EF grows on backs of cheap labor

A CAMBRIDGE COMPANY, Education First, is a big winner in the race for state business tax credits. The privately owned Swedish company now occupies two buildings (and, thanks to its tax credit, will soon occupy three) in the city’s redeveloped NorthPoint area abutting Charlestown and East Somerville.

Of the $15 million in economic development incentive program credits the Baker administration awarded last year, Education First, often abbreviated as EF, received $6 million, the second-highest such award ever made (23 other companies collected, in varying amounts, the other $9 million). Moreover, under statutory changes to the program enacted the previous year at the governor’s request, the tax credit to Education First was a “refundable” one, meaning that the company received a cash payment for the amount that exceeded its tax liability. In exchange for the credit, Education First has promised to increase its Massachusetts workforce to at least 1,450 by 2023 by hiring 300 new permanent full-time employees at an average salary of $60,000.

EF’s tax credit application tells the story of how it came to be “the world leader in international education,” offering language training, international travel, cultural exchange and MBA programs at its North American headquarters in Cambridge. The company, initially consisting of only three employees, arrived in 1987. By 2016, it had expanded to two buildings, had outgrown both of them and was contemplating relocation. A deal to move to San Jose, California, was nearly consummated, but after lengthy negotiations with the Baker administration, the company decided that the pursuit of the tax credit would allow it to remain in Massachusetts and to grow “its global footprint in the area of social good” right here.

The Education First brand, as its courtship with San Jose suggests, is a sort of Silicon Valley on the Charles, aglow with youthful energy and noble intentions. The company won first place in the Boston Globe’s “Top Places to Work” self-promotion contest last year, the result of its employees’ enthusiastic responses to questions such as “My job makes me feel like I am part of something meaningful.”

Politicians of both parties enjoy associating themselves with EF’s altruistic vitality. Bill Clinton annually presents a million-dollar award sponsored by its business school for accomplishments that “address the obstacles that prevent prosperity and opportunity from thriving worldwide.” And at the groundbreaking for EF’s third building last year, Gov. Charlie Baker offered this tribute to the company’s virtues (in what doubled as a subtweet to President Trump): “There is unity in what you folks do. You bring cultures together….you do exactly in this day and age what we need most of all — which is people who know how to find common ground and help people build on it.”

And by doing good, Education First also does very well. A flattering Globe tour of one of its buildings highlighted its unique architecture, including a glass “waterfall” letting natural light inside, 360-degree views, bookshelves imported from Amsterdam, extra-high German wingback chairs and Italian quilted sofas — the visible signs of the company’s sanctification, as the Puritans would have put it. One might imagine the Baker re-election campaign featuring Education First as the morally and aesthetically pleasing centerpiece of a television spot — “a private-public partnership bringing the world closer.”

But such a campaign ad became less likely after Attorney General Maura Healey announced in early August that Education First had paid $160,000 in restitution and penalties for various wage act violations, including misclassifying employees hired to teach online English courses as independent contractors. That illegal misclassification allowed EF to dodge its employer share of FICA and Medicare taxes and rendered the employees ineligible for the protections of the unemployment insurance and worker’s compensation programs. (These employees worked at an EF office in Brighton, not in Cambridge, and the news of EF’s “Top Places to Work” award was a surprise.)

And as it turns out, the attorney general’s suit is not the only workplace litigation in which Education First is a party: the company is also a defendant in a class-action lawsuit brought by other employees alleging violations of the overtime law, and it’s a plaintiff in a case about au pairs, young people who come to the U.S. for a year to further their education and help their host families with child care. EF’s Cultural Care division, which matches au pairs with hosts, is seeking to exempt au pairs from the “Domestic Workers Bill of Rights,” a recent state law that makes domestic workers eligible for minimum wage and overtime pay and limits the deductions their employers can take for lodging and meals.

A federal judge ruled against EF last year, rejecting the company’s claims that the federal minimum wage (of $7.25 per hour) should apply to au pairs because of their status as visa holders and because the higher state minimum wage would make the program economically unfeasible. Noting that low-cost child care was not a goal of the federal law creating the au pair program, the judge suggested that a simple solution for the host families would be to set the number of hours of child care they require below the weekly maximum of 45, thereby freeing the au pairs to spend more (unpaid) time pursuing their cultural and educational interests. EF has appealed that ruling.

Because Education First had certified in its tax credit application that it would not unlawfully misclassify workers as independent contractors, its payment of restitution and penalties to settle the Attorney General’s suit could, theoretically at least, place its tax credit in jeopardy. The law permits the revocation of a credit upon a determination that the company is in “material noncompliance” with a representation it made in its application.

Whether the governor will pursue that remedy seems doubtful in light of the his on-the-record enthusiasm about the company and the fact that his gusto for tax credits as boosters of corporate growth has been largely matched by his inattention to the problem of wage theft. Under his administration, a state council created to combat worker exploitation does not appear to be doing much – the most recent annual report it has filed covered the year 2015 and email to the address listed on the state website is returned as undeliverable. A bill passed by the Senate in June to beef up wage theft protections was not taken up by the House, sparing Baker the need to take a position on it (and possibly alienate Republican colleagues in the Legislature who perennially file bills to weaken the current law).

Adding to these doubts that EF’s tax credit might be in danger, the statutory test for determining whether a tax credit ought to be revoked – “material noncompliance” – was proposed by the governor himself and turns largely on a company’s failure to deliver the number of jobs it promised. Workplace violations like the ones for which EF paid restitution and penalties must be so egregious as to “frustrate the public purpose” of the tax credit program, a finding that can be made only after the company has been offered a hearing and an opportunity to present mitigating evidence. The smart money is betting that the quantity of jobs Education First is promising is more important to the governor than their quality.

Margaret Monsell is an attorney practicing in the Boston area.