Wage Theft Spikes in DC: New Lawsuit Plus 3 Settlements

In recent weeks, the District of Columbia’s Office of the Attorney General (OAG) has been focused on protecting its citizens from wage theft.

Here’s what’s happening in the nation’s capital, according to the lawsuit – and what HR can learn from it.

OAG Investigation Finds Disturbing Wage Theft Scheme

This week, the OAG filed a lawsuit against two construction companies and three labor brokers, alleging the defendants “engaged in a widespread misclassification scheme” that cheated hundreds of District workers out of wages and benefits they were entitled to under District laws.

The defendants are:

1. Whiting-Turner Contracting Company (Whiting-Turner)
2. W.G./Welch Mechanical Contractors, LLC (Welch)
3. Mechanical Plumbing Crew, Co. (MPC)
4. Ramirez Plumbing, Inc. (Ramirez), and
5. GINCO HVAC, LLC (GINCO).

An OAG investigation found Welch and the labor brokers (MPC, Ramirez and GINCO) misclassified workers as independent contractors (ICs) instead of employees. The alleged scheme resulted in an unjust windfall to Whiting-Turner, one of Welch’s major general contractors.

“It is unacceptable for businesses operating in the District of Columbia to boost their profits by stealing from workers,” Attorney General Schwalb said. “Welch and its subcontractors—labor brokers that provide low-cost workers to trade contractors—tried to cut corners and reduce costs by illegally misclassifying over 370 employees as independent contractors, denying them minimum wage, overtime, paid sick leave, and other benefits they were legally entitled to. Labor brokers and the contractors that employ them not only steal from workers responsible for building our city but exact an unfair competitive advantage over businesses that play by the rules.”

According to the lawsuit, Whiting-Turner, as the general contractor, executed a $19 million contract with Welch, which in turn contracted with labor brokers MPC, GINCO, and Ramirez to provide low-cost, misclassified workers to Whiting-Turner for construction on one of Welch’s most high-profile construction projects in the District.

The suit seeks restitution for the affected workers, civil money penalties from all five defendants and a court order mandating compliance with the District’s Workplace Fraud Act, Minimum Wage Revision Act, and Sick and Safe Leave Act.

And what’s especially alarming is, this new lawsuit isn’t the only recent wage theft issue in the District.

3 Recent Wage Theft Settlements Totaling $230K

Earlier this month, the OAG announced that three companies operating in the District will pay to settle allegations of wage theft, including claims that the employers deprived workers of:

• overtime pay
• timely final paychecks, and
• benefits, including paid sick leave and paid family leave.

“This Office will continue to stand up for District workers and fight to ensure they get the full pay and benefits they are entitled to under the law. We will also ensure that unscrupulous employers cannot gain unfair competitive advantages at their workers’ expense,” AG Schwalb said. “These settlements help put District residents’ hard-earned money back into their pockets where it belongs and help level the playing field for law-abiding businesses.”

1. Fetch Package, Inc.

Fetch Package, Inc. partners with apartment buildings to outsource package receipt and delivery for residents. Packages are sent to a Fetch warehouse, and Fetch then delivers them directly to tenants. The OAG alleged the company misclassified 10 delivery drivers as ICs, which denied them compensation and sick leave benefits they were owed under District law.

To settle the dispute, Fetch will:

• Pay $100,371 to impacted delivery drivers by the alleged wage theft
• Pay $50,185 in penalties to the District
• Classify all eligible employees correctly, and
• Submit an annual compliance report to the District.

2. Potomac Foods Company

Potomac Foods Company operated a Burger King franchise until the end of 2022. After the closure, employees filed a complaint. An OAG investigation determined the company failed to pay overtime to eligible employees from 2020 to 2022 and also failed to promptly provide workers with their final paychecks after closing. District law requires employers to pay terminated employees their final paychecks within 24 hours or the next business day.

Under the terms of the settlement agreement, Potomac Foods will:

• Pay $24,020 to impacted workers affected by the alleged wage theft
• Pay $22,500 in penalties to the District, and
• Submit annual reports for any future District locations.

3. Food Works Group, LLC

Food Works Group is a food systems and business consulting company. In February 2024, the OAG opened an investigation after it received complaints that Food Works misclassified employees as ICs, failed to provide paid sick leave and Universal Paid Leave benefits, retaliated against a worker who complained about the misclassification and discriminated against a pregnant worker in violation of the District’s Human Rights Act.

To resolve the complaint, Food Works has agreed to:

• Pay a total of $28,000 to current and former employees who suffered from the alleged wage theft
• Pay $5,000 in penalties to the District
• Revise company policies and correct business practices to come into compliance with the District’s labor laws and Human Rights Act, and
• Provide written certification of compliance to the OAG.

Lessons for HR

Classifications Matter

The events in DC provide several key lessons for HR pros across the country, with the most obvious being the importance of properly classifying workers as employees or ICs.

HR pros should regularly review classifications to ensure they align with federal – and local – regulations. But how can you tell whether a worker should be classified as an employee or an IC?

Employment lawyer Todd Lebowitz previously shared with HRMorning a few practical ways to determine whether an IC should actually be classified as an IC. He outlined five clues that may indicate an IC is misclassified:

1. You direct how, when or where work is done. True contractors have control over their time, and they decide how to complete a project without supervision or direction.
2. An outsider wouldn’t be able to tell your contractors from your employees, i.e., they do the same work.
3. The individual only works for you. A contractor should have multiple clients.
4. The individual has been with you for a long time and gets assigned to work on more than one project.
5. The individual uses your equipment. Contractors should have their own gear.

Stay Up to Date on Legal Obligations

Moreover, the situation in DC provides a stark reminder that HR must stay up to date on evolving federal and local laws – and ensure strict compliance to protect the companies from costly violations.

Noncompliance can lead to significant penalties, as demonstrated by the settlements and penalties imposed on the companies accused of wage theft.

Third-Party Oversight

The lawsuit touches on an often overlooked element of compliance: vendor and contractor oversight.

When applicable, HR should ensure that vendors and contractors comply with employment laws by verifying that subcontractors and labor brokers are not engaging in practices like wage theft through misclassification, withholding overtime pay, withholding benefits or other means. Contracts should include provisions for compliance monitoring and consequences for violations.

Ongoing Compliance Training

The importance of regular training cannot be overstated. Regular training on labor laws, compliance requirements, and fair employment practices can mitigate risks. Be sure to include specific examples of what constitutes wage theft, misclassification, discrimination and retaliation.

Ethical Business Practices

The OAG and DC officials have labeled the alleged conduct as a “scheme” and “wage theft” – terms that highlight the importance of ethical business practices.

HR is the guardian of a company’s ethical standards and plays a critical role in fostering a positive work culture where fair treatment of workers and compliance with laws are priorities that cannot be compromised for any reason.

By prioritizing ethical business practices, HR also protects the company from legal liability and reputational damage associated with wage theft accusations and violations.