Construction Firm Ordered to Pay $3.75 Million in Workers’ Rights Recovery

As everyone in the construction industry knows, the issue of worker classification is a critical topic. Based on the Department of Labor’s final independent contractor rule, which went into effect on March 11, 2024, more workers may need to be classified as employees. A recent case from Washington, D.C., illustrates the potential enforcement efforts and consequences.

Details from the Case

On July 29, Attorney General Brian L. Schwalb announced that the Office of the Attorney General (OAG) had reached a settlement with construction firm Power Design, which will pay $3.75 million in both restitution to construction workers and related penalties. This is the largest recovery related to workers’ rights enforcement in District history. 

According to the press release issued by the office, “The settlement resolves a lawsuit that OAG filed against Power Design, general contractor John Moriarty & Associates of Virginia (Moriarty), and multiple labor brokers for misclassifying hundreds of construction workers as independent contractors rather than employees, all as part of an unlawful scheme to avoid paying sick leave and payroll taxes.”

Power Design, Inc., is a national construction firm that has worked on more than 200 projects in the D.C. region. It provides contracting services across multiple trades, such as electrical, plumbing, and mechanical. Moriarty is a construction management and general contracting firm that often subcontracts with Power Design. According to District law, general contractors are held accountable for any labor violations committed by subcontractors they use.

The settlement agreement calls for Power Design to pay the following: 

· $1,742,000 to more than 1,200 construction workers who were misclassified and denied paid sick leave

· $1,128,00 in penalties to the District

· $880,000 in attorney’s fees

In addition, per the settlement terms, all defendants are required to review and overhaul their contracting practices and payroll processes to prevent future worker misclassification.

For the next three years, Power Design must submit to compliance monitoring. This means they are required to provide certified reports to OAG, demonstrating their adherence to the settlement agreement and District law. Power Design must also stop using labor brokers who have misclassified electrical workers as independent contractors or have not provided paid sick leave to properly classified workers.

In addition, Moriarity is required to take the following steps:

· Reform its D.C. subcontracting practices, including contract language requiring subcontractors to follow all District wage and hour laws

· Collect detailed information from D.C. subcontractors, including the company or software they use for payroll

· Inform D.C. workers of their rights by posting notices (in English and Spanish) at prominent locations on D.C. jobsites, outlining workers’ rights under District wage and hour laws

Ramifications of This Settlement

This settlement illustrates the OAG’s commitment to fighting wage violations and protecting D.C. workers’ rights. Through investigations and lawsuits, the OAG has secured more than $30 million against employers who have violated District labor laws. The office focuses on industries such as construction, health care, hospitality, and the gig economy.

“Worker misclassification harms hardworking Washingtonians, deprives the District of tax revenues needed to fund critical city-wide programs, and unfairly undercuts law-abiding competition,” said Attorney General Schwalb. “This landmark settlement reflects the ongoing commitment of my office to holding accountable any company that exploits its workers to boost profits or gain an unfair competitive advantage.”

Contractors should take notice of this settlement and ensure they are following the worker classification standards and making appropriate risk mitigation efforts. It can be challenging to comply with the final rule, but failing to do so can result in legal action and financial penalties.

Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

About the author: Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and NRCA General Counsel. For more information, call (866) 303-5868 or email[email protected].