Key Takeaways
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The Fourth Circuit Court of Appeals provided a detailed analysis of independent contractor classification using the McFeeley “economic realities” test.
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Simply consulting with legal counsel is insufficient to establish a good-faith defense. Employers must provide detailed information to their attorneys and take proactive action based on that advice.
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While the staffing agency’s healthcare clients were not defendants, the ruling serves as a crucial warning: healthcare providers must take proactive steps to reduce the risk of joint-employer liability when contracting professionals.
Fourth Circuit Upholds $9.3M Judgment in Misclassification Case
The U.S. Court of Appeals for the Fourth Circuit recently upheld a $9.3 million judgment against Medical Staffing of America, LLC, doing business as Steadfast Medical Staffing, in a Fair Labor Standards Act (FLSA) enforcement case brought by the U.S. Department of Labor (DOL). The case, Chavez-DeRemer v. Medical Staffing of America, LLC, Nos. 23-2176 and 23-2284 (2025), centered on the misclassification of nurses as independent contractors—a ruling that has major implications for staffing agencies and healthcare providers alike.
Background: How Steadfast Operated
Steadfast maintained a registry of licensed nurses and linked them with client healthcare facilities. Nurses applying to the registry filled out an “application for employment,” where they were referred to as “employees” and Steadfast as the “employer.”
After passing background checks and other screening processes, these nurses signed an “independent contractor” agreement. Notably, this agreement included a 12-month non-compete clause that restricted them from working for competing agencies post-termination.
Once registered, nurses were notified of available shifts, which they could either accept or decline.
Despite labeling the nurses as independent contractors, Steadfast exercised considerable control: it set fixed hourly rates, controlled scheduling, and handled all discipline related to client complaints or policy violations. Clients were contractually barred from disciplining nurses directly and had to report any issues to Steadfast. Additionally, client contracts included a “buyout” clause requiring facilities to pay a fee if they hired a Steadfast nurse directly.
DOL Investigation and Lawsuit
The DOL’s Wage and Hour Division launched an investigation in 2017, concluding that Steadfast had “willfully misclassified” around 1,100 certified nursing professionals. Because of the misclassification, Steadfast failed to pay overtime for hours worked over 40 per week and did not keep accurate time records.
Although the DOL advised Steadfast in 2018 to reclassify the nurses, the agency refused. The DOL sued, leading to a bench trial.
The court ruled the nurses were employees under the FLSA and ordered Steadfast to pay $5 million in back wages. The company’s defense—that it relied on legal counsel in good faith—was rejected. The court found that the consultation with legal counsel was “brief, incomplete,” and initiated only after the DOL’s investigation had already begun. The judge also labeled the contractor classification “objectively unreasonable,” awarding an additional $5 million in liquidated damages.
Fourth Circuit’s Decision: Economic Realities Test
On appeal, a divided panel of the Fourth Circuit affirmed the judgment, applying the six-factor “economic realities” test from McFeeley v. Jackson Street Ent., LLC, 825 F.3d 235 (4th Cir. 2016). The court determined the nurses were employees, based on these factors:
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Degree of control: Although client facilities directed patient care, Steadfast set pay, managed scheduling, and handled disciplinary actions—demonstrating significant control.
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Opportunities for profit or loss: Nurses could not negotiate their pay or assume managerial roles. Their only opportunity to earn more was by working extra hours.
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Investment in equipment or materials: The nurses made minimal to no investment and did not hire others.
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Skill required: While nursing is a skilled profession, this factor was outweighed by the others in a “totality of the circumstances” analysis.
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Permanence of relationship: The ongoing nature of the nurse-agency relationship and the restrictive non-compete clause suggested a lasting relationship.
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Integral part of the business: Steadfast’s business depended on the nurses’ work—a point Steadfast did not dispute.
The court also upheld the award of liquidated damages.
Practical Lessons for Employers
Substance over form: Simply labeling a worker an “independent contractor” does not determine their legal status. Courts assess the actual nature of the working relationship, particularly the degree of control exercised.
Non-compete clauses: Restrictions that prevent workers from seeking similar employment can signal an employment relationship rather than independent contracting.
Good-faith defense: “Merely calling legal counsel is not enough to establish a good-faith defense.” Employers must give their attorneys complete information and act proactively based on that advice—not reactively after a legal issue arises.
Joint-employer risk: While Steadfast’s clients were not named in the suit, this case underscores the importance of choosing compliant staffing partners. Healthcare entities should work with agencies that are diligent about legal compliance and structure contracts with strong indemnification clauses to minimize potential liability.
Final Thoughts
Our DC employment attorneys recommend healthcare staffing firms—and the healthcare providers who rely on them—should take a close look at how they classify workers, the terms of their contracts, and how much control they actually exert. Missteps in classification and compliance can result in significant legal and financial consequences.