Who's the Boss? Union Organizers Target Private Equity Owners

  • Labor heads seek investors’ attention in resort dispute
  • Reliance on public pensions makes funds ripe targets

Terranea Resort in Rancho Palos Verdes, Calif.

Photographer: Wally Skalij/LA Times via Getty Images

The Los Angeles hotel workers’ union is getting ready to take on a new incarnation of management: private equity.

Organizers are targeting the luxury resort Terranea, which was developed and is now controlled and operated by Lowe Enterprises, a real estate investment firm whose private equity arm manages more than $2.5 billion in assets. On Thursday, resort workers plan to confront their general manager and demand a fair process to unionize. They also plan to file a lawsuit accusing the company of failing to pay workers wages they’re owed -– the kind of illicit cost-cutting that they say exemplifies the worst practices of private equity -- and seek class-action status for the suit.

The union hopes Lowe’s investors -- which include insurance companies, international institutions, wealthy individuals and public pensions -- are paying attention, a growing consideration for labor organizers.

“All investors in this property -- or in other properties -- ought to be thoughtful about how their investments are achieving their gains or losses,” said Kurt Petersen, co-president of Unite Here Local 11, which has been organizing hotel employees. “All the stakeholders need to be considered in that.”

As private equity firms become more prominent as owners and bosses, labor organizers are tailoring their tactics to confront some of the world’s richest executives. The industry’s multimillionaires and “vulture” reputations make firms ripe targets for public shaming, said Stephen Lerner, a former strategist for the Service Employees International Union who now works with several unions on such campaigns. And because private equity firms court pension plans -- many of which are funded through union contracts -- they may be particularly vulnerable to pressure.

“Terranea Resort strictly adheres to and abides by all labor laws,” the resort said in a statement Thursday. “We value each of our associates and are committed to ensuring fair treatment and compensation for their time and dedication.” The resort said it hadn’t seen the lawsuit yet and can’t comment on its allegations.

Lowe Enterprises didn’t immediately respond to requests for comment.

‘A Calculus’

“It’s a calculus on both sides,” for pensions and private equity firms, said management-side attorney Marshall Babson. “The private equity funds are not going to thumb their noses at these pension funds,” said Babson, a former member of the National Labor Relations Board. However, he said, the high returns private equity can generate make pensions hesitant to actually cut ties.

In September, North America’s Building Trades Unions announced an agreement with Blackstone Group LP under which the firm’s new infrastructure business will manifest a “strong preference” for choosing contractors for its projects that pay for training, respect the right to unionize and comply with safety rules.

“We believe a fairly compensated and well-trained workforce is critical to producing high-quality infrastructure projects that help drive local economic growth,” Sean Klimczak, a Blackstone senior managing director, said in a statement at the time.

During a strike last winter against the chemical company Momentive Performance Materials, members of the Communications Workers of America rallied outside the offices of Apollo Global Management LLC, which owned much of the company, and put Apollo Chief Executive Officer Leon Black’s name and face on their picket signs.

Victory Declared

A report from a union-backed group highlighted the fees Apollo had taken out from Momentive and the pricey mansions owned by Black. Because Blackstone also owned part of Momentive, the report also noted CEO Stephen Schwarzman’s luxurious homes, and the alleged contradiction between Schwarzman chairing a White House panel designed to restore jobs and Momentive’s cost-cutting tactics. The New York state comptroller, who heads the state pension fund that invests in Apollo, rallied in the rain with the workers and wrote a letter to the company. The union secured a contract in February that it said beat back major concessions sought by the company.

In Los Angeles, Unite Here plans to mobilize at a hearing in the coming months to urge the county to reject a tax-assessment appeal by Terranea. Thursday night, workers from the hotel will join with teachers to march on Lowe’s offices with brooms to symbolize “cleaning up” private equity.

Before they do, they’ll file their lawsuit, which alleges that the resort violated state law by denying them rest breaks and overtime pay; making cooks cover the costs of their own cheese graters, potato peelers and knives; and, when the resort is busy, forcing employees to park in a distant lot and ride a company shuttle, without paying them for the added hour that adds to their day. The lawsuit will seek back pay, punitive damages, changes to employee parking and attorneys’ fees.

“Everything looks so beautiful in front of the house, but if you go in back of the house, where we are, it’s terrible,” said Terranea cook Freddy Lovato, who’s worked at the resort for nine years. With customers living it up while employees toil, he said, “I always picture the ‘Titanic’ movie.”

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