One of the more substantial mistakes a business can make is to misclassify employees as independent contractors. An employee whose employer erroneously labels them as an independent contractor may be denied health care insurance coverage, family leave, and unemployment protection. They may also be deprived of the right to receive a minimum wage and overtime compensation. The employer that makes this mistake runs the risk of paying thousands — or millions — in a civil action. In short, both employers and employees have reasons to want to “get it right” when it comes to correct classification, and getting advice from a knowledgeable Atlanta wage and hour lawyer can be crucial to achieving this objective.
A federal case that started in Virginia provides an example of how costly misclassification can be. The employer was a Virginia-based medical staffing company that provided nurses to healthcare facilities in that state and the surrounding areas. The workers were a group of nurses, nurse practitioners, and nursing assistants.
To receive assignments from the company, the entity required candidates to fill out an “application for employment.” That document identified the nurse as an “employee” and the company as the “employer.” If the nurse successfully completed the employment application process, they ultimately signed an “independent contractor agreement,” which included a 12-month non-compete clause.
The company controlled many aspects of the nurses’ work. If a nurse wanted time off or needed to take an absence due to illness, they contacted the company, not the facility where they worked.
The company also provided its nurses with “written standards for… workplace conduct, including the nurses’ attire, punctuality, and timekeeping.” Failure to meet these standards could lead to discipline… not by the facility but by the company. It also handled discipline when a facility found one of its nurses had performed poorly or violated the facility’s disciplinary rules.
Nurses could not negotiate their rates of pay as the company unilaterally set those.
Ultimately, these practices led the U.S. Department of Labor to sue the company for Fair Labor Standards Act violations. The trial court sided with the department, concluding that the business’s 1,100-plus nurses were employees and the employer owed more than $9 million as a result of the misclassification.
Earlier this month, the federal court of appeals for the 4th Circuit upheld the judgment. When making an employee-versus-independent-contractor determination, courts must rely upon several factors, including:
- The degree of the employer’s control over the work performed
- The worker’s opportunity for profit or loss (based on the worker’s skill)
- The worker’s investment in equipment, materials, or employment of others
- The degree of skill used
- The permanence of the working relationship
- The degree to which the services provided are integral to the business.
The Employer Maintained Control
While no one factor is more important than any other, two weighed heavily in favor of deeming the nurses to be employees. As the courts pointed out, the company held a high level of control over the nurses. It controlled their schedules, their pay rates, their methods of communication, and their timesheets. It oversaw their discipline and performance reviews, and it provided them with training. All of these things weighed in favor of finding that the company had the sort of tight control that indicated the presence of an employer-employee relationship.
Additionally, the courts agreed that the second factor tilted toward finding the existence of an employer-employee relationship. The company set the nurses’ schedules, including the number of hours, and it set their rates of pay. The nurses did not share in the company’s profits. The nurses had no opportunity to increase their incomes except by working more hours. This evidence weighed heavily against a finding that the nurses were independent contractors.
Furthermore, the presence of the non-compete clause in the nurses’ contracts also weighed against the company’s case, as it was also a hallmark of an employer-employee relationship.
In the end, the company’s misclassification of nurses stands to cost it nearly eight figures, which is a powerful reminder of how expensive these errors can be.
If you have a potential employee-versus-independent-contractor issue or otherwise have questions related to this topic, it is vital to get knowledgeable advice and answers. The experienced Atlanta wage and hour attorneys at Parks, Chesin & Walbert have helped numerous clients navigate this often complex area that frequently confuses employers and employees alike. Contact us through this website or at 404-873-8048 to schedule a consultation today.