D.C. businesses that utilize independent contractors would be well advised to review and revise their independent contractor relationships in light of an increased focus by the D.C. Office of the Attorney General ("OAG") on worker misclassification.
OAG's $3.75 Million Settlement With Construction Firms
D.C.'s OAG announced earlier this week that it had obtained a $3.75 million settlement — the largest recovery to date — in a workers' rights enforcement action against a Florida-based specialty contractor, a Virginia-based construction firm, several local labor brokers, and certain Maryland-based subcontractors. D.C.'s OAG had filed suit more than two years ago, claiming the defendants had misclassified more than 1,200 construction employees working on eight different construction projects in the District and denied them overtime wages, sick leave, and other benefits by classifying them as independent contractors rather than employees. In addition to requiring $1.7 million in restitution to the workers, over $1.2 million in civil penalties to the District, and $880,000 in attorney's fees, the defendants agreed to injunctive relief that requires them to "significantly" reform their subcontracting practices, provide compliance reports to the OAG, stop working with certain labor brokers, and engage in other practices to prevent future worker misclassification.
Though the contractors admitted no wrongdoing or liability, the issue in this case appears to be one where the workers failed to receive overtime and other benefits while working on projects principally managed by certain subcontractors. One major difficulty in avoiding worker misclassification is ensuring that subcontractors and others working in tandem on projects comply with wage-and-hour laws, too, even if your own company has not made any direct misclassification decisions.
What It Means for You
As is the case in many U.S. jurisdictions over the last several years, D.C. is cracking down on worker misclassification issues, and this settlement is also a good reminder to audit wage-and-hour practices generally to ensure periodic compliance. If you subcontract work that is core to the business (i.e., in this case, construction), you should consider negotiating not only indemnification and cost-shifting provisions but the right to periodically audit worker classification decisions to ensure ongoing legal compliance. If large numbers of workers are classified as independent contractors, it is particularly wise to ensure that these decisions are vetted by counsel.
The D.C. OAG's crackdown is also part of a nationwide federal trend. Given the Department of Labor's final rules adopted earlier this year establishing a six-factor independent contractor classification standard under the Fair Labor Standards Act and new salary-basis thresholds for overtime eligibility requirements (which we discussed here and here), employers should get up to speed and revisit classification decisions if they have not done so recently. In addition to the federal rule, states have adopted their own tests to determine worker classification (i.e., California, New Jersey, and Massachusetts), and companies must comply with the law that provides workers the greatest protection. At minimum, companies should evaluate workers' positions to determine whether they fall within the scope of the DOL's six-factor independent contractor rule. In the event any workers are improperly classified, designing a remediation plan that addresses the issue can require particular care and attention with the aid of counsel to correct prior noncompliance and mitigate future legal risk.
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