By John Hrabe

Five California-based Goodwill charities pay hundreds of employees less than minimum wage, while providing lucrative compensation packages to top executives, a CalWatchDog.com investigation has found.

In 2010, the five CEOs of Goodwill Industries of Sacramento Valley & Northern Nevada, Goodwill of Silicon Valley, Goodwill Industries of Orange County, Goodwill Industries of San Diego County and Goodwill Southern California earned a combined $1.78 million in total compensation. The average executive took home nearly $30,000 per month in pay and benefits. It would take a minimum wage employee more than 23 months to earn the same amount. But, some Goodwill employees don’t even earn the minimum wage.

The practice of paying sub-minimum wages is legal thanks to a little-known loophole in federal labor law.

“Section 14(c) of the Fair Labor Standards Act authorizes employers, after receiving a certificate from the Wage and Hour Division, to pay special minimum wages — wages less than the Federal minimum wage — to workers who have disabilities for the work being performed,” the Department of Labor explains on its website.

Goodwill justifies the practice as a tool to hire people with severe disabilities, who would otherwise be unable to find work.

“The Special Minimum Wage Certificate allows employers to pay a commensurate wage to people whose disabilities significantly impair their ability to obtain remunerative work,” said Katherine Ransom, senior director of marketing and communications for Goodwill of Orange County, the only local organization to comment on the practice. “At the heart of this commensurate wage provision is the idea of providing people with significant disabilities the opportunity to earn a comparable wage based on productivity — using the benchmark of a person performing the same duties, who does not have a disability.”

Disabled Groups Call Policy “Appalling”

Disability advocates and labor leaders don’t think that should make any difference.

“It is appalling that organizations that purport to assist workers with disabilities in job training, would hold them back by circumventing the standard of living that minimum wage provides other American workers,” Andy Voss, president of the Autistic Self Advocacy Network of Sacramento, explained to me via email.

In August, Voss’ group organized a protest of Goodwill Industries of Sacramento Valley & Northern Nevada, which according to its most recent tax returns, paid its CEO Joseph Mendez $376,317 in total compensation. A dozen people from the Autistic Self Advocacy Network of Sacramento, Capitol People First, South Area People First and the Supported Life Institute took part in the Sacramento protest, which was a part of a nationwide campaign sponsored by the National Federation of the Blind.

Noticeably absent from the Goodwill protests were any members of the state’s powerful labor unions, which routinely condemn private companies for excessive executive compensation. One influential labor leader said that she simply had “no idea” that Goodwill paid its employees less than minimum wage.

“Goodwill Industries has a noble mission; but, by undercutting the value of differently abled workers, they are doing a disservice to the very people they claim to be helping,” said Lorena Gonzalez, secretary-treasurer of the San Diego-Imperial Counties Labor Council, who was unaware of a San Diego area protest of Goodwill. “Anyone who believes that all work is dignified and all workers deserve fair treatment, has to be outraged by these practices.”

Goodwill Industries International Inc., the parent organization for all of North America’s charitable affiliates, confirmed that 7,300 employees nationwide are employed under the special minimum wage program. It is unclear how many Californians are subjected to Goodwill’s low-wage policy because most of the offending nonprofits did not respond to CalWatchDog.com’s email requests.

Goodwill of Orange County: $4.65 Average Hourly Wage for 595 Goodwill Employees

In Orange County, 595 Goodwill employees work an average of 20-30 hours per week for less than minimum wage, a spokeswoman confirmed.

“Our average commensurate wages is $4.65 per hour,” Ransom said, referring to the Department of Labor’s far-more innocuous phrase. “And again, this tool is used primarily for individuals facing multiple, significant disabilities.”

Based on Goodwill’s figures, it would cost between $2-3 million to pay all of its employees a minimum wage. That comes out to about 3 percent of the charity’s $90 million in annual revenue. Goodwill of Orange County, according to its mission statement, “provides services for people with disabilities and other barriers in the local community.”

In 2010, the organization paid its president and CEO Dan Rogers $265,388 in total compensation, the lowest of the five California Goodwill entities that pay sub-minimum wages. According to tax returns for the same year, the charity also spent $1.4 million in overall executive compensation for key employees and managers, another $1.4 million in travel expenses and $338,059 in expenses for conferences, conventions and meetings.

“We ensure that we are able to attract and retain talented and experienced managers who can effectively lead a $90 million organization,” Ransom, Goodwill of Orange County’s spokeswoman, said in defense of the group’s executive compensation.

Goodwill of Southern California: CEO Pay More Than $500k in 2010

Just a few miles up the freeway, Goodwill of Southern California similarly pays some workers pennies and executives top dollar. Sasha Itzikman, vice president of marketing & community relations for Goodwill Southern California, was unable to confirm how many employees are subject to the special sub-minimum wage program. However, Itzikman said that she was working with the charity’s HR department to “recover accurate data.”

In 2010, the $130 million nonprofit organization accepted more than $9 million in government funds and paid executives more than $2.7 million in compensation. Then-president and CEO Doug Barr, who retired in July 2012, was the highest paid Goodwill executive in California. He earned $507,898 in total compensation in 2010. The same year, the charity spent $1.86 million in travel expenses, $358,452 in conferences, conventions and meetings, and $23,412 in lobbying fees.

On its federal tax-exempt forms, Goodwill of Southern California explains its charitable mission is “transforming lives through the power of work.”

Goodwill Industries of San Diego and Santa Clara Counties

Goodwill Industries of San Diego County did not respond to CalWatchDog.com’s request for comment. However, the North County Times’ Morgan Cook reported last month that 81 of the charity’s employees are paid less than minimum wage. “The lowest-paid worker in the county made $3.32 an hour, at a recycling center in San Diego,” the North County Times reported.

It is unclear how much it would cost the San Diego charity to pay its entire workforce a minimum wage. Assuming all 81 sub-minimum wage employees worked full-time at the $3.32 hourly rate, the amount would not exceed three quarters of a million dollars, which is less than the charity’s executive compensation and travel expenses.

In 2010, CEO Michael Rowan’s hourly compensation was 42 times more than the pay of the lowest-paid employee. His $282,295 in total compensation, which included a $50,000 bonus, was part of the $838,478 the charity paid out in executive compensation. The nonprofit spent $1.28 million in travel expenses that year.

Goodwill of Santa Clara County, which also goes by Goodwill of Silicon Valley, did not respond to CalWatchDog.com’s request for information on its exploitation of its disabled employees. In 2010, CEO Michael Fox earned $241,031 in base pay and another $80,000 in bonuses. His total compensation package was worth $344,754, according to the organization’s most recent tax return.

By John Hrabe

Goodwill is synonymous with used-clothing donations.

The national syndicate of secondhand retail stores is by far the biggest player in the clothing donation business. However, it’s losing market share to smaller nonprofits, churches and even some for-profit businesses, all of which have replicated the Goodwill charitable model.

So, Goodwill Industries Inc., like many struggling entities, has turned to the government for help.

To stop “illegitimate” organizations from cutting into their profits, Goodwill sponsored AB 1978 by Assemblywoman Cathleen Galgiani, D-Stockton. The bill, which is currently on Gov. Jerry Brown’s desk, “would require the written consent of a property owner or the property owner’s authorized agent before a collection box may be placed on the property owner’s property.”

Sounds reasonable, right? Good intentions shouldn’t allow charities to disregard private property rights. But some smaller charities say that’s not what the bill is really about. They believe, under the pretext of property rights, Goodwill is trying to squeeze them out of the secondhand clothing business.

“The ‘Goodwill Bill’ is nothing less than a naked and aggressive attempt by Goodwill to use the California Legislature to accomplish what they cannot accomplish through the natural market and fair competition,” John Lindsay, vice-president of development for D.A.R.E. America told CalWatchDog. “I would ask Gov. Brown to veto this bill.”

D.A.R.E. America, which does not receive federal funds, uses clothing bins to raise money for its programs. It also gives some of the donated items away to the victims of natural disasters, such as the victims of this year’s floods in Minnesota and last year’s tornadoes in Alabama.

Lindsay says that D.A.R.E. America always obtains permission before placing a donation bin.

“D.A.R.E. always obtains permission from the property owner or her/his agent,” he said. “We will not drop a bin without permission.  We voluntarily are in full compliance with Generalcode.com, a resource for cities and counties when drafting codes related to planning, building, and zoning.”

Why, then, are charities like D.A.R.E. so worried about the bill?

Permission Requirement: A Red Herring

Lindsay says it’s not always easy to obtain permission from the property owner compared to the lessee or affected business.  For example, a charity interested in putting a donation bin at the neighborhood Walmart would normally seek permission from the store manager. This bill would stop that and require permission from whoever owns the parking lot or brick-and-mortar building.

“Many properties are owned by large corporations and companies,” Lindsay said. “Actually obtaining the written permission of the ‘property owner’ vs. permission from the agent or lessee are two different things.”

The same goes for a small family-owned restaurant. The property owner, not restaurateur, would have to approve the bin. That’s why AB 1978 isn’t a simple property rights issue. Or rather, there’s an argument that the bill’s onerous requirement undermines the property rights of lessees, who are unable to fully utilize the property they’re leasing.

The bill’s sponsors argue that the bill specifies property owner because that’s who will be subject to code enforcement.

“The property owner should be the one who gives permission because the property owner is the one who is going to be subjected to any code enforcement,” Richie Ross, a Sacramento lobbyist and political advisor to the bill’s author Galgiani, told California’s Capitol. “Goodwill cares because some portion of the $8 million that’s getting siphoned off would go to them.”

Goodwill organizations throughout the country claim there has been a massive increase in the number of illegitimate charities “siphoning off” their donations. However, the assertion isn’t backed up with any hard data.

“There has been a recent surge of unattended collection boxes,” Goodwill Industries of Sacramento Valley & Northern Nevada, one of the bill’s sponsors argued in support of the bill. “They have become a nuisance, target for illegal dumping, and a blatant violation of property rights.”

Goodwill’s Intimidation Tactics

Goodwill’s bill is a part of an overall campaign to regain control of the secondhand clothing market. Earlier this year, Goodwill unsuccessfully backed an Oakland ordinance that would have “imposed an annual fee of $450 per box, included a cap on the number of bins citywide (60) and per vendor (15), and would have imposed fines on organizations for boxes that aren’t maintained or are without permits.”

Goodwill would benefit from caps on the number of collection bins because it commonly uses larger tractor-trailer donation centers. Smaller charities, on the other hand, use smaller bins. And that’s why the permission requirements of AB 1978 would make it more difficult for these smaller charities to compete with Goodwill.

“Goodwill only has to obtain the permission of one property owner to collect x number of pounds of clothing, whereas D.A.R.E. might need 20 bins, and the written consent of 20 property owners,” Lindsay told CalWatchDog.com.

Lindsay’s organization routinely works with other nonprofits to sponsor charitable events. And he’s quick to point out that he supports Goodwill’s mission.

“I have nothing but positive things to say about the mission of Goodwill, but their tactics over the last few years are despicable,” he said. “They should be ashamed that they feel the need to use their clout to squeeze out their competition in such a manipulative manner.”

D.A.R.E. fears that AB 1978 will be used to squeeze them and other charities out of the donation market, a fear that is supported by Goodwill’s own statements. Goodwill Industries of San Joaquin Valley Inc., another co-sponsor of AB 1978, vows that if Brown signs the bill into law, they’ll use it to help “cities to rid the territory of unwanted boxes.”

“After AB 1978 becomes law, Goodwill Industries SJV will continue to work closely with property owners and cities to rid the territory of unwanted boxes,” the organization explains in talking points about the bill. “Property owners and city code enforcement will be given legal authority to have unauthorized boxes towed and impounded without incurring liability.”

Or, in Lindsay’s words, “Goodwill has appointed themselves a state agency, here to help save California from unwanted boxes.”

“The first step to crushing an opponent is to either dehumanize them or put yourself above them,” he said of Goodwill’s attitude toward other charities.

The same could also be said for how Goodwill treats its own employees.

Goodwill’s Sub-Minimum Wage Policy

The mission of Goodwill Industries is to provide job training and placement services to individuals that would otherwise face employment barriers.

“But Goodwill is really an employer,” Ross explained to California’s Capitol in August. “The money they get is used to hire the disabled — 2,000 people who otherwise wouldn’t have jobs.”

Because they “otherwise wouldn’t have jobs,” Goodwill pays some disabled employees less than the federal minimum wage. A CBS News affiliate in Denver reported last month that some Goodwill employees claim to earn “just 20 cents an hour.”

Goodwill Industries exploits a loophole in the Fair Labor Standards Act of 1938, which grants organizations with a “special wage certificates” an exemption from the federal minimum wage. The National Federation of the Blind recently organized a protest of Goodwill to draw attention to the law, which it calls “unfair, discriminatory, and immoral.”

“Goodwill is a household name, but most households do not realize that Goodwill is one of the many employers that pay less than the federal minimum wage to their workers with disabilities,” the NFB states on its website. “Some Goodwill-affiliated agencies pay their workers with disabilities at least the federal minimum wage, but 64 of the 165 Goodwill-affiliated agencies choose to limit the vocational potential of their workers with disabilities by paying them pennies per hour.”

Among the 64 Goodwill-affiliated agencies with the legal authority to pay the disabled sub-minimum wages, none other than Goodwill Industries of Sacramento Valley & Northern Nevada, a co-sponsor of AB 1978. The Autistic Self Advocacy Network of Sacramento, which joined the National Federation of the Blind’s August protest effort, first identified the Sacramento affiliate’s minimum wage exemption on its Facebook page.

“This was a good protest,” one ASAN protestor wrote on the group’s Facebook wall. “We successfully managed to persuade 4 people to turn around — that is, away from the store’s doors — and to go home, thus causing Goodwill to lose business. This is a good start.”

But, disability advocates could see that good start wiped out, if Brown signs AB 1978.