Court Says Licensed Practical Nurses and Home Health Aides Are Employees, Not Independent Contractors: Your 5-Step Compliance Plan
A Pennsylvania federal court just found that a Philadelphia-area home health company misclassified its licensed professional nurses (LPNs) and home health aides (HHAs) as independent contractors, potentially putting the company on the hook for millions of dollars in back wages, liquidated damages, and civil penalties under the Fair Labor Standards Act (FLSA). The February 13 decision in Secretary of Labor v. Amazing Care Home Healthcare Services highlights the risks employers face when classifying workers as independent contractors, rather than employees. Getting this classification decision wrong can lead to serious consequences, so your company should consider this five-step compliance plan to mitigate your risk.
The Decision
The DOL sued Amazing Care, its owner, and its Director of Nursing for failing to pay LPNs and HHAs overtime under the FLSA. While the Trump administration has dialed back the more employee-friendly position that the Biden DOL took on this issue, this decision shows that employers must still be cognizant of contractor classification issues. And it further demonstrates that the federal government is still bringing enforcement actions in the independent contractor space.
At various times, Amazing Care had classified and reclassified the LPNs and HHAs as both independent contractors and employees. The company did not pay these workers time and a half for overtime hours worked. In the lawsuit, the company admitted it misclassified the HHAs but maintained that the LPNs were correctly classified as independent contractors, and thus not entitled to overtime.
Federal District Court Judge Timothy J. Savage disagreed, ruling that the LPNs were employees, not independent contractors, who were therefore required to be paid overtime pay. The company, its owner, and its Director of Nursing, now face a trial to determine whether they failed to pay their misclassified employees any FLSA-required overtime.
How the Economic Reality Test Looks in Practice
The court in Amazing Care used the traditional six-factor “economic realities” test to determine that the LPNs were employees.
When employers are trying to determine whether a worker is an independent contractor or employee, no single factor in the working relationship is dispositive. The economic realities analyzes whether the worker is in business for themselves (and is an independent contractor) or economically dependent on the hiring entity (and is an employee).
Here’s how the court in Amazing Care analyzed the six factors, and how this analysis may be relevant to your business:
- Control Over the Work – The court found that the company exercised significant control over LPNs because it set their pay rates, reviewed their attendance, dictated detailed patient care plans that the workers had to follow, and evaluated their performance.
- Takeaway for your company: Does your company maintain significant control over the workers’ schedules, tasks, and performance, including approval of work and restrictions on outside employment? These facts would weigh against independent contractor status.
- Opportunity for Profit or Loss – The court was not persuaded by the workers’ ability to decline assignments from the company, to work for other businesses, or to request higher rates for more difficult jobs. Instead, the court found the company set the workers’ hourly wages and dictated case assignments. Therefore, the court concluded that the workers had little ability to use their own managerial skill to impact their profit or loss.
- Takeaway for your company: Are your workers paid a fixed, non-negotiable rates with no ability to increase earnings through initiative or managerial skill? If their pay is tied solely to your company’s pay structure and not the worker’s business acumen, this factor can support employee status.
- Investment in Equipment or Materials – Amazing Care’s LPNs were required to supply their own protective equipment and medical supplies, which the court found weighed against employee status for the LPNs.
- Takeaway for your company: Does your company provide necessary tools for workers to perform their job? If so, that fact points in the direction of employee status. However, if the workers provide their own equipment and supplies, this will be a factor that points to independent contractor status.
- Skill Required – Although the LPNs in the Amazing Care case had significant specialized training, the court found that the company dictated detailed patient care plans that the LPNs were required to follow. Limiting their independent discretion and judgment, the court found, weighed against independent contractor status.
- Takeaway for your company: Even where workers have a significant amount of specialized skill, if the company dictates the manner in which they perform their work, this factor could weigh in favor of employee status.
- Permanency of the Relationship – Although Amazing Care’s LPNs could, in theory, work for other companies, only about 10% did so. Most of the LPNs worked continuously for the company (including for long periods of time). The court held that this weighed against independent contractor status.
- Takeaway for your company: Are your workers continuously engaged to work for your company for extended periods of time? If so, this factor can support employee status. Also consider whether the worker solely works for your company, or if the worker is free to—and actually does—work for multiple entities.
- Integral Part of the Business – The court found that the LPN’s services – providing in-home healthcare – was integral to the company’s business.
- Takeaway for your company: Are the services that the workers perform central to goods or services that your company provides to is customers? If so, this factor weighs in favor of employee status.
Your 5-Step Compliance Plan
This court decision highlights the risks employee misclassification can create for businesses. Under the FLSA, employers, including individuals who manage the workers, can be held liable for unpaid wages and liquidated damages. The U.S. Department of Labor can also seek civil money penalties for certain violations. Here is a five-step compliance plan to mitigate these risks:
1. Audit Independent Contractor Agreements and Relationships
Review current independent contractor relationships to evaluate whether the workers are economically dependent on the business. Ensure your written agreements accurately reflect the actual economic realities where workers are actually economically dependent on the company.
2. Assess the Degree of Control
Assess the degree of control exercised over your contractors, including scheduling, assigning work, supervision, and setting pay rates. A rigid work schedule and strict work assignments could indicate potential misclassification issues.
3. Identify Opportunities for Profit or Loss
Evaluate your pay structures to determine whether workers have genuine opportunities for profit or loss. This means more than just working longer hours. If your contractors are being paid a flat day rate or hourly rate, your most skilled contractors will not have an opportunity for increased profits based on their skill and judgment, supporting a finding of employee status.
4. Identify Your Core Business
Identify whether core business functions are being performed by contractors. As the decision in the Amazing Care case shows, outsourcing roles integral to the company’s services may point in favor of employee status.
5. Consult with Your Employment Counsel
Consult with your employment counsel before entering new independent contractor relationships or modifying existing arrangements to ensure compliance with the latest case law and requirements under the FLSA.
Conclusion
We will continue to monitor developments related to all aspects of wage and hour law. Make sure you are subscribed to Fisher Phillips’ Insight System to get the most up-to-date information. If you have questions, contact your Fisher Phillips attorney, the authors of this Insight, or any member of our Wage and Hour Team.
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