A subcontractor for an affordable housing project in San Jose is facing hundreds of thousands of dollars in city fines over alleged wage violations.
The allegations center around the work to construct a seven-story apartment building located at 748-750 W. San Carlos St. known as Mariposa Place. San Jose Department of Public Works inspectors have cited the firm REO Mechanical for multiple violations of the state labor code involving late or underpayment of wages, according to the city’s Oct. 29 notice of violation obtained by San José Spotlight.
The total assessed fine of $717,592 is likely among the largest San Jose has issued in recent years, according to a review of available records. The sum represents an initial assessment of the alleged wage violations and could change substantially as investigators gather more information, officials said.
REO Mechanical, a Rio Linda-based heating, ventilation and air conditioning company, has denied the allegations.
“We’re appealing (the city’s fine) completely because our employees were paid,” a company spokesperson, who declined to give her name, told San José Spotlight.
The alleged violations include late payment of wages, failure to pay into workers’ 401K plans, misclassification of workers and failure to pay “travel and subsistence” payments to workers. The total amount of restitution owed to workers is more than $225,000, according to the city’s notice — which also includes an additional fine of $42,250 for alleged late payroll submissions.
Adding those two fines together and combining a penalty multiplier produces the total assessed fine.
“It’s a very large number,” Tomas Margain, an attorney representing three workers who allege their wages were stolen, told San José Spotlight. “If they actually recover it, that’s a win.”
REO Mechanical failed to pay the workers fringe benefits required by their work agreements for months, Margain said. He said some payments did take place eventually, but were not enough to compensate for the earlier losses.
The city’s assessment comes more than a year after the San Jose City Council passed reforms intended to strengthen the city’s safeguards against wage theft in the construction industry. That policy was designed to provide oversight only to privately-funded developments and doesn’t apply to the Mariposa Place project, which has received public funding, officials said.
Regardless of the ultimate outcome of the fine assessment, Margain said the fact that allegations of large-scale wage theft continue to surface in San Jose is alarming.
“How can you have a system where the workers aren’t paid?” he said.
Over the past decade, a number of high-profile cases involving worker exploitation at San Jose construction sites have thrust the issue to the center of the city’s policy conversation. Those include the infamous Silvery Towers luxury condo project, which was built in part by exploited and abused immigrant laborers. In addition, a 2021 San José Spotlight investigation found rampant labor and safety violations at a widely celebrated homeless housing project.
Mariposa Place Apartments, which will have 80 apartments all set aside for low-income residents, is expected to open in March.
Two other companies involved in the building’s development — San Jose W. San Carlos LP and Danco — have not been accused of wrongdoing in the city’s assessment.
San Jose W. San Carlos LP, the property’s owner, could not be reached. Danco, listed as the project’s prime contractor, did not directly comment on the alleged wage theft or notice of violation in its response.
“The project is 99% complete,” Danco spokesperson Jonathan Gutierrez told San José Spotlight. “(We are) awaiting PG&E approval and connection to electrify the building and complete final inspections.”
The $51 million development project has received both public and private funding, according to a 2018 project document from Santa Clara County. That includes a loan from San Jose and an additional $9 million from the county.
San Jose Public Works Director Matt Loesch said the initial fine assessment is by no means the largest his agency has issued in recent years. He added that the official notice of violation, triggered by a routine investigation into wage practices for the project, shows the value of the investigatory team overseen by his department.
“The purpose of this team is to make sure our contractors are on the up and up,” Loesch told San José Spotlight.
One worker who spent months on the Mariposa Place work site said he was punished after he raised pay concerns with REO Mechanical. He asked not to be named for fear of retaliation.
“I was the one asking all the dumb questions, and as a result I got fired,” he told San José Spotlight.
Because of the workplace turmoil, this worker said he is facing financial calamity.
“I’m at risk of losing it all and having to start over,” he said.
Contact Keith Menconi at [email protected] or @KeithMenconi on X.