Washington, D.C. – Attorney General Karl A. Racine today announced a lawsuit against Power Design, Inc., a national electrical contractor, for failing to classify hundreds of its workers as employees and cheating them out of wages and benefits. The Office of the Attorney General (OAG) is also suing JVA Services, LLC and DDK Electric, Inc., two “labor brokers” hired to staff Power Design worksites. In the complaint, OAG alleges that Power Design illegally failed to classify at least 535 electrical workers as employees in a scheme to cut costs and avoid legal responsibilities. As part of this scheme, Power Design did not pay workers minimum wages, overtime, and sick leave, and failed to pay District payroll taxes. OAG’s lawsuit seeks monetary and injunctive relief for harmed employees and recovery of penalties to the District.
“Power Design cheated hundreds of District workers out of their hard-earned wages and stripped them of their legal rights,” said Attorney General Karl Racine. “When companies misclassify employees as independent contractors, they steal from their workers and gain an unfair advantage over competitors that follow the law. Today’s lawsuit is about protecting employees and businesses that play by the rules and punishing businesses that do not. District employers that illegally misclassify workers are now on notice that their theft will not be tolerated.”
Power Design, Inc., is a national electrical contractor headquartered in Florida with an estimated $100 million in annual revenue. The contractor 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 headquartered in Maryland whose primary business involved hiring workers and supplying them to Power Design worksites.
The District’s Workplace Fraud Act, which applies only to the construction industry, requires companies to classify workers as employees in most circumstances. To classify a worker as an independent contractor, construction companies must prove that an individual works independently, is typically self-employed, and that their work falls outside of the core business of that company.
In the District, businesses are legally required to pay employees a minimum wage, contribute toward their state and federal taxes, and provide overtime pay and other benefits. Businesses do not have the same responsibilities to independent contractors, who must pay all their own taxes, are not protected by most labor laws, and do not have access to workers’ compensation or unemployment insurance. Numerous studies have documented that employee misclassification schemes are pervasive in the construction industry.
From 2014 through 2017, OAG’s complaint alleges that Power Design, JVA Services, and DDK Electric violated the District’s Workplace Fraud Act, Minimum Wage Revision Act, Sick and Safe Leave Act, and Unemployment Compensation Act. Specifically, OAG alleges the defendants:
- Failed to classify workers as employees: Power Design failed to classify at least 535 workers as employees, even though the workers performed the electrical work at the core of its business under its supervision. These workers never appeared on Power Design’s payroll and were classified as independent contractors of the labor brokers instead. This misclassification scheme enabled Power Design to shirk its legal responsibilities to its workers and undercut competitors.
- Failed to pay employees the legally-required minimum wage: The defendants paid at least 64 employees less than the minimum wage required at the time by District law. The District’s minimum wage as of July 1, 2018 is currently $13.25 per hour and increases annually.
- Failed to pay employees overtime: District law requires employees to be paid at least 1.5 times their regular rate for hours worked more than a 40-hour workweek. Power Design routinely failed to pay legally required overtime wages owed to at least 180 employees.
- Failed to provide employees sick leave: District law requires employers to provide their employees with paid sick leave. Power Design failed to provide paid sick leave to any of their misclassified workers.
- Failed to maintain payroll records: Power Design did not maintain required payroll records with respect to each worker’s rate of pay, hours worked, and classification as an employee or independent contractor for their misclassified employees.
- Failed to pay unemployment insurance tax: The District’s Unemployment Compensation Act requires employers to pay taxes based on their total number of employees to fund D.C.’s unemployment insurance program. Power Design failed to pay these taxes for any of their misclassified workers.
In the complaint, OAG also alleges that Power Design intentionally recruited individuals to become labor brokers and directed them to establish payroll practices that would perpetuate the worker misclassification scheme. The illegal payroll scheme enabled Power Design to cut business costs and submit low bids to win business over law-abiding competitors.
OAG is seeking relief for the workers who were harmed, including tens of thousands of dollars’ worth of damages for minimum wage and overtime pay stolen from workers. OAG is also seeking tens of thousands of dollars in unpaid unemployment insurance taxes, and penalties to the District of between $1,000 and $5,000 for each misclassified worker and for each failure to keep payroll records. Because of the number of alleged violations, Power Design could face millions of dollars in penalties. The complaint is not a finding or ruling that the defendant has violated the law.
A copy of the complaint is available at: http://oag.dc.gov/sites/default/files/2018-08/Power_Design_Complaint.pdf
How to Report Wage Theft Violations
Workers can report wage theft or other wage and hour violations to OAG’s Housing and Community Justice Section at (202) 442-9854. Learn more about workers’ rights in the District and how to get help if those rights are being violated: https://oag.dc.gov/workers-rights.