California lawsuits shed light on workers misclassification in the healthcare industry

Amy Dellinger

By Amy Dellinger

As a human resources specialist, I have been closely observing the significant investment in healthcare staffing apps and the growing number of labor lawsuits in California related to worker misclassification over the past few months.

Working for yourself, setting your hours, and choosing your gigs seem like a dream. In the healthcare industry, where there's a tremendous shortage of workers, many professionals turn to healthcare staffing apps to fill the gaps. However, being classified as an independent contractor within these apps can be costly.

In California and many other states, it's increasingly difficult to be classified as an independent contractor in healthcare. Yet, some healthcare staffing apps categorize workers as independent contractors while others as W-2 employees. This has led to a conflict between individuals and apps, as Labor Commissioners and State Attorney Generals have begun filing lawsuits to enforce compliance.

Under California law, a worker is presumed to be an employee unless they meet all three of the following criteria:

• The person is free from the control and direction of the hiring entity in connection with the performance of services; and

• The person performs work outside the usual course of the business, the hiring entity's business; and

• The person is customarily engaged in an independently established trade, occupation, or business.

Healthcare providers operate under strict protocols, adhere to patient schedules, and control access to facilities and departments and sensitive and confidential information, such as patient records, medical histories, and insurance information. The healthcare facility provides access and ensures workers follow the schedules, rules, and guidelines.

The Cost of Being On Your Own

The rosy outlook of “being your own boss" often clashes with the reality that independent contractors are responsible for handling their taxes, health insurance, liability coverage, and other costs. This financial burden has left some healthcare workers struggling with tax debt and financial instability.

In contrast, W-2 employees enjoy benefits such as workers' compensation, unemployment insurance, and social security contributions. They also have support and protection for work-related injuries.

The Growing Worker Misclassification Lawsuits

California Attorney General Rob Bonta recently “filed a lawsuit in Superior Court of California, Los Angeles County, against Care Specialist HCS Inc., accusing the company and its operators of misclassifying in-home care workers as independent contractors instead of employees in direct violation of California’s labor laws and Unfair Competition Law.” The lawsuit alleges that Care Specialist HCS Inc. “[misclassified] hundreds of workers resulted in extensive wage theft and caused workers to be denied basic workplace protections such as a minimum wage, overtime pay, meal breaks and rest periods, paid sick leave, and workers’ compensation benefits, among other benefits.”

In 2022, the California Labor Commissioner’s Office cited home healthcare placement agencies $1.8 million for misclassifying 66 workers. In the same year, healthcare app-based staffing company CareRev was sued for misclassifying workers who signed up on the app as independent contractors.

Nationally, the US Department of Labor (DOL) established a “nationwide effort by its Wage and Hour Division focused on improving compliance by residential care, nursing facilities, home health services.” In Pennsylvania, the Labor Department recently sued a Pennsylvania-based operator of nursing facilities for $19 million in unpaid overtime.

Balancing Freedom, Flexibility, and The Rule of Law

While the freedom and flexibility may be enticing, it is crucial to consider the financial responsibilities and potential risks associated with an independent contractor classification.

As a human resources specialist, I can attest to the importance of thoroughly understanding labor laws to avoid potential legal issues and costly consequences. Misclassifying workers can have significant financial implications for individuals, healthcare facilities, and staffing apps.

Amy Dellinger serves as a human resources specialist in California.