When businesses are short-handed, contract workers seem like the ultimate quick fix — short-term help, no commitments, and a predictable, one-time cost that disappears as soon as the need recedes. It’s a tempting option, but one former trial lawyer for the Department of Labor (DOL) is raising a giant red flag for healthcare facilities that rely on contractors to fill their staffing needs.
Dane Steffensen, who has litigated over 250 cases, points to a recent trend of healthcare facilities facing increased exposure to 1099 misclassification lawsuits. Here’s a common scenario: A healthcare staffing company provides 1099 nurse contractors to a facility, but based on the working arrangement — and increased enforcement by the DOL — the 1099 nurse is determined to be a W-2 employee of the facility, which is now responsible for benefits, back pay, and overdue taxes.
Worker misclassification is often a gray area determined by a multitude of factors and a range of legal and financial penalties. But the good news is that it can be avoided. Here’s a look at why the 1099 vs. W-2 distinction matters for healthcare facilities as seen through some recent cases.
How Did We Get Here?
It’s understandable why healthcare facilities would want a pool of contractors to fill their shifts. Just consider all of the pressures now in place, particularly for post-acute facilities. Here’s just a few worthy of mention:
- workforce instability due to high turnover rates and ongoing shortages
- new regulations imposing minimum staffing requirements and penalties
- increased demand as residents in long-term care are expected to double by 2050
- increased inflationary costs, declining revenues, and the persistence of nursing home closures
In other words, long-term care facilities are being asked to do much more with much less. Enter the 1099 nurse staffing solution. It’s the easiest and fastest way to get shifts filled and stay in business in the short-term, but, ironically, it could end up having the opposite effect down the road.
Employee Misclassification Lawsuits and Increased Enforcement
Employee classification isn’t determined by the terms of a contract between a facility and staffing company, but by the relationship that actually exists in the workplace. Courts and agencies like the IRS and DOL look at how much a facility directs and controls its contractors to determine whether the facility is an employer, or even a “joint employer,” with the staffing company.
This is coming much more into focus as the DOL steps up its enforcement efforts. In 2021, it launched a specific initiative to address employee misclassification in residential care, nursing facilities, home health services, and other providers in the post-acute care industry. As of November 2022, it had banked some notable results, including:
- completion of 1,600 investigations
- discovery of violations in 80% of its reviews
- recovery of over $28.6 million in back wages and damages for almost 25,000 workers
- imposition of nearly $1.3 million in civil penalties for willful violations
As federal and state agencies continue to scrutinize staffing agencies in the healthcare industry, here’s a roundup of some 1099 misclassification lawsuits which provide important takeaways for healthcare facilities.
Florida Home Health Company Ordered to Pay Damages to Its Care Provider (2022)
A Florida federal court granted summary judgment in a 1099 misclassification lawsuit and awarded liquidated damages when a home healthcare agency misclassified a care provider who was a live-in companion.
Takeaway: The court found that the agency exercised significant control over the work of the provider, which was based on, among other things, its authority to fire the provider and its direct supervision over the provider. For example, the staffing agency required the provider to follow a policy handbook and to provide regular reporting on progress calendars, intervention logs, incident reports, and medical treatment visits.
As 1099 staffing agencies look to minimize their legal exposure, they will find ways to reduce their supervisory control over their workers. This will either leave healthcare facilities with temporary staff that are not properly trained and supervised or, to ensure quality of care, healthcare facilities may need to fill in the supervisory gap, increasing their risk of facing a 1099 misclassification lawsuit.
Virginia Nurse Staffing Agency Ordered to Pay Over $7.2 Million (2022)
A nationwide healthcare staffing agency was found to have misclassified over 1,100 nursing professionals as independent contractors instead of employees over a five-year period, according to a Virginia federal court judgment.
Takeaway: The court’s findings noted that the staffing agency portrayed its workers as employees to certain facility clients, but as contractors to others. This is important because even though a facility arranges for 1099 nurses from a staffing agency, that agency’s relationship with other facilities could have an effect on the overall classification of those workers.
In finding an employee relationship, the court also focused on the training, malpractice insurance, and worker’s compensation that the agency provided to its workers. As these can be indicators of an employee relationship, 1099 staffing agencies may scale them back to limit exposure, leaving facilities on the hook with under-trained and under-insured workers.
Pennsylvania Healthcare Staffing Company Ordered to Pay $9.3 Million (2022)
A federal court in Pennsylvania found that a Philadelphia healthcare staffing company misclassified over 1,700 workers in an effort to willfully deny overtime pay, triggering an additional civil penalty of $700,000. According to the DOL, the 1099 staffing agency in this case was falsely claiming to be a registry through which its facility clients employed workers.
Takeaway: In an effort to limit their legal exposure, 1099 staffing agencies may point to their clients as the actual employers who direct and control the nursing professionals in their workplace. It’s an unpleasant possibility, but one that nursing care facilities should keep in mind.
Is There a Way to Fill Shifts Without Taking on More Liability?
As the risks of 1099 staffing increase with every new enforcement action, nursing care facilities that quickly need workers also need a quick solution. The good news is that one already exists: W-2 staffing.
When facilities partner with companies that hire nursing professionals as employees, not only are facilities insulated from employee misclassification lawsuits, they also get the benefit of a workforce that has all of the training and support that comes with W-2 employment. It’s an ultimate win for everyone involved.
Protect Against a 1099 Misclassification Lawsuit With Our W-2 Nurses
Are you ready to end the constant staffing struggle? As a W-2 staffing partner, IntelyCare is ready to help you fill shifts and minimize your legal exposure.
Legal Disclaimer: This article contains general legal information, but it is not intended to constitute professional legal advice for any particular situation and should not be relied on as professional legal advice. Any references to the law may not be current as laws regularly change through updates in legislation, regulation, and caselaw at the federal and state level. Nothing in this article should be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed to practice in your jurisdiction.