Fourth Circuit Upholds $9M Ruling in Nurse Misclassification Case

by Anna D’Agostino and Lily Holland

In a 2-1 decision on Thursday, July 17, 2025, the Fourth Circuit upheld a $9 million judgment against the medical staffing firm Steadfast Medical Staffing (“Steadfast”) for misclassifying more than 1,100 travel nurses as independent contractors, denying them benefits such as overtime pay as a result.  The lawsuit is the result of a 2017 investigation by the Department of Labor (“DOL”) which concluded that the nurses should have been classified as employees under the Fair Labor Standards Act.  When Steadfast refused to reclassify the nurses and pay them the overtime compensation they were owed, the DOL filed suit.

This case is expected to shape the way healthcare providers classify their workers, as it focuses on labor classification standards specifically relating to the healthcare field and nurse misclassification.

The Economic Realities Test

To evaluate the nurses’ employee status, the Fourth Circuit looked to the six McFeely factors established in the court’s 2016 ruling in McFeely v. Jackson Street Entertainment, LLC. These factors, which are similar to the DOL’s “economic reality” test are:

1.  the degree of control by the employer over the work performed;
2.  the worker’s opportunity for profit or loss dependent upon the worker’s skill;
3.  the worker’s investment in equipment, materials, or employment of others;
4.  the degree of skill used;
5.  the permanence of the working relationship; and
6.  the degree to which the services provided are integral to the business.

While no single factor is dispositive, the Court concluded that the balance of the evidence weighed in favor of employee status for the nurses.  Specifically, the Court looked to the control Steadfast had over the nurses’ rate of pay, schedules, communication methods and performance reviews, ultimately concluding that Steadfast exercised a level of control over the nurses indicative of an employee-employer relationship.  The Court further noted that a noncompete clause in the nurses’ employment agreement, which barred them from working elsewhere, also directly pointed to employment classification—not an independent contractor relationship.

Employee vs. Independent Contractor: Key Differences for Nurses

Ensuring you have been properly classified is essential to receiving the benefits to which you may be entitled.  Employee and independent contractor status offer different pros and cons to workers, making different classifications more appropriate and desirable in different situations.

Although the legal test for employee status differs from state to state, generally speaking, independent contractor nurses have more autonomy over their own work schedule, earnings, and performance.  Employee nurses typically have less influence over their schedules and rate of pay, but they enjoy more stability and benefits such as paid time off, overtime pay, and health insurance.

In addition to flexibility and access to benefits, being classified as an employee or an independent contractor also impacts an individual’s legal rights and tax obligations. Despite the many limitations on employees’ autonomy, their employers must take on more of their liabilities and taxes.  For instance, employers must allow their employees to take leave pursuant to the Family and Medical Leave Act or state-specific paid leave laws. Independent contractors, while enjoying more control and flexibility in their work life, carry more financial burdens without employer assistance, such as Social Security, taxes, and insurance.

Employer Liability in Misclassification Cases

Employers found to have misclassified employees can be made to pay backpay resulting from unpaid overtime or insufficient wages, as well as liquidated damages. In the aftermath of this case, employers and staffing agencies, especially in the healthcare sector, should reconsider their employee classification structures to ensure they comply with applicable laws and legal tests to avoid liability for wage and hour violations. Employers in the Fourth Circuit (Maryland, West Virginia, Virginia, North Carolina, and South Carolina) may want to consider reviewing their classifications against the economic realities test to determine degree of control, relationship permanency, and other areas the Steadfast court found important.

Why Nurses Should Monitor Their Classification Status

Nurses should do their best to always be aware of their employment classification status, as it is the basis for their payment, work schedule, and labor rights in the workplace. Knowing your employment status helps determine how much support you will have or what kind of support you will need to seek out in the event of an incident or malpractice at work. A possible misclassification should be addressed quickly, as it affects your pay, benefits, and job stability.

Miller Shah LLP tracks legal developments in healthcare staffing, misclassification, and wage and hour litigation—areas with growing legal exposure under the Fair Labor Standards Act and state-specific statutes. If you believe you may be misclassified as an independent contractor, visit millershah.com and submit an inquiry.