The classification of travel and per diem nurses remains one of the most debated topics in healthcare staffing. At the heart of this debate is whether nurses working on temporary assignments through staffing agencies should be treated as independent contractors or as W-2 employees.
Recent Case Law: A $9.3 Million Warning
In July 2025, the U.S. Court of Appeals for the Fourth Circuit upheld a ruling against Medical Staffing of America, which had classified approximately 1,100 nurses and nursing assistants as independent contractors under the Fair Labor Standards Act (FLSA). The court affirmed a $9.3 million judgment against the company, rejecting its defense that misclassification was a “good faith” error. https://www.ca4.uscourts.gov/opinions/232176.p.pdf?utm
This case is the latest in a growing line of rulings that illustrate the risks for agencies and hospitals that misclassify healthcare workers.
The Economic Realities Test
Courts apply the six-factor “economic realities test” to determine whether a worker is an employee or an independent contractor. Here’s how those factors typically apply to travel and per diem nurses:
- Degree of Control
- Reality: Agencies set hourly rates, determine placements, and often require approval for time off.
- Risk: This mirrors an employment relationship.
- Opportunity for Profit or Loss
- Reality: Nurses are paid hourly, with no entrepreneurial upside.
- Risk: Points toward employee status.
- Worker’s Investment
- Reality: Minimal personal investment compared to agency resources.
- Risk: Favors employee classification.
- Permanency of Relationship
- Reality: Contracts are time-limited, but repeat assignments create continuity.
- Risk: Courts treat ongoing work as more permanent.
- Skill and Independent Initiative
- Reality: While nursing is skilled, travel nurses rely on agencies for assignments.
- Risk: Lack of business independence favors employee status.
- Integral Part of the Business
- Reality: Nurses are the core product of staffing agencies.
- Risk: Being central to the business is a strong indicator of employee status.
Overall Risk Profile: Five of the six factors consistently weigh toward classification as employees, not contractors.
Broader Risks for Employers
Beyond misclassification liability itself, two additional risks loom large:
- Unpaid Overtime: Misclassified nurses may claim back pay for overtime owed under FLSA.
- Joint Employment Liability: Both the agency and the hospital may be held responsible as co-employers.
It is also worth noting that in reviewing case law, there are no known cases where a worker has sued for being misclassified as a W-2 employee rather than an independent contractor. The litigation almost always flows the other way.
Bottom Line
The courts consistently lean toward protecting workers by treating them as employees when there is doubt. For agencies and hospitals, this means:
- Covering payroll taxes and withholdings
- Providing workers’ compensation and liability coverage
- Accepting responsibility for proper wage and hour compliance
Attempting to classify travel or per diem nurses as independent contractors is, legally speaking, a high-risk gamble.
