Did the Department of Labor Really Crack Down on 1099 Healthcare Workers?

No. Federal courts haven't banned 1099 healthcare work. The recent DOL cases involve two different legal problems, and only one of them concerns independent contractor status.

Healthcare staffing has adopted a convenient vocabulary for describing how people work. Someone is either “W-2” or “1099,” and the choice between those two labels is often treated as though it resolves the legal status of the relationship.

That shorthand is useful for payroll. It’s considerably less useful for understanding the Fair Labor Standards Act.

Over the past several years, large Department of Labor cases involving nurses, nursing assistants, rehabilitation workers, and other healthcare personnel have reinforced the impression that the federal government is broadly challenging the use of independent contractors in healthcare. Some of those cases do, in fact, concern workers who were treated as independent contractors but later found to be employees. Others involve people whom everyone already agreed were employees and ask entirely different questions:

1. Were they exempt from overtime?

2. Were all their hours recorded?

3. Were bonuses included in their overtime rate?

4. Were meal periods deducted when employees continued working?

The outcomes can look similar. A court enters a multimillion-dollar judgment, the Department announces a significant wage recovery, and the matter is described as another “misclassification” case. But the legal theories beneath those outcomes are not interchangeable.

That is the source of much of the confusion surrounding 1099 healthcare work. One prominent case really was about employee-versus-contractor classification. Another, frequently placed in the same broader conversation, was about exempt status, compensable time, overtime calculations, and recordkeeping. Reading them as though they answer the same question produces a much broader rule than either case supports.

This article addresses employee status under the federal Fair Labor Standards Act, or FLSA. Tax law, state wage laws, unemployment insurance, workers’ compensation, and profession-specific statutes may apply different standards to the same relationship.

What does "misclassification" actually mean under the FLSA?

Under the FLSA, "misclassification" covers two distinct problems: treating employees as independent contractors, and treating nonexempt employees as exempt from overtime. The fixes aren't interchangeable.

The first is employee-versus-independent-contractor misclassification. A business treats someone as an independent contractor, but the economic reality of the relationship makes that person an employee. Because independent contractors are not covered by the FLSA’s minimum-wage and overtime protections, that classification question determines whether those protections apply in the first place.

The second is exempt-versus-nonexempt employee misclassification. Here, no one disputes that the person is an employee. The question is whether the employee falls within an exemption from overtime, such as the executive, administrative, or professional exemptions. An employee who doesn’t satisfy the relevant salary and duties requirements generally remains entitled to overtime even if the employer gave the position a managerial title or paid the employee a salary. (DOL)

Other FLSA violations do not require a classification dispute at all. An employer may fail to record time spent working through lunch, pay employees according to their scheduled hours rather than their actual hours, omit nondiscretionary bonuses or shift differentials from the regular rate used to calculate overtime, or maintain inadequate payroll records. Those practices may create substantial liability even when every affected worker is correctly classified as an employee. The FLSA separately regulates minimum wage, overtime, hours worked, and recordkeeping, which means that several different failures can produce unpaid-wage claims within the same workplace. (DOL)

This is more than a matter of legal terminology. Each problem points to a different operational failure. Converting contractors to payroll wouldn’t correct automatic meal deductions, an inaccurate timekeeping system, or an improperly calculated regular rate. Conversely, perfect payroll administration wouldn’t cure a business model that treats economically dependent employees as independent contractors.

Before asking what a Department of Labor case says about 1099 work, it’s therefore worth asking a more basic question: What kind of classification (or compensation) problem was the government actually litigating?

Did the DOL win a real 1099 case against a healthcare staffing company?

Yes. In Steadfast, courts held that roughly 1,100 nurses labeled independent contractors were employees under the FLSA, producing about $9.35 million in overtime and liquidated damages.

The litigation against Medical Staffing of America, which operated as Steadfast Medical Staffing, squarely presented an employee-versus-independent-contractor question.

The Department of Labor investigated Steadfast’s treatment of approximately 1,100 nurses and nursing assistants and concluded that the company had misclassified them as independent contractors, failed to pay overtime, and failed to maintain the records required for employees. After a bench trial, a federal district court agreed. In 2025, a divided Fourth Circuit affirmed the judgment, which totaled approximately $9.35 million in unpaid overtime and liquidated damages.

Worker status wasn’t a peripheral issue in the case. It was the threshold question. If the nurses were independent contractors, the FLSA’s overtime requirement generally did not apply to them. If they were employees, Steadfast’s practice of paying the same hourly rate after forty hours created substantial overtime liability.

The majority’s analysis focused on the way the staffing model operated. According to the court, Steadfast fixed the nurses’ hourly rates and did not provide a meaningful opportunity to negotiate compensation with either the company or its healthcare clients. It decided which nurses would receive information about particular shifts, required communications concerning lateness and cancellations to pass through Steadfast, and restricted direct communication between nurses and facilities.

The court also credited findings that the company exercised disciplinary authority and that its noncompetition provision constrained nurses’ ability to pursue work outside the Steadfast relationship. Although the company argued that the provision had not been enforced, the majority deferred to the trial court’s assessment of what the parties actually understood and did in practice.

Those facts affected more than the formal “control” factor. They shaped the nurses’ opportunity for profit or loss. The majority found that the nurses could increase their income principally by working more hours, not by negotiating prices, managing costs, expanding a customer base, hiring others, or making comparable entrepreneurial decisions. In the court’s view, taking additional shifts at a fixed rate reflected more labor, not the managerial initiative associated with operating an independent business.

The investment analysis pointed in the same direction. Although nurses paid for education, licensing, and some personal tools, the court regarded those expenses as different from investments made to operate an independent business. Steadfast bore the administrative, advertising, insurance, contracting, and office costs associated with the staffing operation, and the nurses could not hire others to perform their assignments.

Not every consideration favored employee status. The majority acknowledged that nursing requires substantial education and professional skill and that this factor, viewed alone, could support independent-contractor status. It concluded, however, that the nurses were not using that skill with sufficient business initiative to obtain clients or assignments independently of Steadfast. The other aspects of the relationship outweighed professional skill standing by itself.

This was not merely a case in which a company selected the wrong tax form. The court found that Steadfast had built and managed a relationship that functioned as employment while continuing to describe the workers as contractors. The independent-contractor classification was central because it was the mechanism through which the company avoided paying overtime.

At the same time, the decision does not establish that nurses categorically cannot be independent contractors. The majority did not adopt an occupation-specific rule, and the court’s lengthy economic-realities analysis would have been unnecessary if nursing work automatically created employee status.

The divided opinion reinforces that point. The dissent viewed several facts differently, emphasizing the nurses’ ability to choose shifts, perform work outside Steadfast, supply professional skill, and practice with significant independence at client facilities. The dissent also disputed the majority’s interpretation of the investment and disciplinary evidence. The existence of that disagreement does not alter the binding result, but it demonstrates how much the outcome depended on the factual characterization of the operating model rather than the word “nurse” or the presence of a Form 1099.

The most accurate description of the decision is therefore neither “1099s were irrelevant” nor “nurses cannot be contractors.” The Department argued- and the courts held- that these workers were employees under the FLSA despite being labeled and paid as independent contractors.

Was the $35.8 million CHMS case about 1099 contractors?

No. CHMS involved acknowledged employees. The judgment turned on unrecorded hours, meal-period deductions, overtime rate calculations, and exempt status, not contractor classification*.*

The litigation involving Comprehensive Healthcare Management Services, or CHMS, is a useful counterpoint because it generated an even larger wage judgment but did not principally concern employee-versus-independent-contractor status.

CHMS and related entities operated fifteen residential nursing, rehabilitation, and assisted-living facilities in Pennsylvania. After a thirteen-day bench trial, the district court entered a judgment of approximately $35.8 million on behalf of nearly 6,000 employees. The Department of Labor described the matter as involving wage violations and “employee misclassification,” language that can easily be read as a reference to 1099 workers when removed from its factual context. (DOL)

The underlying findings tell a different story. The district court found that CHMS failed to maintain accurate time and compensation records, paid some employees according to scheduled rather than actual hours, deducted meal periods even when employees continued working, and did not consistently correct those deductions. It also found that the company calculated some overtime rates without properly accounting for compensation such as shift differentials and bonuses.

The classification issue concerned whether certain employees were exempt from overtime. The district court found some categories of managers properly exempt but concluded that CHMS had not established exemptions for several other groups, including certain assistant nursing directors, maintenance directors, activities directors, nursing supervisors, and housekeeping or environmental-services directors. These workers were not being treated as independent businesses. They were acknowledged employees whose entitlement to overtime depended on whether they satisfied an FLSA exemption.

The procedural history became more complicated in June 2026, when the Third Circuit reviewed the judgment. The appellate court held that the FLSA did not provide a remedy in that circuit for the particular “overtime gap time” theory used in part of the award- unpaid straight-time hours within a week in which an employee also worked overtime. It also vacated and remanded the district court’s exemption analysis because the trial court had used outdated legal standards and had not made necessary findings concerning the salary requirement.

The Third Circuit did not, however, recast the case as an independent-contractor dispute. It upheld significant factual findings concerning the company’s timekeeping practices and the evidence that employees across multiple facilities often worked during automatically deducted meal periods without compensation. The result was a partial reversal, partial affirmance, and remand- not a determination that thousands of 1099 clinicians had been misclassified.

CHMS was therefore a misclassification case in one important respect, but the classification was exempt versus nonexempt employee, not employee versus independent contractor. It was also a compensable-time, regular-rate, and recordkeeping case.

That difference is easy to lose when “misclassification” is used as a universal label. Yet it changes the lesson an operator should draw from the litigation. The Steadfast case asks whether a staffing company’s contractors were really employees. CHMS asks whether employees were properly paid, whether their time was accurately recorded, and whether particular positions satisfied overtime exemptions. Both arise under the FLSA, but they diagnose different organizational problems.

Does issuing a 1099 make a worker an independent contractor?

No. A 1099 records a tax-reporting choice. Under the FLSA, courts apply an economic realities test to the whole relationship, and the form doesn't decide it.

The industry’s emphasis on “W-2 versus 1099” persists because those forms are visible and administratively consequential. They are also poor substitutes for the legal analysis.

The IRS describes Form 1099-NEC as the form used to report nonemployee compensation. Issuing one records the payer’s treatment of the recipient as a nonemployee for tax-reporting purposes. It doesn’t bind a court applying the FLSA, and a person treated as an independent contractor under a tax test may still qualify as an employee under federal wage-and-hour law. (IRS)

Under the FLSA, the central inquiry is whether the worker is economically dependent on the putative employer for work or is genuinely in business for themself. Courts examine the entire relationship rather than allowing a contract, title, or business form to determine the result. Factors commonly considered include control, opportunity for profit or loss through managerial skill, investment, permanence, the role of the work in the company’s business, and the worker’s use of skill and initiative. (DOL)

The federal regulatory framework is currently in transition. The 2024 regulation adopted a six-factor, totality-of-the-circumstances approach with no predetermined weighting. That regulation remains on the books and, according to the Department, remains relevant in private litigation. Since May 2025, however, Wage and Hour Division investigators have been directed not to apply the 2024 rule in current enforcement matters and instead to rely on earlier guidance while the Department reviews the regulation. (DOL)

In February 2026, the Department proposed rescinding the 2024 regulation and replacing it with a framework resembling the 2021 rule. The proposal would continue to apply an economic-realities test but would place greater emphasis on two “core factors”: control and the worker’s opportunity for profit or loss. The comment period closed in April 2026, and the Department’s current rulemaking page continues to identify the 2026 action as a proposal rather than a final replacement. (DOL)

The changing regulatory formulations are important to counsel evaluating a particular relationship. They do not change the basic lesson of the healthcare cases. Each framework looks beyond the label and asks how the parties operate in practice. The 2026 proposal itself emphasizes actual practice over possibilities that exist only in a contract. (DOL)

A contract remains relevant evidence. So do the tax forms, the worker’s corporate entity, professional license, and ability to accept or reject a particular assignment. None of them is conclusive in isolation.

Does facility control make a clinician an employee?

Not by itself. Direction a facility must impose by law isn't weighed the same as company-designed control, and courts separate the two before assessing employee status.

Healthcare complicates the analysis because a significant amount of direction is unavoidable. Facilities regulate access to patients, clinical documentation, privacy, infection control, medication practices, credentials, safety procedures, and the use of equipment. A clinician cannot simply disregard those requirements in the name of entrepreneurial independence.

It doesn’t follow that every rule imposed by a healthcare facility proves an employment relationship. Nor does it follow that every rule described as “compliance” is legally irrelevant.

The 2024 regulation draws a narrow distinction. An action taken solely to comply with a specific applicable law or regulation is not treated as evidence of control under that rule. Requirements that go beyond what a particular law demands- and instead reflect the company’s own compliance methods, safety policies, quality standards, contractual commitments, or customer-service expectations- may still indicate control. (DOL)

The word “solely” is important. It prevents a business from immunizing its operational controls merely by describing them as compliance measures. A facility rule may be connected to patient safety without being specifically compelled by law, and the degree to which the organization designs, monitors, and enforces that rule may remain relevant to the relationship.

The Department’s guide to the 2024 regulation illustrates the control factor with two registered nurses. In one example, the nursing home set the schedule and assignments, prohibited outside nursing-home work, and retained supervisory authority; those facts indicated employee status under the control factor. In the other, a nurse marketed a specialty therapy service, set the price, arranged schedules directly, worked for multiple nursing homes, and operated without facility supervision; those facts indicated independent-contractor status under the same factor. The examples address only one part of the overall test, but their contrast is revealing: the worker’s profession and presence inside a nursing facility do not predetermine the analysis. (DOL)

Professional licensure works similarly. In Steadfast, the Fourth Circuit observed that licenses are required for nurses regardless of whether they are employees or contractors, so the existence and cost of a license did not resolve status. Likewise, clinical skill alone was not enough. The relevant question was whether the nurses deployed their skill with independent business initiative or depended on Steadfast for access to assignments.

This is why generalized statements such as “hospitals control clinicians” or “licensed professionals are independent” are not particularly helpful. The analysis requires separating clinical authority, facility regulation, and legally mandated safeguards from control over the economic relationship: compensation, access to work, outside opportunities, discipline, customer relationships, investment, and the ability to make business decisions.

How do courts decide whether a clinician is really independent?

Courts weigh who controls pricing and access to assignments, and whether the worker can profit through business decisions rather than by working more hours.

Once tax forms and professional titles are set aside, the practical questions become easier to see.

Who establishes the price of the service? A fixed rate doesn’t automatically create employment, but a company that unilaterally controls pricing while preventing negotiation removes one of the most obvious ways an independent business can exercise managerial judgment.

Who controls access to customers and assignments? A worker may technically be free to reject a shift while remaining entirely dependent on one intermediary to learn that the shift exists. The ability to say no to work is relevant, but it’s not equivalent to having an independent customer base.

Can the clinician work for competitors in practice, not merely on paper? Contractual exclusivity is significant, but informal penalties, preferential-access systems, scheduling demands, or discipline for outside activity may also constrain business independence.

Can the clinician affect profit through decisions other than working more hours? Negotiating prices, advertising, choosing among customers, controlling costs, hiring assistance, developing a specialty, and investing to expand a practice look different from accepting additional shifts at a rate established by someone else.

Who owns the commercial relationship with the facility? A platform that controls contracting, pricing, communications, payment, complaints, and future access to the customer occupies a different position from a service that allows professionals to cultivate and manage their own client relationships.

None of these questions creates a safe harbor. The FLSA requires an assessment of the relationship as a whole, and the weight of a fact may vary with the business. A specialist delivering a discrete service to several healthcare organizations doesn’t necessarily present the same economic reality as a clinician filling recurring hourly shifts within a staffing company’s managed labor pool. (DOL)

The distinction also explains why simply changing payroll treatment can be an incomplete response. Moving a worker from 1099 to W-2 may address the threshold classification issue, but it introduces the next set of FLSA questions: whether the employee is exempt, which time is compensable, what belongs in the regular rate, and whether the organization’s records are accurate. CHMS shows how serious those downstream obligations can become.

Conversely, calling a business a “marketplace” doesn’t make the people using it independent businesses. Courts will examine whether the platform actually facilitates independent commerce or instead controls the economic terms of a workforce while delegating day-to-day clinical direction to customer facilities.

So is the DOL banning 1099 healthcare workers?

No. 1099 healthcare work remains lawful. The enforcement record requires the contractor label to match the economic reality, and full wage obligations apply once employment exists.

The Department of Labor did pursue a significant independent-contractor misclassification case against a healthcare staffing company in Steadfast. It prevailed because the courts concluded that the economic reality of that company’s relationship with approximately 1,100 nurses was employment. Any account suggesting that 1099 classification played no meaningful role in that case would be inaccurate.

It’s equally inaccurate to treat every large healthcare wage case as evidence of the same contractor-classification campaign. CHMS involved admitted employees and centered on hours worked, meal-period practices, overtime calculations, records, and whether certain employees were exempt. The Department used the word “misclassification,” but it was not describing the same classification question decided in Steadfast.

The broader enforcement record therefore supports a narrower conclusion than either side of the usual debate tends to offer. Federal law doesn’t establish a categorical prohibition on healthcare professionals working as independent contractors. It does prohibit businesses from withholding employee protections when a contractor label doesn’t match the economic reality of the relationship. It also imposes separate obligations concerning exemptions, compensable time, overtime rates, and records once an employment relationship exists.

The most useful first question is not, “Should this person receive a W-2 or a 1099?” Those forms record the result of a classification decision; they do not supply the analysis.

A better sequence begins by identifying the legal issue.

• Is the dispute about whether the worker is an employee at all?

  • Is it about whether an employee is exempt from overtime?

  • Is it about missing hours, the regular rate, or inadequate records?

Only then can an organization evaluate the facts that actually determine its exposure.

The recent healthcare cases are not a referendum on a tax form. They are a reminder that the law evaluates relationships and compensation systems as they operate in practice. For organizations using flexible clinical labor, that is a more demanding message than “1099s are permitted,” but it’s also more actionable than “1099 healthcare work is illegal.”

It directs attention to the place where the legal answer has always been found: not in the label attached to the worker, but in the business built around the work.

Frequently Asked Questions

Is it illegal to pay nurses as 1099 contractors?
No. Federal law doesn't prohibit healthcare professionals from working as independent contractors. What the FLSA prohibits is labeling someone a contractor when the economic reality of the relationship is employment. In the Steadfast case, courts found the staffing company controlled rates, shift access, and communications, which made the nurses employees despite the 1099 label.

Did the DOL crack down on 1099 healthcare workers?
The DOL won one major case that really was about independent contractor status, Steadfast, involving about 1,100 nurses. Other large healthcare judgments, including the $35.8 million CHMS case, involved workers everyone agreed were employees. The enforcement record targets labels that don't match reality, not the 1099 model itself.

What's the difference between the Steadfast case and the CHMS case?
Steadfast asked whether nurses labeled independent contractors were actually employees, and the answer was yes. CHMS asked whether acknowledged employees were properly paid, whether their hours were recorded, and whether certain positions were exempt from overtime. Both got called "misclassification," but they diagnose different organizational failures.

Does giving a worker a 1099 protect us if the DOL investigates?
No. A 1099 records your tax-reporting treatment of the worker. It doesn't bind a court applying the FLSA. Investigators and judges apply an economic realities test to how the relationship actually operates, and a contract, tax form, or professional license won't decide the outcome on its own.

If we convert our 1099 clinicians to W-2, are we fully compliant?
Not automatically. Conversion answers the threshold classification question and opens the next set: whether each employee is exempt, which time is compensable, what belongs in the regular rate, and whether your records are accurate. CHMS shows those downstream obligations produced a larger judgment than the contractor case did.

Which DOL independent contractor rule applies right now?
The 2024 six-factor rule remains on the books and, per the DOL, remains relevant in private litigation. Since May 2025, DOL investigators have been directed to rely on earlier guidance instead. In February 2026 the Department proposed replacing the 2024 rule with a framework emphasizing control and opportunity for profit or loss; as of this writing it's still a proposal.

Can a staffing marketplace treat nurses as independent contractors?
Calling a platform a marketplace doesn't settle it. Courts look at whether the platform facilitates independent commerce or controls the economic terms of a workforce: who sets pricing, who owns the facility relationship, and whether clinicians can build income through business decisions rather than only by taking more shifts.

Selected Authorities

Fair Labor Standards Act, 29 U.S.C. §§ 201–219.

Chavez-DeRemer v. Medical Staffing of America, LLC, Nos. 23-2176 & 23-2284 (4th Cir. July 17, 2025) (published opinion).

Secretary of Labor v. Comprehensive Healthcare Management Services LLC, No. 24-2842 (3d Cir. June 3, 2026) (precedential opinion).

Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 89 Fed. Reg. 1,638 (Jan. 10, 2024). (Federal Register)

Field Assistance Bulletin No. 2025-1, FLSA Independent Contractor Misclassification Enforcement Guidance (May 1, 2025). (DOL)

Employee or Independent Contractor Status Under the FLSA, FMLA, and MSPA, 91 Fed. Reg. 9,932 (proposed Feb. 27, 2026). (Federal Register)