From JDSupra, Richard Reibstein discusses two case in July which involved doctors and nurses alleging that they were misclassified as independent contractors. Richard writes:
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).