Blue Shield, under fire over executive pay, is accused in lawsuit of cheating lowest-paid workers

Illustration by  Michael Olivier

Illustration by Michael Olivier

Blue Shield of California, which made headlines yesterday with its lavish and secretive compensation of top executives, is accused in a class action lawsuit of systematically failing to pay its lowest-paid workers their full wages.

Unreported so far by the media, the lawsuit alleges the nonprofit insurer paid its customer service representatives for less than the actual time they worked. Originally filed in San Francisco Superior Court in December, with an amended complaint submitted last month, the lawsuit cites two company-wide policies regarding customer service representatives that it says shortchanged the workers.

One policy, according to the lawsuit, required the workers to be at their desks and logged into their computers and a time management software program before they were considered to be on the clock. Under California labor law, hourly wage employees must be paid for all of the time they are under the control of an employer. 

Given how cumbersome and unreliable Blue Shield’s internal computer systems were when I was there, I have no doubt that the total time each customer service representative spent logging in added up to hours and hours over the course of their employment. Not paying these workers, many who make little more than minimum wage, for that time is inexcusable. 

Under the other policy, Blue Shield rounded off workers’ credited time “to the quarter hour, usually down, so that during the course of their employment, the [workers] were paid far less,” according to the lawsuit.

In its response, Blue Shield doesn’t deny the substance of any of the allegations. Its lawyers throw up a lot of legal smoke with claims that the lawsuit is barred by statutes of limitations and because, they say, the named plaintiff, Sihanath J. Vangsoulatda, “consented to and approved” the practices.

But as to the alleged wrongdoing itself, they make just two claims:

One, “All conduct and activities of Blue Shield alleged in the Complaint conformed to statutes, government regulations, and industry standard based upon the state of knowledge existing at the time(s) alleged in the Complaint.”

And two, “The acts and statements of Blue Shield were fair and reasonable and were performed in good faith based on all of the relevant facts known to Blue Shield.”

Cutting through the legal jargon, what Blue Shield seems to be saying is not that they didn’t do what they’re accused of doing or that it was legal and proper, but rather that they thought it was okay.

That’s a far cry from Blue Shield’s approach to compensating senior executives. Blue Shield goes to great lengths to ensure they get their full compensation, and then some, paying the executives in just one year tens of millions of dollars more than the insurer reported to regulators that it had paid them.

The root problem for the customer service representatives is that they are totally at the mercy of management. They have no union protection, unlike their counterparts at California’s other big nonprofit health plan, Kaiser Permanente, who are represented by SEIU (Service Employees International Union).

On the bright side, now might be an opportune time to change that. The lawsuit and latest headline-grabbing revelations about greed at the top have set the stage nicely for an organizing campaign by SEIU or another union.

9/3 update: One additional fact underscoring the inequity of Blue Shield's compensation practices: The Affordable Care Act limits to $500K the amount of compensation paid to an executive that is tax deductible as a business expense. Since the federal corporate income tax rate is 35%, that means every dollar over $500K paid to an executive costs policyholders one-third more than each dollar paid to a customer service representative or other worker making less than half-a-million dollars a year.