Why Amazon is nervous about Supreme Court case

Amazon (AMZN) CEO Jeff Bezos and the company's other leaders are famously close-mouthed when it comes to commenting on news involving the company, seeking to control the narrative around the e-commerce giant as carefully as they do its patents.

Which is why it was unusual for Amazon to offer a statement to CBS MoneyWatch after the U.S. Supreme Court on Thursday heard oral arguments in a lawsuit by its contract warehouse workers. The worker are asking to be paid by the contracting firm for time they must spend after their shifts waiting to undergo mandatory security checks.

Amazon's statement, though brief, is telling: "We have a longstanding practice of not commenting on pending litigation, but data shows that employees walk through post shift security screening with little or no wait," the company said.

That Amazon would provide any comment on the case, called Integrity Staffing Solutions Inc. v. Busk, highlights its significance not only to the company, but also to the many other retailers who rely heavily the kind of contract workers Amazon employs in its warehouses.

If the Supreme Court ultimately rules in favor of the warehouse workers, large retailers that use security checks might find themselves liable for a significant sum in back wages. Apple (AAPL) and CVS (CVS) are just two of the companies facing similar suits that are on hold pending the outcome of this case.

At issue is whether workers can be forced to go through security screenings after their shifts without being paid for that time. Retailers commonly use such measures to guard against employee theft. But the plaintiffs in the case say that they are forced to wait up to 25 minutes while waiting their turns to empty pockets and walk through a metal detector. That time is off the clock because Integrity, the staffing firm that officially employs Amazon's warehouse workers, says it is not part of their official work duties.

But labor lawyers not involved in the case take a different view.

"I've never seen any court decision say that 25 minutes is de minimis," a legal term meaning small enough to be unimportant, said Nicholas Woodfield, a principal at The Employment Law Group, a firm that represents workers in employer disputes. "If it's happening every day, you're looking -- at over the course of a year -- almost two weeks of wages in aggregate."

That may explain why Amazon's statement emphasizes the amount of time people wait.

"I wouldn't be surprised if any employer was collecting the data to argue the merits" [of such a case], said Oswald Cousins, a partner in the labor and employment practice of Nixon Peabody, which regularly represents employers.

After all, a court might be less sympathetic to workers if security screenings as they leave an employer take only a few minutes. Meanwhile, if Integrity Solutions failed to convince the justices that the warehouse workers must spend only a little time in line, that would undermine Amazon's claim that employees pass through security "with little or no wait."

The landmark Fair Labor Standards Act, signed into law in 1938, requires employers to pay workers for time they spend on the job. But the 1947 Portal-to-Portal Act exempted some work activities. For example, companies aren't expected to compensate workers for the time it takes to walk between an employer's front door and their work station. Activities such as putting on and taking off specialty safety clothing are also exempt.

But Woodfield notes that, when the FLSA was enacted, no one conceived of having workers line up to walk through metal detectors. As a result, "This is being dealt with in a patchwork fashion," he said, as different courts use various standards on a case-by-case basis.

In the High Court's questioning yesterday, several justices focused on "technical details," according to Cousins, who reviewed transcripts of the arguments. Those details could prove decisive in which side wins the case. They also suggest how the justices might be leaning.

One area of interest was what the Portal-to-Portal Act considers essential and non-essential job tasks. If a security screen is considered a "principal activity" of the job and one that provides value to the employer, the law requires employees to be compensated for that work. A retailer or contract firm would not have to pay for non-principal activities.

Some of the justices on Thursday questioned whether waiting for a security check actually constitutes a principal activity. If not, Integrity might not be liable for past wages.

"The Court was saying, 'You seem to be equating principle activity with any activity,'" Cousins said, in addressing some of the questioning.

But distinguishing between principal and non-principal activities can be challenging. Justice Elena Kagan brought up the example of a cashier who is paid to count the money in her drawer at the end of a shift. That count isn't only to prevent theft, but also to ensure that transactions are accurate, she noted. For retailers, having too much money in the drawer can be as big a problem in balancing the books as having too little.

Even if a security check isn't considered a fundamental part of what warehouse workers do, however, the amount of time they must wait for security screening -- and how that process is control by an employer -- is another factor the court might zero in on. An employer cannot arbitrarily require workers to remain on company premises for extended periods of time and claim not to be liable for additional wages.

As Justice Anthony Kennedy asked: "[L]et's assume that it takes 25 minutes to check out and that it would be very easy for the employer to hire a few more checkers and make it five minutes. Just assume that that's the fact. Why isn't the long line in caused by very few checkers for the benefit of the employer? It's for the benefit of the employer to hire fewer checkers."

At that point, he seemed to suggest, making workers wait in line could amount to the employer shifting a cost of doing business onto employees, while the company gained an intrinsic benefit in curbing thefts.

"It reminds me a lot of the overtime cases where you have someone who is a maintenance person and they put them on call," said Brian Markovitz, an attorney with Joseph Greenwald & Laake who represents employees in labor disputes. "If they're on call, can they do things on their own, or are they beholden to the employer? Are you free to go? Do you have to do this? And if you don't, are you fired? I don't see them as being free to do their own personal activities. It's something they have to go through. It's a close call on this."

Meanwhile, Woodfield noted that while a ruling in favor of Amazon's warehouse workers could end up costing retailers big bucks, a decision in the other direction could have major implications for workers. If employers aren't required to pay for workers for security checks no matter how onerous or time-consuming, there would be no incentive to consider any inconvenience to employees. As a result, companies could make workers wait around even longer after they clock out if that is thought to save an employer money.

An employer might reason that "'We don't need to have two people here [screening],'" Woodfield said. "'We can have one person,' and the wait times go up to an hour. Is that the result the courts were anticipating?"

The decision, which will likely come down to a narrow vote, could mean either a lot of unpaid mandatory standing about for workers or potentially billions of dollars in wage costs for employers.