A DC startup that pays a “consultant” $4,000 a month, dictates her hours, supplies her laptop, and tells her which clients to work on does not have an independent contractor. It has an employee with the wrong tax form. The DC Office of the Attorney General has spent the last several years building active misclassification enforcement that has produced multimillion-dollar settlements in the construction sector and is starting to move into adjacent industries. A Washington DC business law attorney auditing a startup’s 1099 relationships in 2026 typically finds that the founder modeled the structure on what other companies are doing, the controlling DC statutes use a stricter test than federal common law, and the misclassification exposure is sitting on the books waiting for a complaint to surface.
DC’s classification statutes are not one rule
The first thing to get straight is that DC does not have a single, uniform “ABC test” the way California does. Different DC statutes use different tests, and a worker can be an employee under one law and a contractor under another. Three regimes matter most:
- The Workplace Fraud Act of 2012 (D.C. Code § 32-1331.01 et seq.), which applies to the construction industry and uses a stringent ABC test with a strong presumption of employment
- The Wage Theft Prevention Amendment Act of 2014 (D.C. Code § 32-1301 et seq.), which strengthened enforcement of DC’s wage payment, minimum wage, and sick leave laws and incorporated the construction-industry classification rule by reference
- The DC Unemployment Compensation Act, which uses a four-factor common-law test for unemployment insurance purposes
The DCHRA was amended in 2022 to extend discrimination protections to independent contractors directly, which means even a properly classified contractor still has DCHRA rights. The IRS uses its own multi-factor common-law test for federal tax purposes. A clean classification in DC has to survive each of the tests that applies to the relationship.
The ABC test for construction workers
Under the Workplace Fraud Act, a worker performing construction services in DC is presumed to be an employee. The company can rebut the presumption only by proving all three prongs of the ABC test:
- A: The worker is free from the company’s control and direction in connection with the performance of the work, both under the contract and in fact
- B: The worker is customarily engaged in an independently established trade, occupation, profession, or business
- C: The work performed is outside the usual course of the company’s business
This is conjunctive. Failing any single prong makes the worker an employee. Prong C is the one that ends most relationships. A drywall installer working for a drywall company is not outside the usual course of the company’s business, full stop. The same logic catches an electrician working for an electrical contractor, a plumber working for a plumbing firm, and a framer working for a general contractor.
The Workplace Fraud Act extends liability up the contracting chain. General contractors and developers can be held strictly liable for their subcontractors’ misclassification, which is how OAG reaches the deep pockets in cases like the Power Design and Welch matters.
Outside construction: a more nuanced picture
For non-construction businesses in DC (consulting firms, tech startups, marketing agencies, professional services), the controlling tests under the DC wage and hour statutes pull from a mix of the economic realities test (federal FLSA framework) and the common-law right-to-control test, with significant overlap with the ABC factors. The Wage Payment and Collection Law, the Minimum Wage Act, the Sick and Safe Leave Act, and the Universal Paid Leave Act each use slightly different formulations. The practical effect for most non-construction DC employers is similar to the ABC analysis: control over the work, the worker’s economic independence, and whether the work is core to the business.
What a Washington DC Business Law Attorney looks for in a classification audit
A real-world audit on a startup’s 1099 roster usually focuses on:
- Whether the contractor sets her own schedule or works hours the company dictates
- Whether the contractor uses her own equipment or the company supplies it
- Whether the contractor markets services to other clients or works exclusively for this company
- Whether the contractor has a registered business entity, EIN, and business insurance
- Whether the contractor’s work is the same as what employees of the company do
- Whether the engagement is open-ended or tied to a defined project deliverable
- Whether there is a written contract describing the relationship as a contractor engagement
- Whether 1099 payments are processed differently from W-2 payroll
A single factor rarely decides. The pattern across factors usually does.
What happens when DC finds misclassification
OAG’s enforcement playbook is well established. A misclassification finding can produce:
- Back wages including unpaid minimum wage and overtime
- Liquidated damages of up to four times the unpaid wages under D.C. Code § 32-1308
- Unpaid Sick and Safe Leave Act accruals
- Unpaid Universal Paid Leave contributions plus interest
- Civil penalties of up to $5,000 per violation under the Workplace Fraud Act
- Reimbursement to the District for unpaid unemployment insurance taxes
- Attorney’s fees and costs
- Injunctive relief requiring restructured business practices and certified payroll reporting
Recent OAG settlements illustrate the scale: Power Design at $3.75 million across workers, penalties, and fees; Tricon at $350,000; Diverse Masonry at $191,750 for 59 misclassified workers; and pending litigation against Welch and Whiting-Turner involving 370+ workers.
Structuring a 1099 relationship that survives audit
Practical structural moves that strengthen a defensible classification:
- Require the contractor to have a registered business entity (LLC or corporation) and EIN
- Use a written services agreement defining deliverables and a fixed project scope, not open-ended work
- Avoid dictating work hours, location, or methodology beyond what is necessary for coordination
- Have the contractor invoice on the contractor’s letterhead
- Confirm the contractor carries her own business insurance
- Document that the contractor has other clients or actively markets services
- Pay through accounts payable, not payroll, and never withhold taxes
- Avoid issuing the contractor company equipment, email accounts, or business cards
- Confirm the work is genuinely outside the company’s core business, not just labeled that way
Bottom line
DC’s misclassification framework is stricter than federal law, the construction industry has its own ABC test with strict-liability reach up the contracting chain, and OAG is actively litigating cases that produce settlements in the seven figures. A consultation with a Washington DC business law attorney can audit a 1099 roster against each applicable test in one sitting and flag the engagements that need to be restructured or converted to W-2 before a complaint or audit surfaces them. Useful background reading: OAG’s Wage and Hour Laws page at oag.dc.gov and DOES at does.dc.gov. Internal pages worth pairing with this post include a DC employment compliance checklist, a Wage Transparency Act compliance guide, and a fractional general counsel overview.
