D.C. Attorney General Karl Racine announced on October 27th that his office filed suit against a delivery service company, claiming that the company’s workers are employees, not independent contractors.[1] The AG argues that the Company’s delivery drivers “bear all the hallmarks of employee status.”[2] This lawsuit follows another tax-related complaint filed by the AG earlier this year.

D.C. Universal Paid Leave Act: Payroll Tax

Generally, businesses that pay unemployment insurance taxes also must pay the District’s Universal Paid Leave Act (“UPLA”) payroll tax as of July 1, 2019.  The AG alleges that the Company was a “covered employer” required to – but that did not – pay taxes related to its drivers.[3]

Determining employer tax liability under the UPLA is similar to determining employer liability for unemployment insurance tax purposes. Under the UPLA, the default rule is that if a covered employer pays District unemployment insurance tax on an employee for a quarter, then the employee is presumed to be a covered employee. Employers may rebut this presumption by showing that: (1) the employee worked at least 50 percent of their work time in a single jurisdiction outside of the District, and (2) the work performed outside of the District was not incidental in nature, temporary or transitory in nature, or consisting of isolated transactions.

In addition to underpaid UPLA taxes, the AG also seeks penalties and interest as allowed under the UPLA.[4] Penalties and interest under the UPLA are calculated in the same manner as under the District’s unemployment insurance tax law – interest accrues at 11.5% per month on unpaid tax and penalties accrue at 10% of the amount due.[5]

Other Allegations and Claims for Relief

On top of alleging violations of the UPLA, the AG also alleges violations of the District’s: Minimum Wage Revision Act, D.C. Code § 32-1001, et seq.;[6] Sick and Safe Leave Act, D.C. Code § 32-531.01, et seq.;[7] Wage Payment and Collection Law, D.C. Code § 32-1301, et seq.;[8] and Workers’ Compensation Act, D.C. Code § 32-1501, et seq.[9]

The AG seeks a declaratory judgment that the Company’s alleged worker misclassification violates the above-referenced District law and the workers at issue should have been classified as employees under those provisions, as well as an injunction that the Company should be prohibited from allegedly continuing to misclassify its workers. The AG alleges various damages, including unpaid wages due to the alleged “employees,” and statutory penalties associated with the alleged violations of District law.

Stay tuned to Eversheds Sutherland’s SALT Shaker Blog for continuing information on this case, D.C. payroll tax matters and the AG’s continued pursuit of tax cases.

[1] District of Columbia v. Shipt, Inc., Case No. 2022-4909 (D.C. Super. Ct. filed Oct. 24, 2022) (“Complaint”).

[2] Complaint at ¶ 5.

[3] See Count V, ¶¶ 95-96 (citing D.C. Code §§ 32-541.01(22), -(3)–(4)).

[4] Complaint at Prayer for Relief, ¶ f.

[5] D.C. Code §§ 32-541.03(f), 51-104(c).

[6] Complaint Counts I and II, ¶¶ 70-81.

[7] Complaint Count III, ¶¶ 82-85.

[8] Complaint Count IV, ¶¶ 86-93.

[9] Complaint Count VI, ¶¶ 99-104.