Labor Law Violations Charged

Some contractors who have received federal earthquake repair loans have repeatedly violated labor laws by underpaying their workers, but most have not been criminally prosecuted, documents and interviews show.

Los Angeles housing officials who oversee the federally funded loan program have documented 17 cases of contractors who failed to pay 155 workers the “prevailing wages” required by state and federal labor laws.

But those same housing officials have turned none of the cases over to local or federal authorities for prosecution--a move that has angered the city attorney’s office.

The city attorney’s office and a carpenters’ cooperative that has investigated some of the wage cases say some of the worst violators should be prosecuted to deter contractors from exploiting workers in the future.

But housing officials, who are investigating another 26 cases involving 191 workers, say none of the cases showed criminal intent and therefore were not turned over to the city attorney. Instead, housing officials made the contractors pay the shortchanged workers $240,000 in back wages.

“There has to be an intent to defraud,” said Ann Sewill, assistant general manager of the city’s Housing Department. “A lot of the times it’s a dispute between workers and the contractors.”

The carpenters’ cooperative and city attorneys say criminal violations appear evident in some of the cases that the Housing Department has reviewed.

In fact, the city attorney’s office is prosecuting a prevailing wage case that housing officials determined was not a criminal violation. The case was brought to the city attorney’s office by the carpenters’ cooperative.

At the heart of the dispute are questions about whether the city’s Housing Department has properly monitored the $321-million program that provides zero- and low-interest loans to pay for earthquake repairs. Although most of the original funding is almost gone, the city is in the process of loaning out an additional $40 million in federal funds.

The loans include a 15% grant so contractors can pay workers prevailing wages. But before any loans are issued, the city requires all contractors and subcontractors to sign a document promising to pay prevailing wages.

The city controller’s office has launched an independent audit of the loan program, charging that housing officials have not adequately monitored construction projects to ensure that contractors are abiding by labor laws including prevailing wages.

The audit was prompted by complaints from the Carpenters/Contractors Cooperation Committee, a Los Angeles-based labor-management group that routinely investigates public works programs.

The cooperative has led the charge to prosecute contractors who shortchange workers. It says such contractors have an unfair advantage in competing for public projects because they can offer lower bids.

Deputy City Atty. Deborah Sanchez, the lead prosecutor in the only prevailing wage case that has gone to trial, has requested--to no avail--that housing officials turn over other cases for possible criminal prosecution.

“These are the types of cases we should be allowed to review to see whether criminal proceedings must be pursued,” she said. Sewill said she was unaware of Sanchez’s request but is willing to oblige.

Sanchez says forcing contractors who are caught violating the law to simply pay workers their proper wages is only a slap on the wrist and will not deter violations.

“Is this really a warning for the industry? Not really,” she said.

Sanchez added that the city attorney’s office--not the Housing Department--is the best qualified to determine criminal violations.

“Part of the problem is that if they don’t understand what the criminal labor laws are, they will miss it,” she said.

Housing Department officials acknowledge that they are not trained to recognize or pursue criminal violations. Questions about the department’s performance have also been raised from within.

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In an internal memo, the former head of the Housing Department’s compliance unit, Leon Davis, said his unit did not have enough staff to monitor compliance of the prevailing wage laws.

“Presently, some of our subcontractors are ‘feasting like sharks at a shipwreck,’ ” Davis said in the May 16, 1996, memo.

Davis, who was later transferred to another unit, said in an interview that the department has since hired additional workers to help monitor the cases.

Despite his reference to “feasting” subcontractors, Davis echoed Sewill’s contention that the department found no evidence of criminal violations. But he added: “I’m not trained to find criminal intent.”

Davis said that in most violations, the contractors have simply made errors in paying their workers. Criminal charges, he said, would only slow up the process and deny workers their back wages.

“My main thing was to get underpaid employees their money,” he said, “not to have the cases hung up in court for a long time.”

As administrators of the federal earthquake funding program, housing officials are responsible for ensuring that the prevailing wages are paid.

Federal policy requires housing officials to turn over any cases involving criminal violations to local or federal prosecutors.

According to federal labor and housing officials, criminal intent can be determined if contractors have falsified payroll records to get around paying prevailing wages or have repeatedly violated the law.

To date, the only criminal charges that have been filed over prevailing wage violations grew out of an investigation by the carpenters’ cooperative.

That case involved four carpenters who worked on a Northridge apartment complex and were paid $7 and $12 an hour when the prevailing wages were $22.89 per hour.

The city attorney’s office has filed four counts of underpaying workers, a violation of state labor codes that is punishable by up to six months in jail and $1,000 in fines.

Named in the criminal complaint was Calabasas-based Ande Construction and Perriseau Development Inc. of Reseda.

The Housing Department completed an investigation into the same case two months earlier but found no criminal intent and simply ordered the contractors to pay $4,338 in back wages, according to Housing Department records.

Representatives of the carpenters’ cooperative charge that many contractors are shortchanging workers and simply pocketing the savings.

“We have told housing officials many times that they should turn over everything to the city attorney,” said Lonnie Ballantyne, an investigator with the carpenters’ group. “It’s a wide open game out there.”

Prevailing wage laws were written to protect workers from being victimized by cutthroat competition among contractors.

Most state labor laws were written to conform with the Bacon-Davis Act, the 1931 federal law that requires contractors to pay prevailing wages on government-funded jobs.

The punishment for violating the Bacon-Davis Act varies based on the violation. But in some cases, courts have barred violators from getting future government contracts.

Although housing officials said they found no criminal intent in any of the 17 violations that they have investigated, Sanchez and Ballantyne say internal Housing Department documents indicate what appears to be criminal violations in some of those cases.

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In one case, Sanchez and Ballantyne said, it appears that a contractor not only underpaid workers but had them do highly dangerous asbestos removal without proper training or protection in violation of state health laws.

According to a memo by a housing inspector, a contractor working at a building on Kingsbury Street in Granada Hills underpaid workers and had several laborers removing asbestos from the walls for nearly a month without any protective gear. Some of the work was done under cover of night, the inspectors said.

“Several of the workers seem to be showing signs of asbestos contamination, i.e., cracking around the mouth, breathing difficulty, bleeding noses, eye abnormality,” according to a June 1995 memo from Elizabeth Jimenez-Scaggs, a Housing Department compliance inspector.

The department ordered Sam Menlo, the owner of that 161-unit building, to stop all rehabilitation work and pay six workers $43,129 in back wages.

State occupational safety laws mandate that asbestos be removed by trained workers wearing protective gear. Serious violations result in fines of up to $25,000 per violation, depending on how severe the contamination is.

In an interview, Menlo denied that he had any workers remove asbestos and said he voluntarily paid all the workers the prevailing wages.

Jimenez-Scaggs declined to comment, referring all questions to her supervisors. Sewill said she hadn’t heard about the asbestos allegations but promised to review the case. But the incident might have been avoided had the Housing Department more closely monitored the repair work from the beginning, said Roy Revelles, director of the department’s environmental hazards unit.

He said that contractors who are removing asbestos are required to submit work plans that include hiring trained experts. Housing officials are supposed to check regularly to ensure that those plans are followed, he said.

“It’s all a matter of whether we had the capacity to do that,” Revelles said. “We were so thin, it’s tough.”