The
S.E.I.U. filed a charge with the National Labor Relations Board alleging
as much, but the board has not yet taken any action. WeWork denies the
claim.
In recent weeks, after CBM waived the no-hire clause, WeWork hired about
20 of the laid off cleaners. But it appears unlikely that all, or even
the majority, will ever be part of the WeWork family.
Nathalie Torralba, who had cleaned in WeWork’s offices for 18 months,
said she had interviewed for one of the new positions weeks ago but had
not heard back. Mr. Castelan has also applied, but has not been hired.
“They decided to hire new employees and give them what we were asking
for,” Mr. Castelan said. “That’s not fair.”
A $10 Billion Target
The very attributes that have made WeWork so successful have also
exposed it to this bruising labor brawl. As Mr. Neumann is finding out,
the We Generation cares about janitors, too.
Jane Barratt, who runs an investment platform called GoldBean and has
worked out of a WeWork space in New York’s SoHo neighborhood for 18
months, canceled her membership after mounting frustrations with the
company, including over what she said was poor customer service and the
labor dispute. “The treatment of the cleaners was the last straw,” she said.
More than 500 WeWork members signed a petition demanding that the
company hire the former CBM cleaners as community service associates.
Julie Sygiel, the founder of an underwear company called Dear Kate that
is operated from a WeWork space in New York, recently delivered the
petition to Mr. Minson, accompanied by two former cleaners.
“I believe WeWork has a responsibility to commit to rehire all qualified
former cleaners who have applied for a new position,” Ms. Sygiel said
after the meeting.
Unlike many start-ups in the digital age, WeWork seems to be making
money. The company would not disclose its financial performance. But
according to internal documents obtained by The Information, a
technology news website, WeWork had $75 million in revenue last year,
with $4.2 million in profits.
By any conventional measure, those figures do not support a $10 billion
valuation. Like other start-ups, including Uber and Airbnb, WeWork is
part of what many critics are describing as a new technology bubble. Yet
WeWork is anticipating huge growth as it expands rapidly and gains
corporate clients renting hundreds of desks each. It forecasts nearly $1
billion in profit on sales of $3 billion by 2018, according to the
documents.
The number that matters most to the cleaners who were fired, however, is
not revenue or profit. It’s that $10 billion valuation. That number made
WeWork’s behavior that much harder to understand. If any company can
afford to pay janitors a living wage, they figured, it is WeWork.
“It was clear to everyone including the workers that this is a company
that is doing very well,” said Rachel Cohen, an S.E.I.U. organizer. “Why
would they be using a cleaning contractor that is paying substandard wages?”
Other fast-growing tech companies are encountering similar criticism as
they grow. Uber, the on-demand car service, is appealing a ruling by the
California Labor Commissioner’s Office that required the company to
classify a driver not as an independent contractor but as an employee.
Facebook recently faced its own version of WeWork’s conundrum when the
bus drivers who ferried its workers from San Francisco to Silicon
Valley, and worked for a subcontractor, demanded better pay. Facebook
responded by announcing that all employees of its major contractors
would receive at least $15 an hour, paid vacation and sick time, and
parental benefits.
Whether WeWork brings all cleaning jobs in house or continues to use
contractors, its growing footprint means it will have to be more attuned
to the people who clean and maintain those spaces.
Cristian Diaz, 25, moved to Queens from Colombia in 2012 and quickly
began cleaning at WeWork spaces around the city. But despite long hours
and no vacations, Mr. Diaz said his $10 hourly wage left him with almost
nothing to send home to his parents in Medellín. “We were just getting
by,” he said. He supported joining the union, hoping it would mean
better pay and benefits.
Mr. Diaz, who has been out of work for a month, applied for a new job
with WeWork, but has not been offered one.
The Last Word
On the sweltering night in August when Mr. Neumann squared off with the
cleaners on West 18th Street, he called for calm after some heated
exchanges, and delivered a soliloquy that would be the final word for
the evening.
“There’s a saying, ‘God truly helps those who help themselves,’ ” he
said. “I understand your heart. I know everybody here is trying to help.
You keep pursuing a job at WeWork. If you’re the right fit, you will get
a job, because we’re interested in the right people. We’re going to keep
growing. But we’re very comfortable with our position. We will
definitely not be blackmailed, pushed or aggressively moved into
anything. That will not happen. Not in this country, because this is a
great country where freedom comes first.”
“I feel you, I understand,” Mr. Neumann continued. “I do not think you
have all the facts. I don’t think you know everything that happened, but
I know life is tough that way. So I will keep doing my best to make the
most difference I can — first in your lives and my employees’ lives, and
in the world.”
With that, Mr. Neumann turned and walked into the office of his $10
billion start-up. It was as if he had been speaking in a foreign tongue.
The front door had not shut when the chanting resumed: “WeWork, shame on
you! WeWork, shame on you!”
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