The US Department of Labor issued a final rule on worker classification standards Tuesday, setting in motion implications for a long-term care sector increasingly reliant on agency contract work to meet staffing needs.

The updated standards aim to clarify the distinctions between employees and independent contractors and bring them more in line with the Fair Labor Standards Act. But the changes could cost long-term care providers and trigger legal disputes if they are not cautious, legal experts warned Tuesday.

The new rule changes the method of analysis and adds criteria used to determine if a worker should be classified as an employee or an independent contractor under the FLSA. In short, the updated standards will take a more holistic approach that considers more factors and weighs them more evenly when making a judgment, according to an FAQ released by the DOL.

The changes have the potential to place greater legal and financial burdens on nursing homes as existing contract workers may be reclassified under the new standards, suggested Gerald Maatman Jr., partner and chair of the class action practice group at legal firm Duane Morris.

“Implementation of the rule may well prompt more wage and hour misclassification class action litigation in the long-term care sector,” Maatman told McKnight’s Long-Term Care News Tuesday, “especially amongst nursing homes that rely on agency contract workers to meet their staffing needs. Heighted legal risks and increased labor costs are the inevitable byproduct of the rule’s implementation over the next year.”

As a result of these potential upheavals, the DOL decision could prompt a legal battle with care providers. 

“The new rule narrows the circumstances under which a worker may be considered an independent contractor,” Maatman explained, “As such, it may well have a litigation target on its back and draw challenges from the employer community in court — not unlike previous court challenges to other labor rules under current and prior administrations.”

The DOL rule will not affect all long-term care providers to the same degree, however, according to Caroline J. Berdzik, chair of the employment and labor, healthcare and long-term care groups at legal firm Goldberg Segalla.

“This final rule is going to face legal challenges in Congress and in the courts. However, it … will not have any impact for long-term care employers in states like New Jersey and California and some others, which already have even more heightened standards,” Berdzik told McKnight’s.

Potential pitfalls

The new standards take note of how much control an employer has over a worker’s tasks. Control that is required by regulations will not count against employers whose workers are classified as contractors, but further control might be grounds for reclassification.

“Although certain control must be exerted by a long-term care facility of its workers to maintain compliance with the licensing regulations, certain actions which are deemed to go beyond mere compliance would be indicative of control,” Berdzik noted. 

The complexities of care work and the control facilities typically need to maintain over their workers’ activities could signal trouble for facilities that rely on contract work.

“Based on the duties of workers in long-term care facilities, it is very difficult to imagine how they could appropriately be classified as independent contractors under the totality of circumstances analysis,” Berdzik told McKnight’s. “While there could be circumstances where an independent contractor performs services at a nursing home like a dietitian who owns her own business and provides services to a multitude of facilities … those situations will be few and far between.” 

Aiming at clarity

The DOL suggests the new rule will help to clarify the labor market, benefiting both workers and employers. 

“This final rule will reduce the risk that employees are misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves,” a DOL statement on the final rule claims.

What some see as greater clarity may instead be grounds for greater caution by providers.

“In light of the heightened scrutiny of independent contractor status and the stiff penalties, costs, damages and attorney’s fees involved with defending such claims,” Berdzik said, “long-term care providers should err on the side of caution and when in doubt, and afford the worker the benefits of an employee.”

Misclassifying workers as contractors can deprive them of workplace benefits and pay that they would enjoy as full employees, and leave them on the hook for more taxes. 

Some employers may also stand to gain from more consistent rules if fewer employees are initially misclassified as a result. Long-term care facilities that contract with agency care workers have found themselves subject to unexpected misclassification lawsuits — unaware that the agency workers were eligible for joint employment status that put both agencies and facilities at legal liability. 

The updated standards go into effect on March 11 and replace a Trump-administration rule that the DOL argues was less consistent with the FLSA. In particular, the DOL criticized the prior rule for giving too much weight to certain factors of analysis and for not considering whether an employee’s work was “central” to a potential employer’s business operations.

Provider reactions to the final rule are still forthcoming, but nonprofit association LeadingAge’s response to the proposed rule in October was cautiously optimistic. 

“The proposed rule’s impact appears minimal as it encapsulates most of what the courts have already been doing,” the statement said, “many care centers may already be using hiring and payment practices that would prepare them well for adopting a new DOL standard.”

For additional coverage, see McKnight’s Senior Living and McKnight’s Home Care.