Google's Cost of Doing Business Got Higher

Google has provided us with a template for how not to deal with a corporate problem, and how to make a bad situation infinitely worse.

Google has an assortment of over 150,000 temporary and contract workers, who outnumber the company’s full-time work force.[i] The company generally pays the temps less, by between 12 and 50%, than its permanent employees. That’s fine in the US where such differential rates are legal, so long as they don’t run afoul of specific laws governing employment—for example, those prohibiting invidious discrimination or protecting whistleblowers.

While most of the temporary workers are located in the US, thousands are employed outside of the country. By last count, more than 30 countries world-wide have pay parity laws, requiring employers to provide temps with the same benefits and pay as full-time employees.

In 2012 and 2013, and in 2017, Google conducted audits to compare the rates of pay of its temporary workers in Europe, the Middle East and Asia with those of permanent employees for the benefit of the staffing agencies Google uses to recruit and employ the temporary employees, who then report directly to Google. Since completion of the project in 2017, median total compensation for full-time employees rose by approximately 38% from 2017 to 2020, according to SEC filings. The pay of many temporary employees did not keep pace.

In May 2019, the Google employee responsible for the company’s extended work force, Adrienne Crowther, became aware of the problem. Upon reviewing the data generated by the company’s studies, she said in an email, “Yikes! This seems WAY too old.”

On further investigation, Google discovered that, while the company had kept up with its obligations by increasing pay in some countries, in 16, including Brazil, Canada, Australia and Mexico, it had not observed the requirement of the local laws which provided for equal treatment for temps.

By October 2020, Google had hatched a plan to correct the rates for new hires, while leaving pay for existing temporary employees unchanged. Alan Barry, a Google attorney responsible for compliance in connection with the extended workforce, endorsed the plan, while acknowledging in a December 2020 email that the proposed solution was insufficient to bring Google in compliance with its legal obligations and that it would “place our staffing partners in a difficult position, legally and ethically.” In support of the plan, Barry wrote that the cost of compliance would be “significant” and that “it would give rise to a flurry of noise/frustration” for Google departments which had not made provision for the increased cost.

Although conceding that adjusting the rates to pay for all temps was the correct result from a “compliance perspective,” Barry said that doing so would increase the likelihood that temporary employees would be able to “connect the dots” about the reason behind their increase. Barry also wrote, “I’m also not keen to invite the charge that we’ve allowed this situation to persist for so long that the correction required is significant.”

So how do we know all this? In June of this year, a complaint to the SEC by a whistleblower, who apparently had access to company emails and other internal documents, disclosed what Google had been hiding. The whistleblower accused the company of securities violations because it failed to disclose the risk—Google may be liable for more than $100 million in back salaries plus fines and legal costs—to its investors.

The SEC will probably take a close look. Disclosure of material information to investors, which enables then to make informed investment and voting decisions, is at the heart of our securities laws. Google evidently didn’t do a lot of disclosure here.

It’s also pretty clear that the information involved is material. The question of materiality is an objective one, involving the significance of an omitted or misrepresented fact to a reasonable investor. So the general standard of materiality is whether there is a substantial likelihood that a reasonable shareholder would consider a misstated or omitted fact important in deciding how to invest or vote.[ii] SEC guidelines are even more specific in the context of Google’s conduct. Even a quantitatively small mistake or omission on a financial statement may be material where it affects the company’s compliance with regulatory requirements.[iii]

In a series of missteps, Google has insured not only that it will be investigated, charged and fined in a number of the countries in which it does business, its conduct has come to the attention of the SEC, which may be the most aggressive of all the prosecutors the company has to deal with.Google may soon discover that this is more than a $100 million problem.

[i] Facts in the text are from press reports: Julia Carrie Wong, "Revealed: Google Illegally Underpaid Thousands Of Workers Across Dozens Of Countries," The Guardian (Sept. 10, 2021); Daisuke Wakabayashi, "Google Could Be Violating Labor Laws With Pay for Temp Workers," The New York Times (Sept. 10, 2021). [ii] See TSC Ind., Inc. v. Northway, Inc. 426 US 438, 449 (1976). [iii] SEC Staff Accountability Bulletin: No. 99-Materiality (August 12, 1999).