US Appeals Court affirms USD 9.3 million ruling in worker misclassification case

The decision applied the economic realities test, a multifactor standard for distinguishing employees from independent contractors, and also examined the FLSA’s good-faith defence. 

See Chavez-Deremer v. Med. Staffing of Am., LLC, No. 23-2176, 2025 WL 1969525 (4th Cir. 17 July 2025). This case explores how all businesses, not just staffing firms, can align operations with classification rules to avoid risk, and how early, thorough legal advice can aid compliance and strengthen any future good-faith defence.

Economic realities test at work

Control:

The court found employee status largely because of the defendant’s control, even without daily supervision. Though the defendant described itself as a neutral platform, it set wages, blocked rate negotiations, decided placements, disciplined workers, and imposed rules on attire, timekeeping, and conduct – all signs of an employer.

Factors include: 

• Control; 
• Opportunity for profit or loss;
• Investment in tools; 
• Skills required; 
• Relationship permanence; and 
• Whether the work is integral to the business (the defendant in Chavez-Deremer v. Med. Staffing of Am conceded this factor).

Other Factors: 

The defendant argued that nurses could increase earnings simply by working more hours, but the court noted that independent contractors typically earn more through rate negotiation or business judgment, options nurses lacked (profit or loss). It also rejected the defendant’s claim that its noncompete clause was irrelevant because it was rarely enforced; its existence alone discouraged workers from other opportunities (profit or loss, permanence). 

Further, despite the work being for a term, many worked only for the defendant during those periods (permanence). Also, buying items like stethoscopes did not qualify as meaningful capital investment (investment in tools). Though licensed, the nurses did not use their skills to operate independent businesses or offer services on their own terms (skill). 

Good faith defence

Employers owe liquidated damages equal to unpaid overtime unless they can show good faith and reasonable grounds for believing they complied with the FLSA. This requires more than just minimal effort; the court stressed that a cursory call to counsel is not enough. Relying on informed counsel is critical for this defence, such as allowing counsel to review operations and classification practices. The defendant failed here because it withheld facts from its attorney and ignored the advice it received.

---

Lauren Hoffman is an attorney at Brooks Pierce, focused on employment law and commercial litigation. She advises on workplace policies, manages disputes, and represents clients in state and federal courts with a strategic, results-driven approach.

Bryan Starrett is a partner at Brooks Pierce. He advises employers and HR professionals on a wide variety of employment-related matters, including wage and hour issues, employment contracts and policies, employee privacy matters and workplace investigations.