As Climate Change Drives Disasters, NBC Exposes Wage Theft by Private Equity-Owned Disaster Recovery Companies

On Labor Day NBC investigated the consequences to workers when their employers engage in wage theft. In a time of climate crisis and disaster, the investigation focused on the disaster recovery cleanup industry, noting that the emergency repair and cleanup business has proven an attractive investment target for private-equity firms in recent years as natural disasters have intensified, and how it combines many of the factors that can expose workers to wage theft.

NBC, September 6, 2021: The hidden scourge of ‘wage theft’: When higher profits come out of workers’ pockets

Private-equity firms are attracted by billions of dollars in public money and insurance funds spent to remediate natural disasters, Saket Soni, executive director of a nonprofit organization that advocates for restoration workers, told NBC.

“After Hurricane Katrina, hedge funds and private-equity holding companies were coming into the disaster restoration and repair and recovery space in a huge way,” Soni said. “They realized there were profits to be made.”

Private-equity company Dominus Capital is the majority owner of BluSky, a leader in the growing business of restoring damaged buildings after extreme weather events or other disasters, with 800 employees in 36 locations nationwide. It said it completed 37,000 projects in 44 states last year. HarbourVest Partners, another private equity firm, is a minority owner of BluSky.

The NBC investigation detailed the shocking conditions of six construction workers from Texas hired by BluSky to help rebuild a senior center in Iowa damaged by severe weather. Promised daily pay of around $200 cash, plus travel and housing costs, the men painted walls and installed plasterboard and moldings.

Soon after the work began the men stopped getting paid. NBC reported how these workers were “crammed into a battered, roach-filled apartment with no furniture and little heat” with no money for gas or food. 

Marco Antonio Maldonado Urbina told NBC, “It was very, very hard, because we needed to send money to our families in Houston,” he said in a phone interview. It was only after the local carpenters’ union stepped in and media covered the community support of the workers’ desperate situation — including securing them housing at a local church and food from the local food pantry — that BluSky management addressed the situation.

BluSky is also defending a 2019 lawsuit seeking class-action status in Minnesota brought by workers. They contend that BluSky and an intermediary, Labor Source LLC, fabricated time sheets depressing workers’ pay, improperly deducted expenses from their wages and forced four to six workers to stay in hotel rooms with only two double beds. BluSky, which denied the allegations in court filings, lost its bid to dismiss the case.

Another disaster restoration company spotlighted in NBC’s investigation is Cotton Commercial USA, owned by private equity firm Sun Capital. After Hurricane Irma damaged two hotels in the Florida Keys in 2017, Cotton subcontracted about 100 workers who did not receive full payment for their work. When workers confronted Cotton, a company official told them that it wasn’t responsible. Eighteen workers sued Cotton and the staffing company for back pay. Although Cotton said it hadn’t hired the workers, it agreed to pay them $50,000 last year.

Unsurprisingly, wage theft affects the most vulnerable workers, those who are desperate for pay and willing to take temporary jobs, who may be undocumented and who may be paid by subcontractors in cash. Today’s labor laws were written in the 1930s and don’t cover domestic and farm workers, independent contractors and public-sector employees.

See our August 2021 report “Roark Capital’s Booming Wage Theft Risk”

CNBC explained that wage theft can include paying less than legal minimum wage, not paying overtime, barring workers from taking meal breaks or requiring off-the-clock work. Local economies are hurt by the practice because employers paying cash to workers may not pay local taxes, reducing revenues for cities and towns. 

Latino and Black workers are far more likely to be paid below minimum wage than their white counterparts and from 2009 to 2019, the lowest-paid workers nationwide lost 21 percent of their incomes because they were paid less than their states’ minimum wages.

“Private equity presents additional challenges because of the lack of transparency,” said Burt Johnson, general counsel of the North Central States Regional Council of Carpenters’ pension fund.