With the proliferation of app technology that can seamlessly link companies to workers and customers, more businesses than ever are reliant on the gig economy. In simple terms, this means that rather than hire full-time permanent employees, companies are outsourcing temporary and part-time positions filled by independent contractors and freelancers.
While this has advantages, gig businesses are vulnerable to attack and legal challenges alleging they are skirting the law by avoiding treating their workers as employees.
Uber, Lyft, DoorDash, and Instacart are prime examples. For the past several years, these companies have been under attack in state capitols and courthouses, accused of skirting labor laws and misclassifying workers to avoid paying employee benefits such as overtime, health insurance, paid sick leave, and unemployment insurance.
Most recently, a California court of appeals overturned a lower court and upheld a voter-approved law called Proposition 22 that expressly stated that app-based ride-hail and delivery companies do not have to treat their drivers as employees.
But this was a narrow ruling – not an umbrella decision for all gig businesses in other sectors. So, it would be a serious mistake to assume your gig business can operate without the threat of legal action – especially if you are in the healthcare industry.
In the past few years, venture capitalists have invested hundreds of millions of dollars in healthcare staffing apps such as Kare, Clipboard, ShiftKey, IntelyCare, Nursa, and CareRev. These companies have downloadable apps that allow healthcare workers and healthcare facilities to upload their information, documents, and job requirements.
Like the Uber, Lyft, Tinder, or Hinge apps, the individuals on each side of the healthcare app swipe left or right until they find a facility and shift combination that is a good match.
The potential legal problems arise because there are two types of healthcare staffing apps: those that provide 1099 workers and those that hire W-2 employees. While the latter group is eligible for various benefits and protections such as overtime, unemployment insurance, and workers’ compensation, independent contractors are not.
In the past few years, the California Labor Commissioner and the US Department of Labor have been coming down on staffing agencies and businesses that misclassify workers as 1099 contractors.
In the past few weeks, investigators with the US Department of Labor announced more than a dozen misclassification and overtime violation cases from El Paso and Jacksonville to Salinas and New York City. Penalties ranged from $10,000 to $1.1 million per case – or about $400,000 on average. How many small businesses can afford that?
In California, healthcare app-based staffing company CareRev was sued for misclassifying workers who signed up on the app as contractors. In September 2022, the California Labor Commissioner announced a nearly $2 million citation of healthcare placement agencies in Southern California.
According to the Department of Labor data, there were more than 1,000 healthcare wage theft cases in 2022, with $14,994,106 recovered. Overtime violations and worker misclassifications come with significant costs.
In my time with the Small Business Administration, I saw the challenges small businesses have and the threat of liability and lawsuits. The next wave is misclassification cases where not only the staffing agency was held liable, but a joint employer classification was established. In other words, the facility, and the hiring entity, also became financially responsible. Such exposure could quickly put a nursing home or other healthcare facility out of business.
In California, labor laws are much more stringent. So it is difficult to see how healthcare workers in hospitals, nursing homes, or other long-term care facilities can be independent contractors.
The healthcare workers who work at the facility if often given a coat or facility uniform and identifying badge, and they are required to follow a set schedule for patient care. They use the same computers or iPads as the full-time staff to check medical records and clock in and out. True independent contractors are not subject to these requirements.
As the healthcare gig economy continues to grow, with many companies leveraging the talent pool, a misclassification creates a goldmine for the legal profession.
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