California AG Cracks Down: $10M Judgment for Healthcare Worker Misclassification

The California Attorney General (AG) has recently secured a significant $10 million judgment against a healthcare company for misclassifying in-home care workers as independent contractors. This landmark case serves as a stark reminder of the severe consequences businesses face when they fail to properly classify their workers, denying them essential rights and protections. In California, misclassifying employees as independent contractors is a form of wage theft that affects a significant number of healthcare workers.

The High Cost of Misclassification

Misclassifying employees as independent contractors is a serious issue with far-reaching consequences. According to the California Labor Code Section 226.8, employers who willfully misclassify workers can face civil penalties ranging from $5,000 to $15,000 per violation. In cases where a pattern or practice of misclassification is evident, these penalties can escalate to between $10,000 and $25,000 per violation. Additionally, employers may be liable for 15% of any tax deficiency resulting from the misclassification, especially if the California Employment Development Department (EDD) determines that the misclassification was due to negligence or intentional disregard of reporting and tax requirements.

Beyond financial penalties, misclassification can lead to significant legal and operational disruptions. The state Attorney General, district attorneys, and certain city attorneys are authorized under Section 2786 of the California Labor Code to sue employers for injunctive relief to prevent the continued misclassification of employees.

Understanding Worker Classification in California

California employs a strict “ABC test” to determine whether a worker is an employee or an independent contractor. Under this test, a worker is presumed to be an employee unless the employer can prove all three of the following conditions:

(A) The worker is free from the control and direction of the hiring entity in connection with the performance of services, both under the contract and in fact.
(B) The worker performs work that is outside the usual course of the hiring entity’s business.
(C) The worker is customarily engaged in an independently established trade, occupation, or business.

The healthcare industry often struggles with worker classification due to complex staffing models and the use of temporary or per-diem staff. Many healthcare facilities work with independent nurses, aides, or consultants. However, California’s ABC Test makes it difficult to legally classify a worker as a contractor. Healthcare facilities will most likely be concerned with the first part of the test, which requires a 1099 nurse to be free from any control and direction during the performance of their work.

Why Healthcare Employers Face Greater Compliance Pressure

Healthcare is one of the most regulated industries in California. In addition to medical licensing and patient safety rules, healthcare employers must also navigate labor laws that are more protective of workers than in other states. These laws cover wages, overtime, worker classification, protected leave, and workplace investigations. The nature of healthcare—irregular shifts, contract roles, and high emotional strain—makes compliance even more complex.

The Impact on Healthcare Workers

Misclassification deprives healthcare workers of essential rights and benefits, including:

Minimum Wage and Overtime Pay: Employees are entitled to minimum wage and overtime pay for hours worked beyond 8 in a day or 40 in a week.
Meal and Rest Breaks: California law mandates meal and rest breaks for employees. Nurses who work more than five hours get a 30-minute meal break. It has to start before the end of the fifth hour. Nurses are entitled to a paid 10-minute rest break for every four hours worked (or most of a four-hour shift).
Paid Sick Leave: Employees are guaranteed paid sick leave.
Workers’ Compensation Insurance: Employees are covered by workers’ compensation insurance for work-related injuries.
Unemployment Insurance: Employees are eligible for unemployment insurance benefits if they lose their job.
Protection Against Discrimination and Harassment: Employees are protected from discrimination and harassment in the workplace.
Safe Working Conditions: Nurses in California have the right to a safe work environment, including proper staffing levels, protective equipment, and workplace protections.

What Healthcare Employers Need to Do

To avoid the risk of misclassification and ensure compliance with California labor laws, healthcare employers should take the following steps:

Review Existing Worker Classifications: Conduct a thorough audit of all worker classifications to ensure they comply with the ABC test.
Consult with Legal Counsel: Seek guidance from an experienced employment law attorney to ensure compliance with complex labor laws.
Implement Robust Compliance Programs: Develop and implement comprehensive compliance programs that address worker classification, wage and hour laws, and other labor regulations.
Provide Training to Management: Train managers and supervisors on proper worker classification and labor law compliance.
Stay Up-to-Date on Legal Developments: Keep abreast of changes in California labor laws and regulations.

The Future of Worker Classification in California Healthcare

The California AG’s crackdown on healthcare worker misclassification signals a growing trend of aggressive enforcement of labor laws. Healthcare companies must take proactive steps to ensure compliance and protect the rights of their workers. Failure to do so can result in significant financial penalties, legal disruptions, and reputational damage.

Are You a Misclassified Healthcare Worker?

If you believe you have been misclassified as an independent contractor, it is important to understand your rights and take action to protect them. You may be entitled to recover unpaid wages, benefits, and penalties.

Seek Legal Advice: Consult with an experienced employment law attorney to discuss your situation and explore your legal options.

File a Complaint: You can file a complaint with the California Labor Commissioner’s Office or the Division of Labor Standards Enforcement (DLSE).

Take Action: Don’t wait to assert your rights. Contact an attorney today to discuss your case and learn how you can recover what you are owed.