Source: The American Prospect
A class action case charges that chicken farmers are so beholden to middlemen that they are effectively employees of the company.
Michael and Jean-Nichole Diaz wanted a farm business to pass down to their four sons. They ended up losing their life savings to get out of a dead-end chicken-growing contract. Now they’re hoping other contract poultry farmers will join their class action lawsuit, filed Monday, against one of the poultry corporations they worked with, Amick Farms.
Mr. and Mrs. Diaz allege that they were promised independence, but practically and legally were underpaid, unprotected chicken company employees, with little control over their operations and $1.5 million in debt on the line.
“It wasn’t very long before we realized that this is not a business model that’s going to be proven by the fruit of our efforts,” says Michael Diaz. “It took our whole savings, and it took every dollar and cent that we brought in outside … [Amick Farms] had this day-to-day control over our farm, there was nothing that we could do to do anything different.”
By arguing that contract poultry growers are illegally misclassified as independent contractors, the case highlights the ways corporations increasingly seek “control without responsibility” in the food industry and beyond. Corporations from Tyson to Amazon to port trucking firms have exploited changes in antitrust laws to push the riskier or labor-intensive parts of their supply chain onto “puppet entrepreneurs,” who take on all the risks of being a small business without meaningful independence.
Late last year, the National Labor Relations Board announced that it would seek to expand the definition of “employee,” and potentially cite employers who misclassified workers as violating federal labor law, which would force companies to properly identify and compensate workers. If that effort succeeds, large grower middlemen would have a choice to make: make workers like Mr. and Mrs. Diaz employees with standard benefits, or allow farmers to stay independent and make their own business decisions.
Amick Farms did not respond to a request for comment.
THE DIAZES WERE BOTH schoolteachers when they bought 50 acres of land with a family home and four chicken houses on it in 2018 for $1.5 million (roughly $1.2 million of which went toward the land and the chicken barn). “There was our little paradise that we thought we would be able to sustain and work and make it last for generations,” Mr. Diaz said. They were told that raising chickens part-time on contract would help pay off their farm. Michael kept his teaching job, and between Jean-Nichole, their four sons, and their parents, the Diazes were fully invested in making the farm sustain itself. But almost immediately they realized the reality of the chicken business was very different than poultry companies’ promises.
The Diazes’ story isn’t unique for the chicken industry. The first poultry company that they grew chickens for (also called their “integrator”) requested unexpected capital investments to update chicken houses they had previously been told were good to go. Over two short years raising chickens for three different integrators, Michael says they paid out more than $100,000 in unexpected upgrades. For instance, the subject of their lawsuit, Amick Farms, demanded $50,000 in upgrades to start raising birds for them, including installing Amick-approved lights, fans, and even a new implement for the Diazes’ personal tractor to turn chicken litter the way Amick liked.
In addition to dictating what type of equipment they used, Amick provided the Diazes with their key inputs—chicks, feed, and veterinary care—according to their complaint. Amick’s growing contract and weekly visits from field representatives micromanaged all meaningful decisions about how to run the farm, according to the complaint. Among many details, Amick allegedly dictated how much light birds would get and the temperature and airflow in the Diazes’ chicken houses. These key management decisions can fluctuate daily and affect birds’ health.
“Everything was mapped out and set in stone and had to be done a certain way, exactly the way they told you how to do it, whether or not it was beneficial to the success of your operation,” Mr. Diaz says. Amick even dictated how the Diazes should mow their lawn and where their kids and dogs could go on their property. Amick also required that the family keep a log of everyone who visited, Mrs. Diaz said.
The arrangement shifted all the risks of capital investments to the farmers without them having any say in key business decisions.
Chicken companies sell farmers on flexible schedules and part-time work, but in reality the Diazes were on call 24/7, the complaint argues. Amick would show up in the middle of the night to drop off feed or collect birds, and their contract required the Diazes be there to facilitate that, the complaint says. If the Diazes challenged a required capital investment, didn’t follow orders from service representatives, or weren’t present for a late-night bird pickup, Amick threatened to stop bringing birds or end their contract.
“Even though you’re doing everything you can possibly do and a bank payment is due, [the chicken company] can say, ‘Oh, well if you don’t do this, we’re not going to give you a new set of birds,’ so then there’s no other way for you to make that payment,” Mrs. Diaz says. “You think, oh my gosh how am I going to survive, have a house to live in … they use fear as a motivation.”
The Diazes eventually sold their farm, but only after their final integrator approved the farmer they wanted to sell to first. They lost all the savings that they had put into buying the farm, but still made out with a little money, which they recognize is better than other poultry farmers who lose everything.
Now, Michael and Jean-Nichole are suing Amick with the hope of changing the power dynamics in contract poultry farming. “The whole system has to change,” Mrs. Diaz says.
Their suit argues that Amick illegally misclassified the Diazes as independent contractors when, for all practical purposes, it treated them like employees. This arrangement shifted all the risks of capital investments to the farmers without them having any say in key business decisions, like how many birds they received, how they cared for those birds, how they sold the birds, what kind of equipment they could buy, or even when they worked. Contracting denied the Diazes key labor protections that all employees receive, such as a minimum wage, sick days and holidays, and other benefits. According to the complaint, Michael and Jean-Nichole often each spent an average of 40 hours per week or more working on their farm, on top of Michael’s teaching job, and after paying for expenses they made “a fraction of the minimum wage per hour worked.”
The independent status of poultry contractors has been questioned before. In 2018, a report by the Small Business Administration found that contract poultry growers may not qualify for SBA loans because they looked more like corporate affiliates than independent small businesses. “We found integrator control exercised through a series of contractual restrictions, management agreements, oversight inspections, and market controls,” the report says. “This control overcame practically all of a grower’s ability to operate their business independent of integrator mandates.”
Lawsuits defending farmers’ whistleblower rights have also made the case that they’re misclassified employees. “I’m hoping the courts will see it as a black and white, ‘let’s just look at the rules, and go.’ If that’s the case then I don’t think any court can deny that these people are in fact employees,” says Amanda Hitt, director of the Government Accountability Project’s food integrity campaign that brought the whistleblower case.
The logic behind poultry contracting has traditionally been that what farmers lose in autonomy they gain in avoiding risk. Feed makes up roughly 70 percent of the production costs for raising poultry, and prices can fluctuate with volatile commodity markets. Studies comparing independent and contract hog and poultry producers have found that contracts can reduce 90 percent of farmers’ “price risk” from buying inputs or selling animals, which can make or break farm income.
But contracts also shift other risks, like capital investment and environmental liability, onto farmers. Former USDA researcher and University of Maryland professor James MacDonald said that farmers are at risk of getting fewer flocks than they anticipated or being placed in an unfavorable “tournament” ranking system for pay. “Your pay effectively depends upon your performance relative to the group average,” MacDonald says. “That’s a pure risk [that] depends entirely on who happens to be in your group … [like if] in baseball you happen to be in with the Yankees and the Red Sox all the time.”
As truly independent businesses, farmers could decide how much debt to take on or innovate with more humane or environmentally sound ways of raising birds.
Defenders of the system point to statistics showing that it seems to work for many growers: In 2014, according to the most recent data available, 60 percent of chicken-growing families had incomes above the median U.S. household. However, most of these households rely substantially on off-farm income, and despite being a very homogenous group the difference in income between high- and low-earners was even wider than the typical state of U.S. inequality. The bottom 20 percent of chicken households, in other words, made less than the bottom 20 percent of all U.S. households.
Michael Diaz says they only had two flocks where they made enough money from their chicken business to pay their bills; on many other flocks, they lost money. Payment projections from their integrators did not clearly divulge how little they would receive on the losing end of the tournament, Michael said.
The Diazes and contract grower advocates contend that farmers are at the mercy of contractors when it comes to where they land in this wide spread. Poultry corporations have been accused of retaliating against farmers who raise issues, and discriminating against Black farmers by sending contractor growers sick birds, withholding feed, and demanding exceptional equipment upgrades. When half of farmers report only having one or two growers in their area to work with, farmers saddled with debt have nowhere else to turn if integrators abuse them. Michael Diaz says they were lucky to have four integrators in their area to work with, but even then, the contracts and terms were all roughly the same.
“Does it work for farmers? No. Does it work for the integrators? Yes. They’re ripping off farmers … [and they’re] doing very well, look at their profit margin,” says Hitt. “But I’m watching rural communities get decimated though bankruptcies.”
As truly independent businesses, farmers could decide how much debt to take on or innovate with more humane or environmentally sound ways of raising birds. Or as employees, they could avoid risky capital investments and receive more legal protections, including the right to form a union. As it stands, contract growers are prevented from building power together, as chicken companies prevent them from collaborating (and the tournament system creates a financial risk for farmers who help their neighbors). As employees, they could attempt to unionize, and as independent farm businesses they could form a cooperative.
Whatever the orientation of the growers—employees or truly independent businesses—poultry corporations will still be able to exert significant market power over growers given their thorough vertical integration of the supply chain and regional consolidation, unless the antitrust authorities move to break up that concentrated power. Farmers have also criticized the current laws to challenge middlemen abuses under the Packers and Stockyards Act as insufficient; the Biden administration has vowed to update those rules, but the Department of Agriculture has not yet completed them.
The lawyers at Fairmark Partners, who are representing the Diazes, say that they do not have a position on how chicken companies should resolve the misclassification violation, but they argue that they cannot continue to exploit the benefits of working with contractors. “What they’ve done is they’ve taken employees and forced them to take on costs of the company, and you can’t do that,” says Alison Newman, an attorney for Fairmark Partners. “The issue right now is that they are trying to have their cake and eat it too and treat people as employees while forcing them to take on the risk of being an independent contractor.”
