The majority of a three-judge panel of the U.S. Court of Appeals for the Fourth Circuit has upheld a finding that a medical staffing agency misclassified approximately 1,100 nurses as independent contractors and owed them $9.3 million in back pay and liquidated damages under the Fair Labor Standards Act.
Background
Medical Staffing of America, LLC (known as “Steadfast Staffing”) has a registry of nurses “and it connects those nurses with work opportunities at its client healthcare facilities.”
In 2017, the U.S. Department of Labor began an investigation regarding the “employee” status of the Steadfast nurses and then began enforcement action, alleging that the nurses were willfully misclassified as “independent contractors” since at least August 2015.
According to the Fourth Circuit panel majority decision, the DOL informed Steadfast in 2018 that the nurses were misclassified and advised Steadfast to treat the nurses as “employees.” However, Steadfast continued to treat the nurses as “independent contractors” and failed to pay overtime when they worked more than 40 hours in a workweek.
After a 2021 bench trial (a trial in which there is no jury), a federal judge in Virginia found in favor of the DOL, awarded approximately $4.8 million for unpaid overtime and an additional $4.5 million in liquidated damages, and issued an injunction. Steadfast appealed on three grounds: the employee classification ruling, the court’s rejection of its good faith defense, and the DOL’s rejection of its damages calculations. The Fourth Circuit panel majority affirmed on all issues.
The judges who issued the majority ruling were Judge Robert King, a Clinton appointee, who wrote the opinion, and Judge Henry Floyd, an Obama appointee. Judge Julius Richardson, a Trump appointee, dissented.
Employee vs. independent contractor
The core of the appeal centered on whether the Steadfast nurses were “employees” or “independent contractors” under the FLSA. The Fourth Circuit panel majority reiterated that the FLSA definitions are broad and that courts must look to the “economic realities” of the relationship, focusing on whether the worker is economically dependent on the business or is in business for himself or herself.
The panel majority applied the six factors derived from the Supreme Court’s United States v. Silk opinion, as articulated in its own McFeeley v. Jackson Street Ent., LLC decision:
- The putative employer’s degree of control over work performance.
- The worker’s opportunities for profit or loss dependent on managerial skill.
- The worker’s investment in equipment/material or employment of other workers.
- The degree of skill required for the work.
- The permanence of the working relationship.
- The degree to which the services provided are an integral part of the company’s business.
The Fourth Circuit panel majority emphasized that no single factor is dispositive but that control may be the most significant factor under McFeeley. Applying these factors to the Steadfast situation, the panel majority found as follows:
- Degree of control. Steadfast unilaterally set the nurses' hourly rates and controlled access to shift opportunities. Nurses were required to report to Steadfast if they were late, ill, or unable to complete a shift. Steadfast was responsible for discipling nurses for infractions of its internal policies; and possibly most importantly, Steadfast included a non-compete provision within its “independent contractor” agreement.
- Opportunities for profit or loss. Nurses had no real opportunities for profit or loss “beyond their role as workers for a set hourly pay rate.”
- Investment in equipment/material. Nurses may have used their own stethoscopes or blood pressure cuffs, but according to the panel majority, purchases such as these are “not the type of ‘large capital expenditures, such as risk capital and capital investments’” that are dispositive of the issue.
- Degree of skill. The panel majority acknowledged that the nurses possessed a high degree of skill but determined that this single factor was outweighed by the others.
- Permanence and “integral part.” The relationships were found to be permanent in nature because of the nurses’ economic dependence on Steadfast for continued employment. The court also found the nurses’ work was an integral part of the company’s business.
Based on the above, the panel majority affirmed the lower court’s finding that the nurses were employees and not independent contractors.
Good faith defense and damages
Steadfast alleged that it was entitled to a “good-faith” defense to the liquidated damages awarded by the lower court. According to Steadfast, it had relied on the advice of a lawyer in determining that the nurses were properly classified as independent contractors.
But according to the panel majority, Steadfast sought no legal advice about the nurses’ status until June 2018. Even after it retained an attorney, according to the panel majority, Steadfast “failed to provide him with the pertinent information needed for a ‘fully informed, reasonable legal opinion’” and had already been informed by the DOL that the nurses were employees, not independent contractors. Moreover, according to the panel majority, Steadfast failed to follow the attorney’s advice in some respects.
Finally, the panel majority agreed with the lower court that Steadfast waived its right to contest the proper amount of damages by not raising objections or presenting alternative calculations during trial.
One judge dissents
Judge Richardson dissented, warning that the majority opinion “well illustrates the peril of judicially contrived, many-factor tests.” He argued the decision was “wrong on the facts and wrong on the law,” and criticized it for disregarding key distinctions in precedent, relying on out-of-circuit case law, and stretching the multi-factor test “so far that it could cover most any economic arrangement.” According to Judge Richardson, “it was the nurses, not Steadfast, who decided when and where they would work,” and “Steadfast did no meaningful management” of their medical duties.
Implications for employers and lawyers
The Steadfast decision highlights that, even under a more holistic, totality-of-the-circumstances approach, “control” remains a key factor in determining worker classification under the FLSA.
