Misclassification of Independent Contractors Gains Attention in Home Care
August 14, 2015 09:54 AM
Recently, the US Department of Labor (DOL) implemented a project to reduce the improper classifications of employees as “independent contractors” in all types of workplaces (see more here). The DOL Misclassification Initiative involves an education campaign, clarified guidance, and collaborative efforts with state labor departments. The DOL concern with misclassifications is related to the impact on workers under the Fair Labor Standards Act (FLSA) protections for minimum wage and overtime compensation. Over the years, DOL has raised concerns about misclassifications in home care. Now, a federal court ruling against a home care registry highlights the risks of misclassifications in home care.
On July 30, 2015, the U.S. District Court for the Northern District of Florida issued an order finding that a home care registry, operating under Florida registry licensure, improperly classified a Certified Nursing Assistant (CNA) worker as an independent contractor. The court applied the “economic-reality” test applicable under the FLSA in reaching its decision. The economic-reality test is different than the standards applied by other federal and state agencies. As a result, a worker may be classified properly as an independent contractor under the IRS 20-factor control test, while the same worker may be considered an employee under the FLSA economic-reality test.
In a July 15, 2015 guidance issued by DOL, Administrator’s Interpretation 2015-1, DOL sets out the factors considered under the FLSA test (see more here). These factors include:
Is the work an integral part of the employer’s business?
Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
How does the worker’s relative investment compare to the employer’s investment?
Does the work performed require special skill and initiative?
Is the relationship between the worker and the employer permanent or indefinite?
What is the nature and degree of the employer’s control?
The court in the Florida case applied these same factors in reaching a finding that the CNA was the registry’s employee rather than an independent contractor. In that matter, the CNA could refuse work assignments without consequence and was not required to work a minimum number of hours or days. However, the CNA was paid by the hour with the rate dependent upon the registry’s contract with the referring government agency. The CNA was required to keep a record of time work and compensation was withheld in the absence of timesheet submission. The CNA was also subject to “persistent oversight” by the registry in the form of customer satisfaction surveys, supervisory visits, and incident reports. The registry also imposed a non-compete agreement limiting the CAN’s ability to work elsewhere. Certain worker standards also were imposed including appearance, conduct, and secondary employment. All worker functions were specified in detail. The court found that the registry exercised a significant degree of control over the CNA.
With respect to the other elements of the economic reality test, the court had mixed findings. It found that the CNA had no real opportunity for realized profit or loss as the registry controlled work assignments and compensation. There was no significant investment in equipment or materials by either party, so the court concluded that the “scales” were not tipped toward either employee or contractor status. The CNA skill requirements weighed in favor of contractor status because that was under the control of the worker. With respect to permanency and duration, the court concluded that the fact that the CNA worked with the registry for seven years, often working over 40 hour weeks favored employee status. Given that the registry was in the business of home care, the work performed by a CNA was considered an integral part of the registry’s business thereby weighing in favor of employee status.
Overall, the court found that the relevant factors under the economic reality test results in an employee classification. Under the FLSA, the misclassification of workers as independent contractors can trigger significant liabilities including damages double the amount of compensation that would be due as an employee plus attorney’s fees and costs. While the Florida litigation is not completed, it is a lesson for other home care companies as to the risks taken in worker classification as an independent contractor. These are fact-dependent matters where small factual variations can lead to different conclusions.
Home care companies utilizing independent contractors are advised to rely on competent legal counsel when determining proper worker classifications. It is readily apparent that the federal and state labor departments are taking a special interest in home care on a variety of FLSA issues, including worker misclassification. These government entities have enforcement authority to prosecute cases on their own. However, they are joined by private attorneys that specialize in these types of cases and often prosecute them on behalf of a large class of workers against a single employer. Those private attorneys also have home care on their radar.