Overtime, Taxes at Core of State Probe Into Building of Hotel

Times Staff Writer

State labor authorities are investigating allegations that the contractor building the Compton Lazben Hotel made cash payments for overtime work without deducting payroll taxes and without making the payments at time-and-a-half rates.

If the allegations are true, the contractor, Tucon Development, could be in violation of state and federal tax and labor laws and subject to penalties of as much as $100 a day per worker per offense.

“The information that we have would tend to indicate that there were a lot of cash payments,” said Roger Miller, regional manager of the Bureau of Field Enforcement for the state Department of Industrial Relations.

Miller said last week that he has notified Tucon that it must submit a certified payroll record to the state within 10 days or face penalties.


Benjamin Deutsch, president of Tucon, said the firm has not yet received the notification but intends to comply with the order. He also said Tucon had done nothing illegal.

Denies Breaking Law

“To my knowledge we have not paid anybody in cash,” he said. “We have not broken any laws or tried to avoid any taxes or withholding or anything like that.”

Deutsch is the son of Naftali Deutsch, who has an interest in Tucon, as well as Lazben Financial Co. and D & B Development. The latter two firms are joint developers of the city-backed hotel and convention center. The project was financed by $30 million worth of bonds sold by the city’s Redevelopment Agency.


If the Tucon payroll records indicate that payments may have been made in cash and that overtime rates were not paid, Miller said, a host of other agencies could join in the investigation, including state and federal tax agencies and state agencies that oversee unemployment insurance and workers’ compensation.

Officials Get Statements

Labor officials have already been given signed statements by at least five men who worked for Tucon and contend that they were paid cash for overtime and that no payroll taxes were deducted. All the statements, collected by officials of a local carpenters union and presented to the state, told the same general story.

“Every Tuesday, at the end of work and sometimes at lunch,” said a statement from one man, “we were instructed by Keith (Wayne, a Tucon supervisor) to report to the Tucon trailer . . . located on the job site. The employees were instructed to form a line to receive overtime cash payments.

Had to Sign for Pay

“We were required to sign before receiving an envelope which contained cash . . . ,” the worker said in his statement. “A Tucon employee by the name of Emma was the person who required the signature and gave us the envelope which contained cash. Overtime was paid at the straight hourly base rate of $7.30 an hour with no deductions.”

Tommy Howard, a 27-year-old carpenter’s apprentice who also signed a statement, said in an interview with The Times: “They were paying us $7.30 an hour and (when) we worked overtime they were paying us under the table. They gave us a check and then they would give us some money in an envelope. That was just straight time.”

Howard was one of about 200 Compton-area residents who were recruited for construction training classes that the city set up at Compton Community College. The city secured from the developer a promise that students who completed the class would be considered for jobs on the hotel project.


Questions Referred

City Manager James Goins was out of the country last week and could not be reached for comment. Redevelopment Director Laurence Adams was fired by Goins three weeks ago for reasons that apparently stem from Adams’ work on another city project. Assistant City Manager Howard Caldwell and acting Redevelopment Director Michael Nuby referred questions about the hotel and the state investigation to the city’s contract compliance officer, William James.

James, brother of City Councilman Floyd A. James, said he knew nothing about cash payments or about the state trying to obtain hotel construction payroll records that the city has on file. It has been William James’ job to make sure the hotel contractor meets the city’s standards for minority hiring.

State officials are also investigating allegations that the hotel developers failed to pay workers the prevailing wage established by law.

City officials last week received a letter from the state advising them that the Department of Industrial Relations has ruled that the hotel is a public works project that must pay the prevailing wage.

May Be Due Back Pay

Some workers who, according to the allegations, should have received about $25 an hour were instead paid about $7.30 and may now be entitled to back wages that could cost Tucon--or the Redevelopment Agency--an additional $2 million, labor officials said.

The state would assess Tucon for the money if the company has failed to pay prevailing wages, said James Robbins, counsel to the director of Industrial Relations. However, Robbins said, he recently reviewed the city’s contract with the developers and was unable to find any place where the city notified Tucon that project workers would have to receive the prevailing wage.


If the firm was not notified, Robbins said, Tucon can turn around and sue the city for any back wages or penalties demanded by the state.