Court of Appeals Upholds $9.3 Million Award for Nurses Misclassified as Independent Contractors by Healthcare Staffing Agency

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Companies often must determine whether to treat workers as employees or independent contractors.  Workers who are properly classified as independent contractors are not subject to wage and hour laws requiring overtime pay or tax withholding, among other differences between the classifications.  The rules governing how to classify workers under the Fair Labor Standards Act (“FLSA”) frequently change, making this a challenging inquiry for many companies. 

Relevant to this issue, last month, the United States Court of Appeals for the Fourth Circuit upheld a $9.3 million verdict against Steadfast Medical Staffing, a healthcare staffing agency who had misclassified approximately 1100 nurses as independent contractors instead of employees under the FLSA.  The case, Chavez-Deremer v. Med. Staffing of Am., LLC, No. 23-2176 (4th Cir. July 17, 2025), serves as a reminder to companies—especially staffing agencies—to review relationships with their independent contractors to avoid similar consequences.

The Business Model

Steadfast Medical Staffing (“Steadfast”) is a medical staffing services business that supplies licensed nurses to healthcare facilities in Virginia and surrounding states.  Steadfast maintains a “registry” of nurses, and it connects those nurses with work opportunities at its client healthcare facilities.  To qualify for inclusion in Steadfast’s registry, a nurse was required to complete an “application for employment,” and satisfy several pre-hiring requirements for Steadfast, including a background investigation and a drug screening.  Being included in Steadfast’s registry allowed the nurses to be notified of opportunities at Steadfast’s client healthcare facilities. Steadfast provided its nurses with general training on topics such as patient confidentiality, substance abuse, and sexual harassment.

Upon receipt of a staffing request from a client healthcare facility, Steadfast would notify eligible nurses in its registry of an available shift opportunity. Steadfast nurses could then accept or decline the shift opportunity. During their shifts at client healthcare facilities, Steadfast nurses generally performed the tasks of a typical nurse, as directed by a supervising physician.  Steadfast controlled other aspects of the nurses’ workplace conduct, for example, by requiring its nurses to wear identification, consisting of a badge issued by Steadfast and bearing the Steadfast name. Although the nurses’ technical tasks would typically be supervised by the client facility’s physicians, Steadfast promulgated written standards for its nurses’ workplace conduct, including the nurses’ attire, punctuality, and timekeeping. Steadfast requested that its client facilities provide feedback concerning each nurse’s performance, but it was Steadfast that administered sanctions for poor work or disciplinary infractions reported by the client healthcare facilities.

Steadfast dictated its nurses’ hourly pay rates, and it negotiated fixed hourly rates for the work its nurses performed at the client healthcare facilities. In turn, Steadfast would retain a percentage of the hourly rate paid to Steadfast by the client facility. As such, the Steadfast nurses could not directly negotiate their hourly pay rates with the client facilities where they worked. Although Steadfast did not impose hourly requirements on its nurses, Steadfast paid them “straight time pay,” i.e., their regular rates for all hours worked, even overtime hours.  In other words, Steadfast did not pay the nurses one and one-half times their regular rate for overtime hours.

Case Background and Court Decisions

In 2017, the United States Department of Labor (“DOL”) launched an investigation into Steadfast’s practices concerning the nurses, and ultimately concluded that Steadfast was misclassifying its nurses as independent contractors, failing to pay them overtime compensation, and failing to maintain proper records.  Despite being so informed by the DOL, Steadfast failed to reclassify the nurses and continued to treat them as independent contractors. 

In 2018, the DOL filed suit against Steadfast, and a bench trial was held in 2021.  The DOL’s trial evidence focused on whether the nurses were “employees” of Steadfast, as the DOL maintained, or whether they were “independent contractors,” as Steadfast contended. Steadfast also emphasized and pursued a “good faith defense” against the DOL’s misclassification contentions, arguing that its “independent contractor” classification of its nurses — even if erroneous — had been made in good faith. Notably, pursuant to the FLSA, proof of a good faith classification of workers can be an affirmative defense to a liquidated damages award.

The trial court ruled the workers were employees and thus Steadfast was liable for misclassification in an amount over $9 million.  More specifically, Steadfast was held liable for unpaid overtime compensation to its nurses in a sum of almost five million dollars, plus a nearly equal sum of liquidated damages.  Steadfast appealed the order. 

The Fourth Circuit Court of Appeals, which handles appeals from federal district courts in North Carolina, South Carolina, Maryland, Virginia, and West Virginia, then decided the case on appeal. 

As to whether the workers were employees or independent contractors, the Fourth Circuit assessed the district court’s ruling under the six-factor “economic realities” test from McFeeley v. Jackson Street Ent., LLC, 825 F.3d 235 (4th Cir. 2016), factors and agreed with the trial court’s findings.  The key factors considered by the Fourth Circuit, and the court’s related findings include the following:

1. Degree of control the putative employer has over the manner in which the work is performed: While the client healthcare facilities oversaw the nurses’ patient care tasks, Steadfast exercised extensive control over scheduling the nurses’ shifts, their pay rates, and handled performance reviews and discipline.
2. Worker’s opportunities for profit or loss dependent on his managerial skill: The nurses had no opportunity for profit or loss in their relationship with Steadfast because they could not negotiate their rates or take on managerial opportunities.
3. Worker’s investment in equipment or material: The nurses made very minimal relative investments in equipment or materials needed for the working environment.
4. Degree of skill required for the work: The nurses were highly-skilled workers, but this factor was outweighed by the fact that the nurses were dependent on Steadfast for shift opportunities.
5. Permanence of the working relationship: The nurses’ ongoing relationship with Steadfast suggested permanence.
6. Degree to which the services are an integral part of the putative employer’s business: Steadfast did not contest that the nurses’ work was integral to its business.

In short, the Fourth Circuit agreed with the trial court that all factors except one (the nurses’ degree of skill) weighed in favor the nurses being properly classified as employees of Steadfast.  The court also rejected Steadfast’s reliance on the good faith defense and thus affirmed the liquidated damages awarding, finding that Steadfast did not take serious and informed steps to adhere to the FLSA’s requirements.  Despite the fact that Steadfast had consulted with legal counsel about the nurses’ classification, Steadfast had failed to provide legal counsel with some relevant facts about its business operations and ultimately ignored some aspects of legal counsel’s advice.

Takeaways for Employers 

Companies may wish to review their relationship with independent contractors under the factors considered by the Fourth Circuit in this case.  Some lessons to learn from the case are as follows:

• Merely labeling workers as “independent contractors” is not dispositive. Courts look at specific details of working relationships, including the degree of control exercised by the company.
• Companies should not plan to rely on the good faith defense simply because they have consulted with legal counsel. Employers must provide counsel with full information and take legal counsel’s advice seriously and act on it proactively.

If you would like additional information on the latest guidance regarding proper classification of workers or any related FLSA issues, please contact the Maynard Nexsen labor and employment law group.