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In a fierce legal battle that may reshape labor classification standards in the healthcare sector, the Fourth Circuit Court of Appeals on Thursday refused to overturn a $9 million judgment against Medical Staffing of America—doing business as Steadfast Medical Staffing—for misclassifying over 1,100 nurses as independent contractors.

The 2-1 decision upheld a district court’s sweeping ruling, aligning with the U.S. Department of Labor (DOL) and rejecting Steadfast’s argument that the court used improper testimony and inappropriately shifted the burden of proof.

“This is not a matter of error—this is a matter of evidence,” Judges Robert B. King and Henry F. Floyd wrote in a 103-page published opinion. “The company is merely attempting to magnify supposed flaws far beyond their true significance.”

Majority Sides with Labor Department on All Fronts

The core of the dispute lies in the economic realities test, a six-factor measure used to determine employment classification. The panel majority meticulously affirmed that the district court properly weighed each factor and justifiably concluded the nurses were indeed employees—not contractors.

The evidence painted a vivid picture: Steadfast set pay rates, dictated schedules, monitored performance, and initiated disciplinary actions. These actions, the court ruled, gave the company the operational control typical of an employer.

One of the most damning findings was Steadfast’s noncompete clause, which barred nurses from working elsewhere, a clear marker of economic dependence, the court said.

The judges also dismissed Steadfast’s claim that nurses’ personal investments—like paying for their own licenses—proved independence. “That’s a requirement of the profession, not an employer-employee litmus test,” the court noted.

Richardson’s Lone Dissent: “A Veneer of Respectability”

U.S. Circuit Judge Julius N. Richardson, however, issued a sharp dissent, accusing his colleagues of overlooking critical testimony and stretching the test’s logic “so far it could apply to almost any economic arrangement.”

“These nurses are in business for themselves,” Richardson countered. “Their pay and success were determined by their performance—evaluated by clients, not Steadfast.”

He warned that the majority’s approach stripped Steadfast of its most compelling evidence, claiming it set a dangerous precedent that blurred the lines of contractual autonomy.

Good Faith Defense Falls Flat

Steadfast had hoped a partial good faith defense—based on limited legal consultations—would reduce liability. But the court was unconvinced, highlighting that the company sought legal advice only after the DOL launched its investigation and failed to follow its attorney’s recommendations.

“A good faith defense demands serious, proactive compliance—not belated, selective listening,” the panel ruled.