Fourth Circuit Preserves $9 Million Award to Nurses Misclassified as Independent Contractors

Quick Hits

• The Fourth Circuit recently concluded that a medical staffing company misclassified about 1,100 Certified Nursing Assistants, Licensed Nurse Practitioners, and Registered Nurses who worked for the company from August 2015 to January 2023 as independent contractors.
• The court found that the nurses were employees and entitled to overtime pay.
• The court rejected the company’s arguments that a federal district court abused its discretion when it awarded back pay and an equal amount of liquidated damages to the nurses.

Under the FLSA, certain employees are entitled to overtime and minimum wage, unlike independent contractors. In determining whether a worker is an employee, agencies like the Internal Revenue Service (IRS) and DOL use their own factors, as do the courts. In Chavez-DeRemer v. Medical Staffing Company of America, d/b/a Steadfast Medical Staffing, the Fourth Circuit looked to six factors (similar to the DOL’s economic reality test) to determine whether an employment relationship existed: (1) the degree of control by the employer over the work performed; (2) the worker’s opportunity for profit or loss dependent upon the worker’s skill; (3) the worker’s investment in equipment, materials, or employment of others; (4) the degree of skill used; (5) the permanence of the working relationship; and (6) the degree to which the services provided are integral to the business. These are called the McFeeley factors, following the Fourth Circuit’s 2016 ruling in McFeeley v. Jackson Street Entertainment, LLC.

Like the DOL test, no McFeeley factor is dispositive, and all must be considered while asking whether the economic realities conclude that the workers are in fact employees, given the particular working relationship, workplace, and industry.

Businesses that misclassify workers may be liable for back wages and liquidated damages, and may be enjoined from future acts.

Steadfast’s Business Practices

Steadfast contracted with approximately 1,100 nurses and nursing assistants over a seven-plus-year period as independent contractors. Steadfast supplied nurses and nursing assistants to healthcare facilities in several states, maintaining a registry of nurses and nursing assistants to connect with its clients. To qualify for the registry, nurses and nursing assistants were required to complete an application for employment (referring to “employer” and “employee”) and undergo a background investigation, drug screen, confirmation of licensure, and tuberculosis test at Steadfast’s cost. Following this process, they would sign an independent contractor agreement, which included a noncompete clause, and be added to the registry.

Steadfast provided nurses and nursing assistants with training to ensure they were capable, prepared, licensed, and qualified. Steadfast maintained an employee change record, documenting their hire date, term date, and tax jurisdiction. Steadfast provided insurance coverage, including workers’ compensation, and covered its nurses and nursing assistants under general liability insurance policies. The workers were not required to carry their own liability insurance.

Once on the registry, Steadfast would notify the worker of a shift opportunity and determine which worker would fill the opportunity. The client healthcare facility did not have access to the nurses or nursing assistants’ contact information. Steadfast used a scheduling and pay system app for communication of shift opportunities. Nurses and nursing assistants who were unable to make or complete a shift were required to obtain approval from Steadfast, not the client healthcare facility. Steadfast handled compensation-related issues, such as wage garnishments. In order to be paid, workers were required to provide timesheets showing hours worked with an approval signature by the client.

While the nurses and nursing assistants controlled their tasks when working, Steadfast required them to wear a badge and adhere to Steadfast’s workplace conduct, attire, punctuality, and timekeeping standards and policies. The workers were subject to discipline for failing to do so. Steadfast’s clients were prohibited from disciplining Steadfast’s nurses and nursing assistants.

Steadfast unilaterally dictated the workers’ pay rates and fixed hourly rates with its clients, and the workers could not negotiate their pay rates. They only made more money by working more hours. Nurses and nursing assistants were only paid a straight-time pay, even for over forty hours in a workweek. Steadfast’s competitors often paid overtime, allowing Steadfast to charge its clients lower rates for the nursing services.

Steadfast’s contracts with its clients referred to its nurses and nursing assistants as “employees” or “employed personnel” and contained buyout provisions requiring a client facility to purchase the worker’s contract from the worker if they had an interest in employing the worker directly.

Case Background and Findings

In 2017, the DOL commenced an investigation and concluded the workers were misclassified and therefore owed overtime compensation. Steadfast refused to reclassify the workers, pay back wages, and maintain the required records. In 2018, the DOL filed suit against Steadfast, and a bench trial was held. Steadfast argued the DOL did not have proof concerning the nurses’ status, and their classification was made in good faith. The court ruled the workers were employees and thus Steadfast was liable for such misclassification in an amount over $9 million. Steadfast appealed the order.

As to whether the workers were employees or independent contractors, the Fourth Circuit assessed the district court’s ruling under the McFeeley factors and agreed with its findings.

1. As to the level of control, Steadfast controlled the workers’ scheduling, communication methods, and compensation, including timesheets. It provided performance reviews and disciplined the workers, all weighing in favor of an employment relationship.

• As to the nurses’ and nursing assistants’ opportunity for profit or loss, they had no opportunity for profit or loss beyond increasing their income by working more hours. They could not negotiate their wages or bargain for compensation. They were paid a fixed hourly rate determined by Steadfast. The Fourth Circuit noted that it has been universally rejected that hustling to increase profits meets this notion of an opportunity for profit.

The DOL also argued that a noncompete clause in the workers’ contracts left them economically dependent on Steadfast for job assignments and shift opportunities, and the trial court agreed. Steadfast disputed that the nurses and nursing assistants were prohibited from working for other companies. While their contracts contained a noncompete clause, the testimony at trial established it was not enforced. The Fourth Circuit agreed with the trial court, noting that it is not what the parties could have done, but actually what they do that is dispositive. The nurses testified they believed they were restricted from working for other companies. The Fourth Circuit agreed that this factor weighed in favor of an employment relationship.

• As to the workers’ investment, Steadfast argued that the investment by nurses and nursing assistants paying for their own professional licenses weighed in favor of them being independent contractors. But the trial court rejected that argument, and the Fourth Circuit agreed, as all nurses and nursing assistants require licensure, and Steadfast handled all their administrative costs, advertising, and insurance. It also noted that their purchase of tools, such as their own stethoscopes and blood pressure cuffs, was relatively insignificant.

• As to the skill required for the job, this was the one factor that suggested nurses and nursing assistants may work in an independent contractor capacity, but it did not outweigh the other McFeeley factors.

• As to the permanence of the working relationship, Steadfast claimed the employment relationship with the nurses and nursing assistants was “open-ended” and “transient in nature” because they could “accept or reject shift as they pleased,” and some contracts had term limits. The Fourth Circuit concluded the relationship was permanent in nature, noting that independent contractors generally have fixed employment periods and transfer from place to place as work is offered. Ultimately, the evidence showed that Steadfast nurses and nursing assistants depended on Steadfast for continued employment.

• As to the degree to which services rendered are an integral part of the business, Steadfast did not contest that the nurses and nursing assistants were integral to its business.

Accordingly, the Fourth Circuit affirmed the U.S. District Court for the Eastern District of Virginia’s 2023 award of approximately $4.8 million in overtime pay, $4.5 million in liquidated damages, and injunctive relief.

Next Steps

Employers, and specifically staffing agencies, may wish to review their relationship with their independent contractors, considering the numerous relevant factors to confirm whether a worker is properly classified. Such factors include the reviewing agency, such as a court, the DOL, the IRS, a state agency for unemployment benefits, or workers’ compensation program.

This case highlights how even when a staffing company places professionally licensed workers at other locations, and those workers can choose to work the hours they desire to make more money, that is not dispositive if the economic realities in the totality support otherwise.

Ogletree Deakins will continue to monitor developments and will provide updates on the Healthcare, State Developments, and Wage and Hour blogs as new information becomes available.

Corie J. Anderson is a shareholder in Ogletree Deakins’ Minneapolis office.

Cynthia A. Bremer is a shareholder in Ogletree Deakins’ Minneapolis office.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

Follow and Subscribe
LinkedIn | Instagram | Webinars | Podcasts