Hotel contractor’s $767,095 penalty scratches the surface

A contractor on the $25 million Maile Sky Court hotel renovation project has been fined $767,095 by the state Department of Labor and Industrial Relations for workplace irregularities.

State and federal investigators raided the Maile Sky Court in Waikiki last month in response to complaints from workers and the Pacific Resource Partnership, which represents the Hawaii Regional Council of Carpenters. DLIR found that Texas-based R&R Construction Services allegedly misclassified 65 construction employees as independent contractors. By doing so, the contractor avoided requirements to provide unemployment, workers’ compensation, temporary disability and prepaid health care insurances.

“Law-abiding contractors who pay their fair share face unfair competition and workers suffer when deprived of their rights and benefits,” said DLIR Director Linda Chu Takayama in a press release. “The visitor industry, and a pleasant visitor experience, is important to Hawaii, but Hawaii’s working people and law abiding contractors need to benefit fairly.”

R&R Construction Services has twenty days to appeal the fine, which DLIR spokesman Bill Kunstman said was the largest ever issued by the state’s Disability Compensation Division. Takayama said legislators significantly increased the penalties for violations of workers’ compensation and temporary disability insurance laws earlier this year by passing Act 187.

“We believe that the increase in penalties from $1 per day to $100 for TDI, and workers’ compensation from $10 per day to $100 serves as a powerful incentive for employers to provide these coverages instead of just waiting till they are caught,” Takayama said.

Kyle Chock, assistant financial secretary-treasurer of the Hawaii Regional Council of Carpenters, said the strong penalties reflect the severity of the case.

“It’s almost a construction site that has gone totally rogue. We expect many more fines to come. We won’t be surprised to see total fines collected in excess of seven figures — that would be one of the biggest fines that I’ve seen in over a decade-plus of doing construction in Hawaii,” Chock said. “It sends a strong message that our community won’t tolerate this kind of blatant cheating that takes advantage of workers.”

In addition to the labor concerns, PRP also made complaints to the state Department of Health and the city Department of Planning and Permitting about possible mold at the property. PRP also alleged undocumented workers were being used at the site. Chock said PRP hired Hawaii Investigative Group to check out worker complaints and paid an independent lab to test samples of what was alleged to be mold at the site.

DOH opened an investigation, but advised in a letter dated Sept. 6 that “exposure of the public to renovation debris appeared to be controlled. Areas which were accessible to the public showed minimal signs of contamination.”

But the hotel could face further sanctions from the DLIR’s Unemployment Insurance and Occupational Safety & Health divisions. The company also could be penalized by the U.S. Department of Labor’s Wage and Hour Division, which enforces the wage and record-keeping provisions of the federal Fair Labor Standards Act, and the state Department of Commerce and Consumer Affairs, which enforces licensure.

California-based Clearview Hotel Capital LLC, which has owned the Waikiki hotel since 2015, said it is taking the matter seriously.

“We cannot speak for our contractors. However, Clearview is deeply committed to ensuring the Maile Sky Court is renovated to the highest standards by licensed and qualified workers,” the company said in a statement. “We will be cooperating fully as the state conducts its investigations and expect all of our contractors and subcontractors to do the same.”

The company, which paid $76 million for the budget property, previously announced that its plans included a comprehensive renovation followed by the repositioning of the hotel into a Holiday Inn Express. The hotel, at the corner of Kuhio Avenue and Olohana Street, remains open for business and construction work continues.