Unless you were in the health care industry, July 2025 was a relatively slow month for judicial developments in the law of independent contractor (IC) misclassification and compliance. Only two significant IC cases came to our attention, and they impact doctors and nurses. As described below, a Virginia nursing agency and its owner lost their appeal of a $9 million class action judgment in connection with nurses found to have been misclassified as ICs instead of employees. The other case is a new filing by two doctors in Colorado that commenced a lawsuit against a mental health and wellness clinic, alleging they were misclassified as ICs and denied wages due to them as employees. The health care industry should take solace, however, because contract doctors and nurses can be properly classified as ICs under federal and most state laws. Businesses in that industry (and practically all other industries) can enhance their compliance with such laws governing ICs if they use a process such as IC Diagnostics (TM) to structure, document, and implement their IC relationships in a manner that maximizes IC compliance — and they can do so in a sustained manner consistent with their business model.
In the Courts
NURSING AGENCY AND OWNER LOSE APPEAL OF $9 MILLION IC MISCLASSIFICATION JUDGMENT. The U.S. Court of Appeals for the Fourth Circuit affirmed a federal district court’s judgment of $9 million against a Virginia nursing agency, Medical Staffing of America d/b/a Steadfast Medical Staffing, and its owner, both of which were found to have violated federal law by misclassifying 1,100 contract nurses as ICs. The company referred qualified nurses to medical institutions in need of nursing services. After investigation, the U.S. Department of Labor filed an enforcement action in court against the company under the Fair Labor Standards Act (FLSA), alleging that the company and its owner improperly classified contract nurses as ICs instead of employees. Following a bench trial, the district court concluded that, under the six-factor economic realities test used in the Fourth Circuit, the nurses had been misclassified and that the company and owner were liable for approximately $9 million in unpaid overtime compensation and liquidated damages. On appeal, the Fourth Circuit agreed, concluding in a 103-page opinion that under the six-part test for IC status in that circuit, five factors weighed in favor of employee status: extensive control over the nurses’ manner of work; the nurses’ lack of opportunity for profit or loss; the nurses’ minimal investment in capital expenditures and equipment; the fact that the nurses’ work was “not the kind of itinerant work that independent contractors ordinarily perform” and were subject to noncompete clauses; and their services were integral to the company’s business. Only one factor, degree of skill, was deemed to favor IC status. Judge Julius Richardson wrote a 30-page dissent. Chavez-DeRemer v. Medical Staffing of America d/b/a Steadfast Medical Staffing, LLC, Nos. 23-2176 and 23-2284 (4th Cir. July 17, 2025).
MENTAL HEALTH AND WELLNESS CLINIC SUED FOR IC MISCLASSIFICATION OF PHYSICIANS. Two doctors have sued a mental health and wellness clinic in a Colorado state court alleging IC misclassification, wage theft, breach of contract, defamation, tortious interference with business relationships, and fraudulent business practices. The clinic provides psychiatric services, therapy, and specialized ketamine treatments, and engages health care professionals to provide psychiatric and mental health services. According to the complaint, the clinic cannot satisfy the test used in Colorado to determine IC/employee status because the clinic effectively required the plaintiffs to work exclusively for the clinic by mandating a significant number of hours and days to be worked; established extensive quality standards for plaintiffs; maintained control over when and how remittances were calculated and paid; retained broad discretionary power to terminate access to systems and effectively end the working relationship; and provided substantial training, as well as tools and facilities, including office space, furniture, email addresses, and administrative support. In addition, plaintiffs allege that the clinic exercised substantial control over their performance by requiring a minimum number of hours/days per week, dictating specific lengths of appointments, setting and enforcing dress codes, establishing a timeframe for the submission of clinical notes, and requiring compliance with company policies. Nadolny v. Owl and Eagle Health and Wellness LLC, No. 2025CV031070 (1st Jud. Dist. Colo. July 7, 2025).
Legislative Initiatives
US SENATE REPUBLICANS HAVE INTRODUCED A PACKAGE OF BILLS THAT MAY IMPACT ICS. A news release issued by the U.S. Senate Committee on Health, Education, Labor and Pensions (HELP) on July 7, 2025, announced that Senators Bill Cassidy, M.D. (R-LA), chair of the HELP Committee, Tim Scott (R-SC), and Rand Paul (R-KY) described a legislative package “modernizing federal labor law to empower 27 million independent workers to access portable workplace benefits, like health care and retirement.”
The HELP Committee’s news release stated that Senator Cassidy’s “Unlocking Benefits for Independent Workers Act” would serve to “[e]stablish a safe harbor under federal law for companies that would like to voluntarily provide benefits [to ICs] and applies to any benefit or protection commonly provided to full-time employees, such as retirement and health care benefits.” It further stated that Senator Cassidy’s “Independent Retirement Fairness Act” “[e]mpowers independent workers to participate in retirement plans, like pooled employer plans and single employee pension IRAs, which are already available under federal law.”
According to the news release, Senator Scott’s “Modern Worker Empowerment Act” seeks to amend the definition of “employee” under Fair Labor Standards Act “to provide clarity and consistency by instituting a single employment test under federal law.” The bill proposes that the definition of employee would be “as determined by the usual common law rules.”
Senator Paul’s “Association Health Plans Act” [i]ncreases affordable health coverage options to millions of self-employed Americans and employees of small businesses by amending the Employee Retirement Income Security Act of 1974 (ERISA) to give small business employees, sole proprietors, and gig workers the ability to aggregate together and access health insurance through Association Health Plans (AHPs).”
US HOUSE COMMITTEE ADVANCES BILLS CREATING EASIER PATH TOWARD IC CLASSIFICATION. Two bills (H.R. 1319 and H.R. 1320) sponsored by Rep. Kevin Kiley (R-CA) were approved by a House Committee on July 23, 2025. H.R 1319 seeks to amend the FLSA and the National Labor Relations Act to clarify the standard for determining whether an individual is an employee. The proposed test provides that an individual shall be determined to be an IC rather than an employee of a company if the business does not exercise significant control over the details of the way the work is performed by the individual, without regard to any control the company may exercise over the final result of the work performed; and while performing such work, the individual has the opportunities and risks inherent with entrepreneurship, such as the discretion to exercise managerial skill, business acumen, or professional judgment. In addition, the bill proposes that certain factors may not be used in determining that an individual is an employee of a company, such as whether the business requires the individual to comply with legal, statutory, or regulatory requirements; whether the it requires the individual to comply with health and safety standards more stringent than otherwise applicable health and safety standards; whether the business requires the individual to carry insurance; and whether the company requires the individual to meet contractually agreed-upon performance standards, such as deadlines.
H.R. 1320 would provide that in determining whether an individual is an employee of another person or entity for the purposes of any federal law, the determination shall be made without considering whether such other person or entity provides the individual with a “portable benefit,” which would include the type of benefits that are commonly provided to full-time employees, such as workers’ compensation, skills training, professional development, paid leave, disability and health insurance coverage, retirement savings, income security, and short-term saving.
Regulatory Initiatives
COMMENT PERIOD ENDS IN NEW JERSEY FOR PROPOSED NEW REGULATION EXPANDING THE “ABC” TEST FOR IC STATUS. August 6, 2025, was the final day for interested members of the public to submit comments regarding the proposed regulation to be issued by the New Jersey Department of Labor and Industry on the state’s ABC test for determining IC status. The publisher of this blog submitted extensive comments. The following is the publisher’s “introduction” to his comments:
“The Department’s proposed regulation as to Prong A appears to state that an independent contractor agreement including language that the IC comply with all applicable laws is to be deemed as a form of direction and control over the service provider, notwithstanding the fact that that all service providers (indeed, all of those who do business in New Jersey) are of course required to comply with applicable laws, and despite the fact almost all independent contractor agreements in this and every other state in the U.S. provide contain such language. Unless this part of the regulation is corrected, it will foster the elimination of almost all independent contractors in this State.
The Department’s proposed regulation as to Prong B is directly contrary to an existing New Jersey Supreme Court case, Carpet Remnant Warehouse, one of the two decisions that the proposed regulation expressly states that it is following. If not rectified in the final version of the regulation, it would literally eviscerate Prong B and thereby eliminate the opportunity for many freelancers and other independent contractors from being otherwise validly classified as ICs in this State.
These and other infirmities in the proposed regulations, if finalized in their current form, would create a hostile and unworkable legal environment in this State for legitimate ICs and the companies that engage legitimate ICs, which would likely prompt freelancers and other New Jersey-based ICs to lose work opportunities and cause many businesses in New Jersey that use ICs to cease operating their businesses in the State – similar to what has occurred when California enacted Assembly Bill 5, which codified the ABC test in that state back in 2020.”
Other Noteworthy News
APP-BASED LAW IN NYC APPLIES TO IC DRIVERS FOR TRANSPORTATION MANAGEMENT PLATFORMS. The NYC Taxi and Limousine Commission has imposed a 5% minimum-pay increase for app-based ride-hailing drivers beginning August 1, 2025. The new rule guarantees app-based gig drivers in New York City, using platforms by transportation management companies, a minimum pay increase of 5% per minute and per mile despite the fact that such IC drivers are not typically entitled to the wage and benefit protections available to employees. The publisher of this blog was quoted by reporter Max Kutner in a July 23, 2025, article titled “NYC Gig Pay Increases While Contractor Status Stays” in Law360 Employment Authority: “Prior to 2019, the issue of whether ride-share drivers were independent contractors or employees was a regular feature of independent contractor misclassification law. But since that time, the number of independent contractor misclassification lawsuits against transportation management companies in New York City have decreased considerably.”
