As the Associate Administrator of the federal Small Business Administration, I learned about the challenges facing entrepreneurs. Among the most pressing concerns were liability and lawsuits. The emergence of the health care apps and the resulting issue of worker misclassification will make those problems worse for many small businesses.
Small businesses are the backbone of the United States economy but their limited resources makes them more vulnerable to legal entanglements. The costs associated with legal battles can be overwhelming, potentially closing the business altogether.
Health care apps revolutionized how individuals manage their medical needs. Venture capitalists poured hundreds of millions of dollars into a new health care gig economy — health care staffing apps.
Health care staffing apps match workers to opportunities. Health care workers upload their certifications, educational information, and areas of expertise, while health care facilities post staffing needs. Workers then browse through the available shifts and swipe to find the perfect match.
These health care staffing apps introduce many legal concerns for facilities operating in this space. Not all health care staffing apps are created equal. Some staffing apps classify their workers as 1099 independent contractors and others as W-2 employees. This blurred line between employee and self-employed worker has led to severe consequences, including lawsuits, back taxes, and penalties.
Illinois, Oregon, Louisiana, Pennsylvania, and Connecticut enacted laws requiring health care staffing organizations to apply for a license to operate. In Massachusetts, anyone performing a service is an employee unless they meet three of the criteria.
The worker must be free from control and direction while performing the service, both under the terms of their contract and the reality of how they perform their work. They must perform a service outside the usual course of business of the hiring entity. Finally, they must be engaged in an independently established trade, occupation, profession, or business similar to the service they perform for the hiring entity.
Nationally, the US Department of Labor (DOL) established a “nationwide effort by its Wage and Hour Division focused on improving compliance by residential care, nursing facilities, [and] home health services.”
The DOL reported that since its 2021 launch, the initiative had completed over 1,600 investigations and identified violations in 80% of its reviews. These investigations recovered more than $28.6 million in back wages and damages for nearly 25,000 workers. That led to assessments of nearly $1.3 million in civil monetary penalties for employers who willfully violated federal law.” The most common violations were for “the misclassification of employees as independent contractors.”
When health care facilities accept misclassified workers —willingly or unknowingly — they face several potential consequences.
They may be held liable for labor law violations, including unpaid wages, overtime, and benefits. These liabilities accumulate quickly, leading to substantial financial losses for the facility. Additionally, misclassified workers may file legal claims against the facility, alleging employment misclassification and seeking compensation for damages.
The financial impact of worker misclassification on health care facilities can be significant. Apart from potential legal settlements and fines, facilities may also face reputational harm, loss of public trust, and strained relationships with regulators. Moreover, addressing misclassification issues retroactively diverts resources and attention from core operations and patients.
Technology offers numerous advantages and efficiencies with enormous benefits. However, harnessing technology must strike a balance between leveraging its advantages and avoiding costly legal issues.
Michael Vallante is a Rhode Island native who provides consulting and strategic communications services for small businesses and nonprofits nationwide. From 2017-20, Vallante was the United States Small Business Administration’s Associate Administrator for the Office of Field Operations .