Builder Sues NYC Unions for $100M+ Hudson Yards Ripoff

Union corruption long has contributed to cost overruns on urban real estate projects, especially in New York City where developers tend to think big. But area labor leaders now are getting some well-deserved comeuppance. On Monday, March 5, Related Companies, the general contractor of the Hudson Yards mega-development on Manhattan’s West Side, sued the Building and Construction Trades Council of Greater New York and its president, Gary LaBarbera, in State Supreme Court for actions that have inflated costs by over $100 million. The defendants were “condoning, if not actively participating in, various corrupt practices.” Allegations include tortious interference, time sheet fraud and wage fraud, the latter offense including a scam that paid two union members a wage of over $40 an hour for fetching coffee. Nice work if you can get it.

The Hudson Yards, a mixed-use complex under construction made possible through the acquisition of air rights above the West Side Rail Yard in midtown Manhattan, may well be the largest private-sector real estate development in U.S. history. The product of lengthy negotiations with New York State, New York City and the New York Metropolitan Transportation Authority, the 28-acre project, when completed in 2024, will consist of 16 high-rise buildings containing more than 12.7 million square feet of residential, office and retail space, plus a park, a school, a boulevard, and a subway extension. Proposals to redevelop the area originated decades ago, but about 15 years ago, the wheels went into motion. The City issued a master plan for the area, rezoned 60 blocks for redevelopment, and approved a proposal. Related Companies, and its partner, Oxford Properties Group (the real estate division of the Ontario Municipal Employees Retirement System), working through a Related subsidiary, Hudson Yards Construction LLC, would oversee all aspects of the project. The financing arrangements were complicated, but they eventually came together. The project broke ground in December 2012. When the dust settles a half-dozen years from now, the total cost will be around $20 billion and $25 billion.

Construction unions in New York City are fully aware of the business opportunities. And they are pulling out the stops to get what they want. Most real estate development contractors in the city now operate on the open (or “merit”) shop principle, in which union and nonunion workers work side by side. With Hudson Yards employing 23,000 construction workers over the duration of the project, union leaders are pushing for a Project Labor Agreement (PLA) for all phases. As Union Corruption Update has explained elsewhere, a PLA is a pre-hire agreement in which a contractor agrees to set aside all jobs, or at least certain classifications of jobs, for union members. This is a monopoly over the labor supply. And it inevitably drives up project costs.

For Phase One, at least, organized labor scored a victory. In 2012 the Building and Construction Trades Council (BCTC) of Greater New York, which represents 35 local unions, secured a Project Labor Agreement, though through making certain wage, benefit and work rule concessions. Hudson Yards Construction LLC, however reluctantly, went along. It’s now having second thoughts. And that’s significant because the centerpiece of Phase Two, 50 Hudson Yards, carries a $4 billion price tag, making it the most expensive piece of office real estate in the city. Construction unions are determined to hammer out a PLA this time around as well. All council-affiliated unions, save for the Carpenters (for now), in fact, for months have been refusing to send members to the site unless they get a new PLA. And to make their point, they are picketing the site. It’s a strike by any other name. And like any strike, it could trigger excessive delays and costs.

Hudson Yards Construction, put simply, is learning the hard way that a Project Labor Agreement is a hidden tax payable to unions. And it has decided not to pay it any more. On Monday, the general contractor filed a civil suit in Manhattan State Supreme Court accusing BCTC of Greater New York of “misconduct” that already has added over $100 million to the project cost. As related to corruption, the lawsuit, rather than seek monetary damages, is arguing that the merit shop ought to apply in the future. In the plaintiff’s own words, hiring should be done “irrespective of whether the bidder used union or nonunion workers.” As related to tortious interference, the plaintiffs are seeking defamatory damages – $75 million worth. By “encouraging” member unions not to send workers to the site, the suit alleges, the council violated the terms of the current Project Labor Agreement and caused economic harm. The plaintiff also seeks $200,000 from Council President Gary LaBarbera for his role in printing and distributing fliers that accuse Hudson Yards of being “union busters.” In addition, LaBarbera had declared at a November 14 “Count Me In” union rally that Hudson Yards wants to “use you up and throw you to the side.”

According to the lawsuit, construction unions have engaged in a widespread pattern of time sheet fraud, allowing or even encouraging workers to inflate their reported weekly hours by 10 percent to 20 percent. In one extreme case, an unidentified hardhat worker claimed to have worked 12 hours a day, seven days a week, for an entire year; this busy “schedule” enabled him to receive $600,000 in wages and benefits. In addition, says the plaintiff, the union has been lackadaisical about enforcing punctuality and safety rules. Construction workers frequently have been showing up for work late, leaving early, and failing to wear safety gear such as eye goggles, helmets and safety harnesses. This negligence, charges Hudson Yards Construction, is creating “a culture that encourages workers to do what they want.”

The most widely publicized aspect of the case is the “coffee boy” scam involving the Concrete Workers District Council and a pair of union members who deliver and sell coffee and snacks to onsite workers. The practice has been around a long time. Cement and Concrete Workers Local 6A, a branch office of New York’s Colombo crime family until its March 2011 takeover by the Laborers International Union of North America, had been running this hustle since the Eighties. Normally, the task of delivering coffee to construction hardhat workers goes to the most junior union member on the site. But the concrete workers council apparently made expensive exceptions. The two coffee boys were longtime Concrete Workers members, one of whom, “Coffee Boy #1,” was the 55-year-old brother of a high-ranking union official. Each was paid $42.48 an hour in wages and another $27.39 in benefits. “In the month of February 2015 alone, for the privilege of selling coffee and snacks at the project,” reads the lawsuit, “Coffee Boy #1 was compensated for 155 hours work, of which 45 hours were classified as overtime payable at time and a half or $69.87 per hour including benefits.” Related Companies insists it was duped into paying these outlandish sums.

The Building and Construction Trades Council of Greater New York, predictably, is characterizing the suit as payback against the union for winning a PLA. A council spokesperson explained: “This lawsuit is clearly retaliation for a movement that has built up in this city called #CountMeIn, where rank and file members oppose open shop and nonunion construction because it undermines their wages and benefits, which Hudson Yards LLC and Related have acknowledged is their business model for their upcoming projects. We are confident that any Court looking at this matter will see it for what it is – an effort to suppress the free speech of hardworking New Yorkers.” This reads like a red herring, an effort to change the angle of the spotlight. Union workers are not being deprived of their freedom of speech; they are being deprived of their opportunity to monopolize construction jobs, leaving nonunion workers out in the cold.

Hudson Yards is shaping up to be one of the wonders of New York City planning and architecture. But it could prove to be an exceedingly expensive wonder, thanks to local unions. It is understandable why union members for weeks have been holding protests across the street from the 50 Hudson Yards site to denounce Related Companies’ use of nonunion labor. An open shop is anathema to any labor monopoly. Michael De Chiara, a veteran construction industry lawyer, recently noted: “This has to be understood against the general backdrop of unions needing to make themselves more competitive with nonunion labor. (Unions need) to cut out archaic no-show and light work positions that have developed historically over time for both legitimate and not so legitimate reasons.” BCTC of Greater New York seems to have an unusually broad definition of legitimate.