$9.3 million independent contractor lesson for health care staffing agency
A staffing agency recently learned an expensive lesson about whether workers were employees or independent contractors. The related court case is a warning for all employers to ensure workers are properly classified.
Under the federal Fair Labor Standards Act (FLSA), employers must pay nonexempt employees overtime at time and a half for any hours worked beyond 40 in a workweek. Employers don’t, however, have to pay overtime to independent contractors.
The case
A staffing agency supplied nurses to health care facilities. It had what it called a “registry” of its nurses, and it connected those nurses with work opportunities at its client health care facilities.
To be included in the registry, nurses had to complete an employment application that referred to the agency as the “employer,” and to the nurses as the “employee.” This application asked about applicants’ credentials, skills, and employment history. The agency also performed background checks, drug screenings, and tuberculosis tests on the applicants. Once hired, the agency then trained the nurses on topics such as patient confidentiality, substance abuse, and sexual harassment.
Once nurses were included in the registry, the agency notified them of available shifts at the agency’s client health care facilities. Nurses could accept or turn down such opportunities.
If a nurse was late for a shift, wanted time off, was ill, or otherwise unable to complete the shift, the nurse had to notify and get approval from the agency — not from the client facility.
At work, the nurses performed typical nursing tasks as directed by a supervising physician. The agency, however, controlled other aspects of the nurses’ workplace conduct. It required, for example, that its nurses wear agency identification. The agency also had written standards for its nurses’ workplace conduct, including attire, punctuality, and timekeeping. If nurses didn’t meet those standards, the agency would discipline them. If a client had problems with a nurse, they had to contact the agency.
The agency also unilaterally dictated its nurses’ hourly pay rates and negotiated fixed hourly rates for the work its nurses performed at the client health care facilities. In turn, the agency would keep a percentage of the hourly rate paid by the client facility. As such, the nurses couldn’t directly negotiate their hourly pay rates with the client facilities where they worked.
Believing the nurses to be independent contractors, the agency paid the nurses their regular rates for all hours worked and didn’t pay overtime.
Trouble begins
In 2017, the U.S. Department of Labor (DOL) launched an investigation into the agency’s FLSA compliance. It determined that the agency misclassified 1,100 nurses as “independent contractors,” didn’t pay them overtime, and didn’t keep proper records. The DOL told the agency to properly classify its nurses as “employees,” but it didn’t.
The problem ended with a court ruling that the nurses were employees of the agency, and not independent contractors, and the agency had to pay $9.3 million to cover the overtime it should have paid to the nurses.
Chavez-Deremer v. Med. Staffing of Am., LLC, 4th Circuit Court of Appeals, No. 23-2176, July 17, 2025.
What employers need to know
To avoid such a situation, employers should be aware of the six factors courts look at to determine whether a worker is an employee or an independent contractor:
- The degree of control that the employer has over the manner in which the work is performed (the agency oversaw shifts, pay, discipline, etc.);
- The worker’s opportunities for profit or loss depend on managerial skill (the nurses had none);
- The worker’s investment in equipment or material, or employment of other workers (the nurses had little, if any);
- The degree of skill required for the work (the nurses did need this, but the other factors outweighed this one);
- The permanence of the working relationship (the nurses’ relationship with the agency was an ongoing one); and
- The degree to which the workers’ services are an integral part of the employer’s business (the nurses’ services were integral to the agency’s business).
Key to remember: Employers must correctly classify workers as employees or independent contractors, or risk facing hefty costs.