WASHINGTON, D.C. – Attorney General Karl A. Racine today announced that Capitol Drywall, Inc., a Maryland construction company, will be required to pay a $200,000 penalty as part of a wage theft settlement with the Office of the Attorney General (OAG). The settlement resolves OAG’s investigation into allegations that Capitol Drywall’s subcontractor misclassified more than 100 District drywall workers as independent contractors instead of employees. Misclassification is a form of payroll fraud used by unscrupulous employers to get around labor laws and reduce costs, and it is especially common in the construction industry. In addition to the penalty, Capitol Drywall will also be required to implement policies that ensure it fully complies with the District’s Workplace Fraud Act and its subcontractors do not misclassify workers.

“When businesses misclassify workers as independent contractors, they are not only committing wage theft but also putting their law-abiding competitors at a disadvantage,” said AG Racine. “During this pandemic, the Office of the Attorney General has remained focused on protecting workers, fighting wage theft in all its forms, and holding businesses accountable when they violate District law.”

Wage theft is the illegal practice of denying workers the 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. It occurs across job types and income levels, though workers in low-wage jobs and immigrants are especially vulnerable to this type of exploitation.

Worker misclassification is a form of payroll fraud where employers improperly categorize workers as “independent contractors” instead of direct employees, allowing companies to reduce costs and evade paying their share of payroll taxes. Misclassified workers lack basic labor protections, cannot access safety net programs like workers compensation and unemployment insurance, and receive less take-home pay. Under the District’s Workplace Fraud Act, which applies to the construction industry, companies are required to classify most workers as employees. Those that fail to do so can face significant penalties. Under District law, employers can be held liable for the worker misclassification of their subcontractors.

Settlement with Capitol Drywall, Inc.
Capitol Drywall, Inc. is a construction company headquartered in Gaithersburg, Maryland that provides drywall services for commercial construction projects across the District. OAG opened an investigation of Capitol Drywall and alleged that from 2017 through 2020, the company’s subcontractor misclassified over 100 construction workers as independent contractors instead of properly classifying them as employees.

The settlement with Capitol Drywall requires the company to:

• Pay $200,000 in penalties to the District: Capitol Drywall is required to pay a penalty of $200,000 to the District to resolve the investigation.
   
• Implement measures to comply with the District’s worker misclassification law: Capitol Drywall must formalize policies and procedures with respect to employment, payroll, and engagement of subcontractors; template agreements with the company’s subcontractors; and any other documentation to ensure the company and its subcontractors comply with the Workplace Fraud Act. Within 60 days, Capitol Drywall must report to OAG on its compliance measures.

A copy of the settlement agreement is at: https://oag.dc.gov/sites/default/files/2020-10/Capitol-Drywall-Settlement.pdf

More information on worker misclassification in the District’s construction industry is available at: https://oag.dc.gov/release/ag-racine-releases-report-payroll-fraud-district

Protecting Workers
Since gaining independent authority to investigate and bring wage theft cases in 2017, OAG has launched more than 40 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 testified before Congress to highlight findings from an OAG report about how worker misclassification hurts workers, undercuts law-abiding businesses, and cheats taxpayers. In January, OAG secured it’s largest wage theft settlement to date, requiring Power Design—a major electrical contractor—to pay $2.75 million to hundreds of harmed workers and the District over wage theft and worker misclassification claims.

How to Report Wage Theft Violations
Workers can report wage theft or other wage and hour violations to OAG’s Social Justice Section at (202) 442-9828. 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.