OAG Alleged Power Design Cheated 500+ Workers out of Wages and Benefits by Misclassifying Them as Independent Contractors
Attorney General Karl A. Racine today announced that Power Design, Inc., a national electrical contractor, will be required to pay $2.75M to workers and the District as part of a settlement in a wage theft and worker misclassification case. The settlement with the Office of the Attorney General (OAG) resolves a 2018 lawsuit against Power Design and two subcontractors that staffed its worksites for allegedly misclassifying more than 500 electrical workers as independent contractors instead of employees to cut labor costs. OAG also alleged that Power Design cheated workers out of wages and benefits and failed to pay District unemployment insurance taxes. This settlement is OAG’s largest recovery to date in a wage enforcement action.
“This settlement should be a wake-up call to District employers: if you cheat workers out of wages and benefits they’ve earned, or commit payroll fraud to gain an unlawful edge, you will be held accountable,” said AG Racine. “The District has strong laws on the books to protect District workers from exploitation and ensure that businesses can compete on a level playing field, and the Office of the Attorney General is committed to enforcing them.”
Power Design, Inc. is a major electrical contractor headquartered in Florida which has an estimated annual revenue of over $100M. The company has worked on at least 10 large construction projects in the District, including the LINE hotel in Adams Morgan and several luxury apartment complexes. JVA Services, LLC and DDK Electric, Inc. are “labor brokers”—subcontractors whose primary business involved hiring workers and supplying them to Power Design worksites.
In 2018, OAG sued Power Design, JVA Services, and DDK Electric for allegedly misclassifying 500+ workers as independent contractors instead of properly classifying them as direct employees. OAG also alleged that Power Design and its labor brokers failed to pay workers minimum wage and overtime, failed to provide legally-required paid sick leave, and failed to pay District payroll taxes related to unemployment insurance. DDK Electric did not respond to the lawsuit and a default judgment was entered against the company in February 2019. Power Design and JVA Services contested OAG’s allegations, but the companies have now agreed to a Consent Order to resolve the lawsuit and avoid further litigation.
Under the terms of the settlement, Power Design will be required to:
Pay $879,056 in back wages to workers: Power Design is required to pay $879,056 in restitution that will be used to compensate electrical workers who did not receive minimum wage, were not paid overtime wages, or were denied paid sick leave. A claims process will be finalized separately and eligible electrical workers will be notified.
Pay $1,820,944 to the District: Power Design is required to pay $1,820,944 to resolve hundreds of allegations of worker misclassification and other forms of wage theft.
Pay $50,000 to support apprenticeships, job training, or workforce development programs: Power Design is required to pay $50,000 to support programs that provide apprenticeships, job training, or workforce development opportunities to District residents.
Implement measures to ensure compliance with the District’s worker protections: Power Design must implement new policies and procedures to ensure compliance with the District’s minimum wage, overtime, paid sick leave, and worker misclassification laws. Power Design is also required to report to the District on these new policies and procedures, as well as the company’s use of subcontractors in 2020 and 2021.
A copy of the Consent Order is available at: https://oag.dc.gov/sites/default/files/2020-01/Power-Design-Consent-Order.pdf
What is Wage Theft?
Wage theft is the illegal practice of denying workers wages or benefits they have earned. Some examples of wage theft include paying workers less than the minimum wage, refusing to pay overtime, or misclassifying employees as independent contractors. Wage theft affects millions of workers nationally and occurs across job types and income levels, though immigrants and workers in low-wage jobs are particularly vulnerable.
Under the District’s wage and hour laws, businesses must pay employees a minimum wage of $14 per hour (rising to $15 per hour in July 2020), provide overtime pay, and allow workers to accrue paid sick leave. Businesses must also follow legal requirements governing which workers must be considered direct employees and which may be categorized as “independent contractors.” Worker misclassification is a form of payroll fraud used by unscrupulous companies to illegally reduce costs, evade paying their fair share of payroll taxes, and strip workers of labor protections. The District’s Workplace Fraud Act, which applies to the construction industry, requires companies to classify most workers as employees. Those who violate the law can face significant monetary penalties.
OAG’s Increased Efforts to Protect Workers
In 2017, OAG worked with the Council of the District of Columbia to gain independent authority to investigate and bring wage theft cases, and to increase penalties on employers who violate the District’s wage and hour laws. Since then, OAG has launched more than 30 investigations into wage theft and payroll fraud and has taken action against a home health care provider, KFC franchises, a cell phone retailer, a cafe chain, multiple construction companies, and other businesses that harmed District workers. AG Racine also recently testified before Congress and highlighted findings from an OAG report about how worker misclassification hurts workers, undercuts law-abiding businesses, and cheats taxpayers.
Workers can learn more about their rights under District law at: https://oag.dc.gov/workers-rights