Company to Pay $9.3M to Settle Employee Misclassification Lawsuit

On September 26th, 2022, the U.S. Department of Labor (DOL) obtained a consent judgment ordering a Philadelphia, Pennsylvania, medical staffing company to pay $9.3 million to settle an employee misclassification lawsuit. The judgment followed a DOL investigation that found willful overtime violations occurred from at least September 2017 to May 2022. After months of negotiation with the DOL’s Office of the Solicitor, the company agreed to the complaint’s filing and the judgment. Earlier this summer, a company paid $370 thousand in back wages for similar overtime violations.

Background of the Employee Misclassification Lawsuit

According to the DOL’s investigation, the staffing company willfully misclassified 1,756 of its employees, denying them overtime pay. In some cases, the company falsely claimed to be a registry through which clients employed the workers. While in other cases, the company outright misclassified its employees as independent contractors. In the end, the company paid its employees straight time for all hours worked, including those worked over 40 a week, rather than the required overtime pay rate.

Employee Misclassification Under the FLSA

As the nation’s primary wage law, and one of the most crucial employment laws all businesses need to know, the Fair Labor Standards Act (FLSA) provides a minimum wage and overtime protections for virtually all U.S. workers. In brief, the FLSA requires private sector and government employers to pay a federal minimum wage of not less than $7.25 an hour and an overtime pay rate of one and one-half the regular pay rate during hours worked over 40 a week. However, some employers illegally and inaccurately treat their workers as independent contractors to avoid paying required overtime. What’s more, this illegal employee misclassification denies employees benefits and protections to which they are legally entitled. It’s worth noting that employee misclassification is illegal even if the employee agrees to the erroneous classification. Independent contractors differ from employees in that they:

• control their own workload or run their own business,
• provide for their own materials,
• work with multiple clients, and
• deal with temporary client relationships.

Penalties for Employee Misclassification and Overtime Violation

In U.S. Department of Labor v. U.S. Medical Staffing, Inc., the U.S. District Court for the Eastern District of Pennsylvania ordered the staffing company to pay $4,650,000 in back wages and an equal amount in liquidated damages. In addition, the company will pay $700,000 in civil money penalties for the willful nature of its overtime violations.

Worker Misclassification Prevention eLearning Module

According to the DOL, as many as 30% of all independent contractors are misclassified. Employers that make this error violate the FLSA and are subject to lawsuits, tax penalties, and other monetary penalties. o help businesses demonstrate good-faith compliance with the FLSA and to avoid employee misclassification, Personnel Concepts created the Worker/Contractor Misclassification Prevention Compliance Guide. This training module helps employers understand proper worker classification under federal employment laws and includes digital resources like our independent contractor classification checklist to use when verifying the status of workers.