Tesla Is Being Sued Yet Again, For Allegedly Not Paying Contract Workers

It wouldn't be another day in April 2018 if there wasn't yet another negative Tesla headline hitting the wire.

That's right - Tesla has once again been sued, this time as it relates to contract workers at its Fremont factory. Tesla is party to a lawsuit that was also aimed at Balance Staffing, a company responsible for staffing workers at Tesla's Fremont factory. These workers have alleged not only that they are due additional overtime pay, but also that the service that placed them at Tesla encouraged them to accept debit cards instead of paychecks when it came time to get paid.

The story was first reported at Jalopnik:

Tesla contract workers aren’t receiving legally required overtime pay or mandated work breaks, according to a new lawsuit filed in California state court. The employees faced “pressure” from a temp agency that hires workers at Tesla’s California factory to take a debit card to accept their compensation, rather than a traditional pay check, the suit claims.

Could this just be the temp agency cutting corners, or is it possible that the cash crunch at Tesla is still very real? Accepting debit cards instead of cash usually results in a small percentage kickback from the debit card originator to the payor (which would save either Tesla, Balance Staffing, or both a nominal amount of money) and they also could extend the amount of time that Balance Staffing could have to pay its workers. The fees are then passed back to the person who is being paid:

“Defendants willfully required Plaintiff and class members to work during rest periods and failed to compensate Plaintiff and class members for work performed during rest periods,” the suit claims.

Nezbeth-Altimore specifically alleges that Balance Staffing “pressured” its employees at Fremont to accept a debit card as pay instead of a physical check. While possibly more convenient, but the feds have said workers can’t be forced to use so-called payroll cards. And workers who use debit cards could also be hit with fees and surcharges for withdrawing their payment at an ATM.

The article continues, citing the temp agency's standards for overtime pay:

Nezbeth-Altimore points to Balance Staffing’s policy to illustrate her claims over failure to pay necessary overtime wages and provide proper rest periods. California law requires employees to be paid one-and-a-half times their regular rate of pay if they work more than eight hours a day or 40 hours total in a week. After 12 hours in a day, workers are entitled to double their pay.

In its handbook, Balance Staffing only mentions overtime pay for workers who put in more than 8 hours in a work day or 40 hours in a week, the suit says. It makes no mention of working 12 hours a day, according to the suit, something known to happen at Fremont in the past. (CEO Elon Musk said this week that Tesla will be hiring several hundred workers as part of an effort to run Fremont 24/7 to build more Model 3 sedans.) 

“During the relevant time period, Defendants willfully failed to pay all overtime wages owed to Plaintiffs and class members,” the suit says.

Finally, the article notes additional litigation that is outstanding dealing with Tesla's working conditions, and the obligatory statement from the company, denying it has anything to do with this lawsuit, despite being named a defendant:

Tesla is facing several lawsuits from contract workers over alleged racial bias and abuse at Fremont. One of those cases is moving toward trial, Bloomberg reported last week, as the contract workers aren’t required to settle disputes through binding arbitration, customary for full-time Tesla workers.

In a statement, a Tesla spokesperson said the automaker “goes above and beyond the requirements of California and federal law in providing workers meal and rest breaks and appropriate overtime pay.”

“This is a dispute between a temporary worker and her employer staffing agency, which is responsible for payment of her wages,” the statement said. “There is no specific wrongdoing alleged against Tesla. Regardless, whether Tesla or a staffing agency, we expect employers to act ethically, lawfully and do what is right.”

Is it even possible that both the cash crunch - and the legal issues - at Tesla are getting worse instead of getting better? Regardless, as it relates the company's finances, those on the short side are starting to smell blood. 

Late last week we did a report on Vilas Capital Management - which has a majority of its short book dedicated to Tesla - and its recent reasoning for making its Tesla short such a large percentage of its capital:

We added meaningfully to our Tesla position in the first quarter at prices in the $340 range. We continue to believe that Tesla is extremely overvalued and that it will experience significant financial difficulties over time.

All companies in a capitalistic system need to earn profits and those profits need to be attractive relative to the amount of shareholder capital employed. Tesla has never earned an annual profit. Along with digital currencies and Unicorns, Tesla appears to be caught up in a gold-rush-fever type of emotional response, both from a “they will take over the world” and a “they will save the world” combination of hopes, instead of their owners looking at the numbers.

Tesla bulls will argue that their production will rise to 5000 Model 3’s per week soon and, therefore, the stock will trade meaningfully higher. Given that the company lost $20,000 per Model S and X sold for roughly $100,000 each last year, due to the fact that it cost more to build, sell, service, charge and maintain these cars than they collected in revenue, as it is important to include all costs when evaluating a business, we predict it will impossible for Tesla to make a profit on a $35,000 to $50,000 car.

As anyone with automotive experience knows, profit margins are far higher on bigger, more expensive cars. Therefore, the faster Tesla makes Model 3’s, the more money they will lose.

Vilas continued:

Roughly five institutions make up nearly 50% of Tesla’s freely floating shares. All it will take is for one of them to realize the likely fact that the company won’t ever earn an annual profit, has been overly optimistic, at best, or quite dishonest, at worst, with their projections of cash flow and profit and Tesla’s shares should fall precipitously. We believe that the CEO’s recent tweet that the company will be profitable and will generate positive cash flow in the second half of the year are likely attempts to artificially inflate the stock and keep creditors at bay.

Given that our calculations show that Tesla needs to raise at least $5 billion of equity, if not closer to $8 billion, to stay solvent in the next 14 months, the company needs to find at least another dozen Ron Baron sized investors.

We do not believe that this will be possible given their expected future losses, working capital and capital expenditure needs, lousy execution with the Model 3, falling demand for their somewhat stale Model S and Model X, tax rebates of $7,500 per car that will start going away shortly, impending competition from Jaguar, Mercedes, Porsche, BMW, Audi, etc., the credit rating downgrade by Moody’s to Caa+ while leaving the credit on watch for further downgrades (Caa+ is basically defined as impending default), the NTSB investigation into the accident caused by the “Full Self Driving” option that they collected $3000 for (which may create a class action lawsuit, fines and the disabling of the feature), the fact that they have had 85 letters and investigations back and forth with the SEC (a very unusual pattern), the fact that their three top finance executives (CFO, Chief Accounting Officer, and Director of Finance) have left the company over the last 18 months leaving huge amounts of awarded by unvested shares on the table, a highly suspicious pattern, and the fact that the company owes suppliers roughly $3 billion of unsecured payments, which could be “called” at any time, similar to a run on a bank.

If Tesla’s suppliers simply asked for their past invoices to be paid and to be paid in cash at the time of their next parts delivery, a likely outcome the worse Tesla’s balance sheet gets, it is clear that Tesla would need to file for protection from creditors. Further, the banks lending Tesla money cannot ignore the balance sheet. They have strict rules that regulators enforce about lending to companies with increasingly negative working capital.

The company’s story about further drawing down lines of credit to finance operating losses and capital expenditure needs may seem plausible to novice investors but, in our opinion, not to suppliers and regulated lenders. In a game of financial musical chairs, it is important to sit down quickly.

Who in their right mind would continue to finance this money losing operation? Up to this point, it has been from growth investors who have likely never owned an auto stock before. Once they figure out the industry and the truth about Tesla’s future, we doubt it will continue.

This second lawsuit and continued scrutiny comes at a time when Tesla is publicly under some of the worst pressure its been under since its founding. The media narrative on the company has certainly has certainly become slightly more skeptical and this has, in turn, triggered Elon Musk to set bigger goals and larger milestones for the future.

The tally of bad press, lawsuits and investigations of recent relating to Tesla is starting to pile up.

  1. NTSB investigation that put the company at a public feud with the NTSB
  2. An initial workplace safety investigation by the state of California
  3. second reported workplace safety investigation, reported on Friday
  4. A securities fraud class action lawsuit against Musk claiming he knew he was going to miss Model 3 targets for 2017
  5. This contract worker lawsuit
  6. CNBC article detailing poor vetting of suppliers, leading to a pile up of malfunctioned parts
  7. Reports of the company cutting corners as it relates to their pre-owned vehicles
  8. Reveal article alleging the company is underreporting its safety incidents at its Fremont factory
  9. Recent massive recall of 125k Model S sedans

Despite this, we've been promised by Elon himself that Tesla:

  1. Will be cash flow positive in Q3 and Q4 of this year
  2. Will not need to do another capital raise in 2018
  3. Will produce 6,000 Model 3's per week, starting this summer

Critics of the company believe that Elon Musk should be a target by the SEC if these goals - once again, easy to promise, not as easy to deliver - aren't met. They have been the only thing that has kept Tesla's stock price from falling well below the $300 mark over the last couple of weeks, despite all of the negative press. This new lawsuit is just another negative to add to that pile. 

Comments

FireBrander Sat, 04/21/2018 - 12:50 Permalink

Stick a fork in it.

or, maybe not....

How "systemically important" is Tesla?

Trump and Musk "friends"?

“For example, an American car going to China pays 25% import duty, but a Chinese car coming to the US only pays 2.5%, a tenfold difference,” Musk tweeted (in support of Trump)

I can see many ways for a "friendly" politician to justify a Telsa bailout under the banner of "systemically important to the National Interest"...I wouldn't bet against it...It's better than 50/50 odds on a bailout...Tesla shorts to be handed their heads in a paper bag with one tweet from Trump...do you have the stomach for, and how much are you willing to bet against, that reality?

junction FireBrander Sat, 04/21/2018 - 14:15 Permalink

This story shows the total corruption of Governor Jerry Brown's administration.  The California Labor Commissioner's Office knows that a debit card is not a paycheck.  These employees with debit cards were not paid their full wages on time.  You cannot cash a debit card.  Further, Brown's flunkies have done nothing about the awful working conditions in the Fremont auto factory.  All these California bureaucrats and investigators are taking a hands-off approach to law enforcement when it comes to Elon Musk.  Like former Mafia killer John Gotti, Musk is an untouchable for now thanks to his friend Jerry Brown.

In reply to by FireBrander

snblitz junction Sat, 04/21/2018 - 15:04 Permalink

"You cannot cash a debit card."

I have turned debit cards into cash.  Perhaps you clarify what you mean.

I have walked into bank with a debit card and said "may I have all the money on this card in cash?" and walked out with the cash.

Your comment is dead on for a different more general point.

The government of California picks winners and losers through its enforcement actions.

I wish they were just shaking people down for money like that mob who are relatively easy to work with.

However, the government actually has animus (that is they hate certain groups of people) and they use their coercive powers to benefit some and destroy others.

It is similar with the IRS and other Fed agencies too.

If you want to experience it just start your own company.

In reply to by junction

snblitz junction Sat, 04/21/2018 - 15:04 Permalink

"You cannot cash a debit card."

I have turned debit cards into cash.  Perhaps you clarify what you mean.

I have walked into bank with a debit card and said "may I have all the money on this card in cash?" and walked out with the cash.

Your comment is dead on for a different more general point.

The government of California picks winners and losers through its enforcement actions.

I wish they were just shaking people down for money like that mob who are relatively easy to work with.

However, the government actually has animus (that is they hate certain groups of people) and they use their coercive powers to benefit some and destroy others.

It is similar with the IRS and other Fed agencies too.

If you want to experience it just start your own company.

In reply to by junction

BustedUpBiker FireBrander Sat, 04/21/2018 - 15:57 Permalink

Tesla couldn’t figure out how to make a profit on it’s most expensive Model S’s and X’s, except for Government subsidies which are due to expire soon. What made people believe that Tesla could make a $35,000 or $40,000+ cars and make a profit. Musk was hoping to continue selling his fantasy business model, until he could think of some other way to dip into the coffers of the taxpayers.

In reply to by FireBrander

Endgame Napoleon sharty Sat, 04/21/2018 - 13:39 Permalink

It is funny how, in the world of American jobs (2018), the workers who are not compensated for breaks will end up getting a bigly legal payout, while workers not compensated for entire days of work just have to let it go. Or, they are the ones who do let it go. The less calculating always fare the worst, as do the hardworking in many cases.

The temps who make a big deal out of not being paid for a break will win out every time in our upside-down “work” world. Even worse, the many permanent employees and managers who take off whole mornings, whole days, whole afternoons and whole weeks beyond PTO and pregnancy leave, doing it frequently and saying it is for kids, make out like bandits, whether or not they meet the quotas. 

But on the other hand, few employers offer permanent jobs anymore. Most of the available jobs are not only temporary or part time, but also so low paying that, unless you have spousal income or monthly welfare that pays your rent and grocery bills and refundable EITC child tax credits up to $6,431, you cannot cover rent.

People in permanent jobs, or people in jobs that pay enough to cover rent, should certainly be willing to work through a break when customer volume is high, etc. People are probably demanding their pay for the break, knowing it’ll never be a permanent job, anyway, no matter how hard or how productively they work.

It is a fly-by-night economy, with employers having no commitment to employees and vice versa. When employees behave otherwise in most businesses, taking customers and sales generation / account retention seriously, most of them are not rewarded for it, quite the contrary.

Work hard to ramp up sales numbers, coming to work every day, staying all day and meeting the quotas every month, and see how you fare in an absentee-mom-gang job. A few managers, here and there, get rewarded for hard work. But many of them are in on the crony-parent back-watching absenteeism gangs. As just a worker, for job-longevity purposes, hard work is often punished, while being a “culture fit” is the important thing.

 

In reply to by sharty

The Ram Endgame Napoleon Sat, 04/21/2018 - 16:30 Permalink

I have had a front row seat in the IT arena for a few decades now.  I have watched full time jobs being turned into contractor jobs.  I have watched incomes for analysts and other IT folks drop (both in real numbers and adjusted for inflation).  Jobs are pretty much like gigs here in south, FL.  The contract job may last for as little as 3 months and terminate without warning, no 'severance', of course.  The IT staffing companies have benefits, but they vary in quality and many of the benefits, particularly medical, are extremely expensive.  So, there you have it.  It's like working at McDonalds except your hourly pay is much higher....for now.  Btw, most of the companies I have worked at here in south, FL are terribly managed.  Most of them are owned by VC firms, and are managed quarter to quarter, dropping or adding contractors as needed. Naturally, these are not the conditions that will inspire high productivity.  The future here is an influx of H1B visas who will crowd into small apartments and work for $25 or less an hour (less than half the going IT rates).  I am happy that I did not have kids.  The future is not rosy AND there is no political solution!

In reply to by Endgame Napoleon

Truth Eater Krink26 Sat, 04/21/2018 - 13:09 Permalink

Yes- I hope to have a little cash available to buy a few put options on this when the transition signs show up on the charts.  Somehow I just don't believe Elon Musk when he said there was no need for funds because they expect increased production in Q3. 

I bet by mid-July they try to sell a bunch of new stock.  If they need $5billion, with current price of TSLA at $290, that means a dilution of at least 17 million new shares.  I am sure that will do wonders for the price of the stock.

In reply to by Krink26

wmbz Sat, 04/21/2018 - 12:58 Permalink

What is wrong with these folks bitching about not getting paid, they should be happy he lets them slave, I mean work for him.

Musky needs to remind them that they are part of something much bigger than they are. 

Elon's vision and genius, changing the world we live. Taking us the distant planets and all that shit, I mean wow!

Theta_Burn Sat, 04/21/2018 - 12:59 Permalink

Blaze that trail contract workers. debit card/cash kinda the same, but why "forced"? I wonder who the servicer of that program is, oh, and what's the skim amount?

Fear not O ye posters.. 

In 5 yrs. all of us will be forced to accept debit cards, or RFID forehead chip recharging anyway, so this is kind of interesting..

roddy6667 Sat, 04/21/2018 - 13:00 Permalink

A lot of temp agencies and industries with a high turnover pay their employees with debit cards. First of all, many of the employees don't have bank accounts. They use check cashing services to cash their checks. A debit card is a lower cost option for them, and it is safer than carrying their whole paycheck in their wallet.  This article is just proof that the author is out of touch with the working poor and general labor practices these days.

DemandSider Sat, 04/21/2018 - 13:13 Permalink

Neoliberal, "logic" holds that Americans should pay other, dumber, primitive, less able, inferior, subhuman cultures in East Asia, Mexico, etc, to manufacture old, outdated, technology, so that superior, more intelligent, gifted Americans in their democratic Garden of Eden can occupy their dynamic, free thinking, inventive, genius brains with new technology, like cancer research, financial "engineering", and, of course, producing Teslas.

Now, if only we still had the middle class that could afford this new, domestically made technology, we'd have this "free trade" thing licked!

VWAndy Sat, 04/21/2018 - 13:46 Permalink

  All it would take is one fat government contract to put Tesla in the black. He might already have the contract in hand now. CA, IL, NY all love Elon.

 Its an ideology thing. Reason, logic and math take a back seat to this greater good BS. How many times have we heard that he must be right because he is so rich? Or that because other car companies are getting into it its the future?

VWAndy Bai Suzhen Sat, 04/21/2018 - 14:31 Permalink

 Funny that you should mention that. To a man everyone that works for him acts like having worked for him is like some badge of honor. The guy is a magnet for ideologues going back to the Solar City times. El Segundo Spaced X clowns being the worst. Talent is not why they got the job. The truly talented were passed over in favor of keepers of the faith. Step out of line one time and your outta there. 

 Very much a cult mentality. Getting cast out leaves the former employees fucked in the head big time.

In reply to by Bai Suzhen

owencamo Sat, 04/21/2018 - 14:44 Permalink

I have had a short position on Tesla for months now. I went to double that position this week - but now the stock is unavailable to short with my broker.

An ominous sign for Tesla. Reminds me of 2008 when lots of other stocks were the same. Wanted to short, but had a hard time finding stock to short other than indexes.

spaniel Sat, 04/21/2018 - 17:11 Permalink

Debit cards. Can you get paid through debit cards.

Probably.

So did they get paid or not ?

It doesnt matter if it happens electronically , or with paper.....as long as it happens !

 

So WTF ?