‘The Biggest Risk’: Inside the Litigation Pitfalls for SNF Operators Employing 1099 Workers

As nursing home staffing agencies popped up amid the pandemic’s exacerbated staffing crisis, so too have litigation pitfalls for operators eager to fill shifts as the staffing crisis continues.

One such pitfall that is expected to become a huge issue for operators is related to bringing 1099 workers, or independent contractors, for clinical positions into facilities, executives said.

In the past, 1099 workers in the SNF space were typically high-level clinical professionals, registered nurses (RNs) working in a supervisory capacity and qualified to make decisions on their own. Due to the labor shortage driven by the pandemic, nursing homes began using independent contractors in a variety of areas and with less specialized skill sets.


Today, they form almost 25% of the workforce, according to data from the Bureau of Labor Statistics. This increase in independent contractors, especially in the ranks of clinical 1099 workers, brings on more liability upon nursing homes. Part of the reason stems from facilities not being able to train 1099 workers due to legal ramifications. 

And yet, facilities – and staffing agencies that provide them – can still be held legally responsible for the incompetence of 1099 workers, as a number of lawsuits show. All in all, greater staffing agency use has meant more 1099 workers and more headaches for SNFs, and has resulted in congressional action as well.

“The whole health care staffing industry, up until recently, has been almost entirely W2,” said David Coppins, CEO for IntelyCare, which provides a health care staffing management platform. In other words, these clinical people are employed by the staffing agency


IntelyCare is a staffing agency as well, but they follow a W2 model, he said.

Independent contractors, or 1099 workers, must be able to decide when they want to go to work, if they want to work, and they can’t be under supervision of anyone while at a facility, Coppins said.

“In other words, they need to be their own business,” said Coppins. “Theoretically, they’ve got their own business license, they have their own workers’ [compensation] … they’ve really taken care of being in a business. They negotiate, in theory, with the company and they have the ability to operate on their own.”

Eric Su, partner at law firm Crowell & Moring as part of its Labor & Employment Group, said the trouble for operators could start when these 1099 nurses file for unemployment insurance, triggering an independent contractor investigation by the Department of Labor (DOL).

In terms of any litigation having to do with wage and hour law, or discrimination laws, DOL looks at instances of control over the 1099 worker, Su said.

“The one who is controlling the work – when to report, where the report to, how long your hours are going to be, where you’re going to, what you need to do – they could potentially be deemed as an employer for purposes of determining liability, and sharing or inheriting liability,” said Su.

Already, 1099 worker misclassification has caught the attention of Congress and the DOL with webinars and re-introduced legislation on the matter.

Prior to the pandemic, less than 1% of staff were from agencies, including both W2 contingent workers and 1099 workers, Coppins added. 

Su added that mid-level 1099 clinical staff are far more likely in areas without union representation. Unionized facilities still contract 1099 workers, but they’re in more supervisory positions, he said.

Facilities wouldn’t have taken that risk prior to the pandemic, Coppins said, but operators were so desperate at the height of Covid, and then they “got comfortable with that risk” as the staffing shortage got worse.

Independent contractors in the SNF space

Traditionally, 1099 workers in the SNF space have been high-level clinical professionals, registered nurses (RNs) working in a supervisory capacity and qualified to make decisions on their own.

To be deemed an independent contractor, a nurse must satisfy a certain number of elements regarding control of the worker, called the IRS 20-Factor Test, Su said.

“These tests, we don’t have to satisfy every element to be deemed a contractor, or conversely, an employee,” said Su. “It’s kind of the totality of circumstances in which we sway strongly in favor of a contractor status, or an employee status.”

Companies that contract 1099 workers can’t train them, Coppins said.

“If you offer training, then obviously, they’re an employee. The Department of Labor defines it as, you’ve brought on this expert, you’re representing them, and they need to be able to operate on their own,” noted Coppins.

Since the pandemic 1099 workers have expanded to include other mid-level positions like licensed practical nurses (LPNs) and certified nurse aides (CNAs) – this muddies the waters as it would be incredibly difficult to leave such positions unsupervised within a facility.

“They are 100% under supervision; they’re being told exactly what they need to do,” added Coppins of 1099 CNAs and LPNs.

So then why would some staffing agencies opt for a 1099 model?

According to Coppins, they make a lot more money using this business model. These companies don’t have to pay state payroll taxes, unemployment insurance, workers’ compensation or benefits either.

And, they don’t have to follow state rules or guidelines on overtime, he said.

“That’s a good 10% to 12% of the overall pay that they can keep as margin. They’re making a lot more money on their margin than anyone else in the staffing industry,” said Coppins.

Meanwhile, 1099 worker paychecks have anywhere from 7.5% to 8% taken out for FICA, and the staffing agency also pays another 7.5% to 8% for FICA. That means when tax time rolls around, the 1099 worker owes 15% to 16%.

“A lot of these guys don’t know that. These nurses will go along and tax time comes along, and they get stuck with this huge bill,” said Coppins.

They don’t have to keep up with state employment laws either, he said. These staffing companies don’t have to prove their 1099 workers are able to work in the U.S., they don’t have to prove citizenship or have them produce a green card – really any background of credentialing efforts.

On the flip side though, you can’t train them. IntelyCare, which operates using the W2 model, can provide ongoing education and upskill training, currently with more than 300 courses for its staff.

Operator liability

As SNF operators utilized 1099 workers during the pandemic and continue to do so as the workforce shortage persists, litigation and audits have started to roll in.

The Department of Labor has already started attempts to recoup money from operators as well as staffing agencies operating under a 1099 model.

Pennsylvania-based SNF operator Comprehensive Healthcare Management Services (CHMS), for one, was sued in March by the DOL for an alleged $19 million owed due to unpaid overtime, first reported in MedCity News. The operator brought on 1099 workers through Clipboard, a staffing agency with the 1099 model, but the DOL has not yet sued the company.

Many of the workers didn’t receive overtime despite working more than 70 hours per week, the lawsuit alleged.

Meaning both the staffing agency and facility are responsible for that misclassified worker.

“They think that all the risk is on the agency,” said Coppins. “Recently, the Department of Labor has recovered millions and millions of dollars from facilities, because they consider those facilities as a co-employer.”

Su mentioned a case involving 1099 LPNs, where the nurses had their own operations, they were in business for themselves, but would contract out their work to one or two specific staffing agencies who would connect them with nursing homes or home health care agencies.

In other instances, 1099 workers wouldn’t even be providing care – they worked as drivers for the nurses, shuttling nurses to various patients, Su said.

“Nursing homes or home health agencies, they are used to working with certain individuals,” said Su. “A lot of these individuals would rather be paid on a 1099 basis so that they could potentially save on their tax liability. But when they’re in between gigs, if they were to file for unemployment, that’s when the audit trigger is raised.”

There’s also the question of “lengthy relationships” between these 1099 workers and SNF operators, where the operator has exerted a lot of direction and control over these individuals over a long period of time.

Su has seen disputes arise from these relationships with respect to pay, whether or not these 1099 workers were paid properly.

“There were also instances we’ve encountered where the [1099] nurses were the victims of harassment. We had an instance where an elderly patient was trying to engage in unwanted touching with a couple of the nurses that came to visit them,” said Su.

Their 1099 status does not shield the agency or operator from liability, Su said, to the extent that they did not take appropriate action to stop and intervene in the patient’s conduct.

Another lawsuit out of Sarasota, Fla. recovered $260,221 in back wages for 61 caregivers through Catalano’s Nurses Registry Inc., part of Caregiver Services Inc. in Miami.

Investigators with the DOL Wage and Hour Division found the Florida staffing agency misclassified the caregivers as independent contractors, giving them straight-time rates for all hours worked. In doing so, Catalano’s failed to pay employees time-and-a-half beyond 40 hours per week, a violation of the Fair Labor Standards Act.

The Florida lawsuit simply adds to the list; in January alone there were nine settlements against health care sites and staffing agencies as a result of overtime violations, five of which involved nurses who were misclassified as 1099 workers, the MedCity News article found.

“These are actually employees. You’d like to call them an independent contractor, you’d like to call them a 1099 worker, but they don’t fit any of the tests,” said Coppins. “They’re actually employees and you just decided not to label them as employees. That to me is like the biggest risk.”

Congressional action and potential mandate incorporation

Such issues of worker misclassification, especially among highly regulated industries like skilled nursing and nursing homes, has caught the attention of the House Education and Workforce Committee with a hearing on worker classification mid-April.

Former Senate Majority Leader Tom Daschle called for more oversight toward the end of April as well, which was quickly followed by the development of a health care labor law webinar hosted by the DOL.

Coupled with these webinars and hearings, the Protecting the Right to Organize Act (PRO Act) was reintroduced in Congress. The legislation would make it harder to classify workers as independent contractors.

At the state level, Illinois, Oregon, Louisiana, Pennsylvania and Connecticut all recently enacted or amended laws regarding nurse staffing classification.

Illinois, for one, passed legislation last year saying all health care staffing agencies must employ W2 nurses and aides – but businesses with the 1099 model are circumventing these state specifications by not registering as a staffing agency, Coppins added.

In terms of the upcoming federal staffing mandate, it’s unclear whether 1099 workers would count toward whatever ratio CMS proposes.

“The bigger question I think goes to, if CMS were to specifically come out and say they need to all be employed, they need to all be W2 employees,” said Coppins. The distinction wouldn’t exacerbate the staffing shortage, he said; Coppins expects these workers to become W2 employees if they need to.

Companies featured in this article:

, ,