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At the end of last year, City Council directed Staff to consider further regulating development in the City by requiring building officials to withhold a certificate of occupancy from private owners when any contractor, subcontractor, or supplier is subject to an unpaid final wage theft judgment. The following Open Letter from local business leaders to City leaders finds the proposed revisions to be redundant, extreme, and would further depress new development in SJ (edited for length).

Dear Mayor Mahan, Honorable Councilmembers, Director Loesch, and Director Klein: 

The name of this proposed regulation, which is being pushed by organized labor in a transparent attempt to force every new non-exempt private development in the City to hire only union labor, is the so-called “Responsible Construction Ordinance.” But the policy, if adopted, would be anything but responsible governance. 

As a group of concerned owners, developers, contractors, and subcontractors (many of which are signatory to collective bargaining agreements and whose workers are union members), we write collectively to urge the City to reject the Ordinance. 

The reasons for our concern are numerous, but can be summarized as follows. Staff in the City’s Office of Equality Assurance are already working to diligently enforce the City’s wage policies, and recent changes in state law already criminalize wage theft and make contactors responsible for the unpaid wages of their subcontractors. The information retained by the Department of Industrial Relations confirms that unresolved wage theft claims in Santa Clara County are not a problem on the large construction projects that organized labor has targeted. Rather, almost all unresolved wage theft judgments occur on smaller residential projects, where day laborers and undocumented workers are hired without receiving minimum wage or the protection of worker’s compensation insurance. 

If organized labor and the City are honestly concerned about addressing wage theft from vulnerable workers, they would remove the exceptions in the proposed Ordinance for smaller construction projects and apply the new law equally to all construction projects, commercial and residential alike. 

Put simply, unpaid wage theft judgments on large construction projects in San Jose are not the crisis that local trade councils falsely represent it to be. The real economic crises facing San Jose are the high costs of construction and the ever-expanding set of regulations that disincentive development and stifle attempts to address homelessness by making our City the most expensive in Northern California to build affordable housing. 

The City is aware of these problems, and developers and contractors are already on record regarding the impact that rising construction costs and the slow-down in development has already had on labor. As recently reported in the Mercury News, “The fewer projects, the less labor there is . . . The less labor there is, the fewer projects there are. That death spiral is going on.”1 Given these existing economic challenges, allowing organized labor to use the City to impose more regulation on development is the wrong approach and threatening owners and contractors with withholding certificates of occupancy will have negative and unintended consequences on the workers that organized labor claims it wants to protect:

 • The Ordinance will further disincentivize growth and development in the City. As written, the proposal makes every owner and their general contractors on non-exempt projects strictly liable for paying the wage theft judgments of any lower-tier subcontractor or supplier on their projects – even when the wage theft occurred on previous projects for different owners or different general contractors on projects located outside of the City, or even out of the state. In fact, the Ordinance imposes new fines and penalties. This result is not only unfair, and but when presented with this additional liability, developers may simply choose to build their projects elsewhere. 

• The Ordinance will inadvertently hurt small and Disadvantaged Business Enterprises. Faced with the requirement of having to pay for the wage judgments of the subcontractors and suppliers on prior projects, general contractors will avoid hiring small and Disadvantage Business Enterprises (i.e., women, minority, and veteran owned businesses), who cannot demonstrate a long track record of financial stability. 

• Wage theft on large construction projects is not the problem. Proponents of the Ordinance will point to the egregious events at the Silvery Towers project and statewide statistics about wage theft as the justification for additional regulation. But these claims are disingenuous. The perpetrator of the atrocities at Silvery Towers, which occurred more than four years ago, is now in jail. And we challenge proponents of the Ordinance to provide support for their claim that wage theft is a continuing problem on large construction projects in San Jose. In fact, the data collected by the Department of Industrial Relations, which we have included as Attachment A, shows that the opposite is true. Of the 89 total wage judgments in all of Santa Clara County, most are wage misclassification issues, not wage theft cases such as the Silvery Towers project. Even so, the majority of these claims are resolved, and almost all of the remaining open cases are against individuals and small contractors on residential projects. 

Again, if the City and organized labor are honest about their claims of wanting to address wage theft, the Ordinance should not exempt small, residential projects, where most labor law violations occur. 

• State law already addresses wage theft. California’s mechanic’s lien laws already make owners liable for the wage claims of unpaid workers. Similarly, Labor Code sections 218.7 and 218.8 make general contractors liable for their subcontractor’s and supplier’s failure to pay wages on their projects. And Penal Code section 487m already makes wage theft, including minimum wage violations, failing to pay overtime, and failing to provide accurate and itemized wage statements, a crime. This proposed Ordinance is not only unneeded, but goes too far. It makes owners and contractors in San Jose liable for wage violations of subcontractors and suppliers on previous projects done for different owners and general contractors in other cities and other states. Those intent on committing these wage crimes will not be deterred by the Ordinance, and making innocent owners and contractors pay for these crimes committed by others raises serious constitutional and other due process concerns. If adopted, the City should expect years of litigation regarding enforcement of this new regulation, and the City and Staff should pause to consider the legal challenges outlined in the letter from counsel included as Attachment B. 

• The Ordinance itself is poorly drafted and would need to be substantially revised. The problems with the proposed Ordinance are simply too numerous to list here. But we have included as Attachment C a lengthy copy of the Ordinance with detailed annotations of all of the issues that the City and Staff should consider. The definitions of “contractor” and “subcontractor” will make developers strictly and vicariously liable for the wage claims of suppliers and their office staff, including people who never set foot on the project or perform any work in San Jose. Even the term “wage theft judgment” is not a uniformly accepted or defined term. Owners, contractors, and City Staff have no way to protect themselves or to find “wage theft judgments” in other jurisdictions. Wage theft is also a different concern than wage misclassification cases—but the Ordinance ignores Developers and contractors in San Jose will become the target of unscrupulous plaintiff class-action attorneys, who will use the threat of the City withholding certificates of occupancy to force the payment of disputed or otherwise frivolous wage claims. 

• Even union contractors oppose the Ordinance. Many of the largest general contractors building in the City are signatory to collective bargaining agreements and their workers are union members. Although they recognize and applaud efforts to protect laborers from wage theft, they oppose this proposed Ordinance because they recognize the unintended consequences that it will have on further disincentivizing development and growth in the City. The “Responsible Construction” Ordinance is a misleading name for bad governance. With all of the economic challenges facing development in San Jose, the City should reject this unnecessary and misguided regulation.  We oppose the City’s adoption of the proposed Responsible Construction Ordinance. 

Gary Filizetti, President;  Justine Pereira, Secretary  DEVCON CONSTRUCTION, INC.

Mark Tersini, Principal KT URBAN

Brock Hill, Vice President PREMIER RECYCLE COMPANY

Case Swenson, President/CEO SWENSON

William B. Baron, Managing Partner BRANDENBURG PROPERTIES

Todd Trekell, Development Manager  HUNTER PROPERTIES, INC. 

Megan Toeniskoetter, CEO TOENISKOETTER CONSTRUCTION, INC.

John Ball, Commercial Builder, Retired 

Patricia Saucedo BIA|BAY AREA 

James Salata, President & CEO GARDEN CITY CONSTRUCTION 

Mike Walsh, Projects Director URBAN CATALYST 

Dave Edgar, President IRON CONSTRUCTION, INC.

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