Mid-Atlantic Health Law TOPICS

 In Chavez-Deremer v. Med. Staffing of America, the federal appellate court, with jurisdiction for Maryland, Virginia, West Virginia, North Carolina and South Carolina, recently affirmed a trial court judgment that a staffing agency (Steadfast) misclassified more than 1,000 nurses as independent contractors instead of employees. The appellate court affirmed the lower court’s award of $4.8 million in overtime compensation plus $4.5 million in liquidated damages to be paid to the nurses.

Under the federal Fair Labor Standards Act (FLSA), an employee is required to receive overtime pay for working more than 40 hours per workweek. However, many employers treat their workers as independent contractors instead of employees to avoid paying withholding taxes, benefits and overtime.

The Facts

Steadfast supplies nurses to health care facilities via its nursing “registry.” Inclusion in the registry allowed the nurses to be notified of available shift opportunities at Steadfast’s discretion. For inclusion in the registry, a nurse had to complete license verification, an “employment application,” and several pre-hiring requirements. The nurse would then enter an “independent contractor” agreement that included a non-compete clause for the term of the agreement plus one year following termination.

Facilities then contracted with Steadfast for their staffing needs. Steadfast assumed responsibility for the nurses’ work and referenced itself as the nurses’ “employer” in the contracts with facilities. Steadfast compensated nurses at fixed hourly pay rates, and managed typical HR matters such as time off, attire, and workplace conduct. Steadfast prohibited the facilities from disciplining the nurses.

The U.S. Department of Labor (DOL found that Steadfast was in violation of FLSA by misclassifying the nurses as independent contractors and failing to pay overtime compensation. DOL advised Steadfast to bring itself into compliance, but Steadfast failed to do so, and DOL consequently filed suit.

The Court’s Analysis 

At trial, the court employed a six-factor assessment to capture the economic realities of the relationship between Steadfast and the nurses.

In evaluating the first factor, degree of control that Steadfast had over the nurses, the courts looked at whether Steadfast retained the right to dictate the manner of the nurses’ performance, or if the nurses retained control over a meaningful portion of their labor such that they operated as separate economic entities from Steadfast. Both courts agreed that the control factor weighed heavily toward employee status.

The second factor was the nurses’ opportunity for profit or loss dependent on their managerial skill. The courts found that the nurses had no opportunities for profit or loss, and recognized that the non-compete clause in their contracts inhibited their ability to profit independently of Steadfast. Accordingly, this factor weighed in favor of their being classified as employees.

The courts also agreed as to other factors: that the nurses did not invest in the business to the degree that would be expected to be seen with independent contractors; the nurses depended on Steadfast for their continued employment during the term of their contracts; and the nurses’ work was integral to Steadfast’s business.

The only one of the six factors that the courts agreed weighed in favor of independent contractor status was the degree of skill required for the work. Nevertheless, both courts agreed that the totality of the circumstances established an employer-employee relationship.

Liquidated Damages

Under FLSA, liquidated damages are also available as a penalty assessed against employers for wage violations, and generally are equal to the amount of unpaid wages or overtime owed, effectively doubling the recovery. Steadfast argued that because it acted in good faith to comply with FLSA, the nurses were not entitled to liquidated damages.

Both courts found that Steadfast’s reliance on the advice of counsel that the nurses were likely properly classified, when Steadfast had failed to provide that counsel with all pertinent information, and in any event had failed to follow counsel’s advice to dispense with both the non-compete clause and the use of “employment” terminology in its internal documents, rendered the good faith defense objectively unreasonable.
 

Michael J. Brown
410-576-4030 • mbrown@gfrlaw.com