by Brittany L. Smith

On May 2, 2018, the U.S. Department of Labor (DOL) filed a complaint against Medical Staffing of America, LLC, (doing business as Steadfast Medical Staffing) and Lisa Ann Pitts (individually and as the owner and officer of Steadfast) asserting violations of the Fair Labor Standards Act (FLSA) for failure to pay overtime wages, improper classification of workers, and failure to maintain adequate and accurate employment records.

In January 2022, the U.S. District Court for the Eastern District of Virginia - applying the “economic realities” test from the U.S. 4th Circuit Court of Appeals (which covers employers in Maryland, North Carolina, South Carolina, Virginia, and West Virginia) - agreed with the DOL and concluded Steadfast and Pitts violated the FLSA and owed back pay and liquidated damages. Steadfast and Pitts appealed the determination to the 4th Circuit on February 2, 2024. With over $9 million dollars at stake, all parties await the appeals court’s decision.

Background

Steadfast was founded in 2015 with the goal of helping nurses achieve more flexibility with higher pay. It uses a roster of nurses to “fill” shift openings from healthcare provider clients. In 2021 and 2022, its roster included over 1,100 nurses.

Steadfast and Pitts classified their nurses as independent contractors. The DOL, however, contends they violated the FLSA by failing to classify the nurses as employees. After what Steadfast and Pitts deem “several years of contentious litigation,” the district court issued a memorandum opinion on January 14, 2022, agreeing with the DOL and concluding that Steadfast’s nurses should be classified as employees. The $9 million dollar “employee vs. independent contractor” debate now rests with 4th Circuit.

District Court’s Order

In determining whether Steadfast’s nurses should be classified as independent contractors or employees under the FLSA, the district court applied the 4th Circuit’s “economic realities test,” examining:

• The nature and degree of Steadfast’s control;
• The nurses’ opportunities for profit or loss;
• The investment of the nurses and Steadfast;
• The skill required for the nurses to complete their work;
• The permanence of the relationship between Steadfast and the nurses; and
• Whether the services rendered by the nurses is an integral part of Steadfast’s business.

The court paid special attention to the first factor - control. According to the court, Steadfast exercises extensive control over the nurses’ work through, among other things, scheduling and assigning work, investing in training and insurance, determining and paying nurses’ hourly rates, and providing supervision and discipline.

After concluding that “virtually all the remaining factors” also weighed in favor of an “employee” classification, the court held that Steadfast and Pitts violated the FLSA by misclassifying the nurses as independent contractors and failing to pay overtime wages. The court further rejected Steadfast’s and Pitts’ “good faith defense,” which is on appeal to the 4th Circuit. Ultimately, the court entered judgment in favor of the DOL for over $9 million dollars in back wages and liquidated damages.

Appeal to the 4th Circuit

On February 2, 2024, Steadfast and Pitts appealed the district court’s January 2022 decision, asserting it made multiple legal errors. They contend the district court’s January 2022 opinion “would likely eliminate independent contracting arrangements in the nursing industry - a dangerous precedent when nurses are in short supply.”

They argue the district court erred in relieving the DOL of its burden of proof and misapplied the “economic realities test,” thus reaching the wrong conclusion on the employee vs. independent contractor question. The DOL disagrees, arguing the district court correctly determined that Steadfast’s nurses were employees, not contractors.

The question of whether Steadfast’s nurses are employees or independent contractors - and the related question of whether Steadfast and Pitts are on the hook for over $9 million dollars in back wages and liquidated damages - is now the 4th Circuit’s to answer. So too, it seems, is the future of “independent contracting arrangements in the nursing industry.”

What Does This Mean for Employers?

The district court’s January 2022 decision and the pending 4th Circuit appeal serve as great reminders that proper classification of workers is vitally important, and misclassification can result in significant and harsh penalties. You need to ensure all workers are classified appropriately under the FLSA. If unsure, you should seek legal advice immediately and ensure consulted attorneys are provided with all pertinent information necessary to make a reasonable determination and offer competent guidance.

Brittany Smith is an attorney with Steptoe & Johnson PLLC in Charleston, W.V. Brittany is a labor and employment lawyer working with clients to be an advisor often before litigation occurs, providing guidance and practical advice for clients as she helps them navigate complex labor issues. She can be reached at (304) 353-8130 or brittany.smith@steptoe-johnson.com.