Labor Department Is Cracking Down on Providers’ Use of 1099 Contractors, Lawyer Warns

Before healthcare providers onboard workers sourced from staffing agencies, they should make sure these laborers are hired as W-2 employees rather than 1099 independent contractors, one lawyer recently warned. The Department of Labor is increasing its efforts to ensure healthcare facilities are complying with the law as it pertains to contract labor and overtime pay.

As healthcare organizations continue to battle major workforce shortages, many are turning to labor from staffing agencies. But before healthcare providers onboard workers sourced from these agencies, they should make sure these laborers are hired as W-2 employees rather than 1099 independent contractors, said Dane Steffenson, founder and managing partner at Dane Law, in a recent interview. 

Steffenson was a trial attorney at the Department of Labor for nearly 20 years — he has litigated more than 250 cases, many with damages exceeding a million dollars. Now practicing at Dane Law, he is keeping a close eye on the Department of Labor’s efforts to ensure healthcare providers are complying with the law as it pertains to contract labor and overtime pay. 

In January alone, the Department of Labor announced nine settlements against healthcare sites and/or staffing agencies as a result of overtime violations, Steffenson stated. Five of those involved nurses who were misclassified as 1099 contractors, and this represents only a percentage of the settlement the department gathered that month, as not all cases result in a press release.

When people think of 1099 contractors, they usually picture rideshare drivers or food delivery couriers. But in reality, many healthcare personnel working in nursing homes and hospitals are 1099 contractors as well. The Fair Labor Standards Act treats 1099 contractors as self-employed people, not employees of a company. Because of this, federal minimum wage and overtime requirements don’t apply to 1099 contractors — they’re ineligible for getting compensated for working over 40 hours in their work week.

Healthcare organizations across the country are utilizing staffing agencies such as Clipboard Health, ShiftKey, CareRev and Kare that classify their workers as 1099 independent contractors. But bringing on a nurse or other healthcare worker as a 1099 contractor instead of a W-2 employee is a gross misclassification in Steffenson’s view.

Being an independent contractor means that you’re your own boss, he pointed out. But healthcare is a highly regulated field — any nurse walking into a new healthcare site will have a slew of new rules and protocols to follow. 

“Other than maybe a nuclear facility, it’s hard to walk into an employer’s physical location and not be more highly regulated than you are in healthcare. It would be nearly impossible to say these employees are not actually employees in places where they work,” Steffenson declared. “I think it’s very difficult to have a person working in a healthcare facility and not have them be a W-2 worker. That facility is facing liability if they choose to do that.”

Healthcare providers using staffing agencies that provide 1099 contract laborers are being sued by the Department of Labor and plaintiff attorneys for unpaid overtime. Many of these staffing agencies are not paying healthcare workers for the overtime hours they have worked, and the healthcare facilities they work at are easily alleged to be liable as a joint employer, Steffenson said.

For example, the Department of Labor recently sued Comprehensive Healthcare Management Services (CHMS), a Pennsylvania-based operator of skilled nursing facilities, for an alleged $19 million owed as a result of unpaid overtime, he pointed out.

A large number of CHMS’ workers came from Clipboard and other agencies providing 1099 workers, he said. Because these agencies classify their workers as independent contractors, the workers did not receive overtime — even though many of them were working more than 70 hours per week, the suit alleged. 

The Department of Labor has not yet sued Clipboard — it is instead seeking to hold CHMS liable for all unpaid overtime hours these laborers worked at the companies’ multiple facilities. But Steffenson did note that he is aware of an open investigation into Clipboard that the department is pursuing.

“Clipboard actually has the facilities indemnifying it, which is crazy,” he declared. “Clipboard does mince words — it’s public that it hires 1099 nurses, and it’s not trying to hide that fact. So then it provides these workers to facilities, and if the facility is sued or Clipboard is sued because the facility worked these workers too many hours and Clipboard didn’t pay them overtime, the agreement says the facility is going to indemnify Clipboard.”

Clipboard did not respond to requests for comment.

The CHMS lawsuit is one of a few that have emerged in the past couple years pertaining to healthcare facilities’ failure to pay 1099 contractors for overtime, Steffenson said. The Department of Labor has long held the view that healthcare providers are joint employers of the nurses they bring on from staffing agencies (with the agency being the other joint employer), he pointed out. 

In the past, Steffenson said he had worked on cases like this where the staffing agency was sued for misclassifying healthcare workers as 1099 contractors. But now there are “more and more cases” where individual facilities are being sued — either as the sole defendant or along with the agency.

Because of this, healthcare providers need to be wary about the staffing agencies with which they do business, Steffenson recommended.

“There are some [healthcare providers] that just don’t appreciate that they are a joint employer with the agency —they truly just think the staffing agency has done what they need to do to hire independent contractors properly and they’re all okay. But they’re not okay,” he said.

To be compliant, Steffenson suggested that healthcare facilities partner with agencies that let them adopt workers as W-2 employees, such as ShiftMed, ConnectRN and IntelyCare. He said he has no financial ties to these companies.

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