Expansion of Telehealth Services and Worker Misclassification Risks
Since the COVID-19 pandemic, telehealth services expanded nationwide, allowing patients to receive care at reduced costs and allowing providers the ability to use digital platforms to efficiently address the needs of more patients. The rise of telehealth has transformed healthcare delivery, but it has also introduced new risks of worker misclassification. Many telehealth physicians may be improperly classified as independent contractors when their working conditions more closely resemble those of employees — a misstep that can lead to significant legal and financial consequences. Additionally, telehealth physicians who are hired as independent contractors but treated as employees can experience burnout and fatigue, which undermines their capacity to help their patients. Miller Shah LLP's robust worker misclassification defense in our employment practice protects workers' rights and ensures employer compliance.
The Six Economic Reality Factors Used by the Department of Labor
Misclassification varies under federal and state employment laws. Misclassification under federal law is governed by the Department of Labor's (DOL) Fair Labor Standards Act (FLSA). FLSA uses an economic realities test to determine whether the worker is an independent contractor or an employee (29 CFR 795.110). It is essentially a "totality-of-the-circumstances" approach to assess whether the worker is economically dependent on the place of work. The 6 (six) economic reality factors used in the assessment are:
- opportunity for profit or loss depending on managerial skill, which considers whether the worker can determine the charge or pay for the work provided. If a worker does not have an opportunity to generate a profit or incur loss in the position, then the worker may likely be an employee.
- Investments by the worker and potential employment, which refers to whether any investments by a worker are capital in nature.
- Degree of permanence of the work relationship, meaning whether the work relationship is indefinite in duration and excludes the worker from seeking work for other employees. If the work relationship is project-based, sporadic, and contingent on the worker being in business for themself then they would likely lean more towards an independent contractor.
- Nature and degree of control, meaning the employer's ability to schedule set, supervision of the work performed, and disciplinary authority.
- The extent to which the work performed is an integral part of the potential employer's business, which refers to whether the work performed is essentially required for the business to function.
- Skill and initiative of the worker, referring to whether the worker must use specialized skills or receive specific training to perform the work. If the worker is dependent on specific training from the employer, the classification tends to lean more toward employee.
DOL's 2024 Final Rule on Worker Classification
In addition to the 6 (six) factors above considered holistically under the FLSA Economic Reality Test, the DOL Wage and Hour Division published a new final rule on January 10, 2024, offering updated guidelines for overtime pay, minimum wage standards, and conditions under which a worker would be classified as an independent contractor or an employee. The DOL new final rule increased the salary threshold for workers to be considered exempt from $35,568/year to $43,888/year. Importantly, the final rule does not adopt an "ABC" test.
The "ABC" Test and State Variations in Employment Classification Laws
The "ABC" test was established under the California Employment Classification Law, AB 5, which determines whether a worker should be classified as an employee or an independent contractor. Various states have their own versions of the "ABC" test, which can complicate matters if the medical provider company operates in multiple states. Not all states have adopted this metric. For example, states including Pennsylvania, Virginia, Michigan Wisconsin, New York, and Wyoming have not fully adopted the ABC test and instead use modified versions or rely on the Common Law assessment. The Common Law assessment is specific to the degree of control an employer has over the worker. The employer bears the burden in an "ABC" test to prove the physician is an independent contractor. All three conditions in the three-factor test must be met. To satisfy the classification that the worker is an independent contractor, the employer must prove:
- The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The person performs work that is outside the usual course of the hiring entity's business
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
One of the main differences between the DOL's final rule and the "ABC" test is that the final rule is a holistic evaluation that considers all 6 (six) of the above factors, whereas the "ABC" test requires all of the 3 (three) conditions be met.
Indicators of Misclassification for Telehealth Physicians
There are specific operational indicators and oversight guidelines specific to the profession of telehealth care that would inform a telehealth physician of whether they might be being misclassified. Generally, telehealth physicians controlled by the "when", "how", and "where" of work are potentially being treated as an employee. Often telehealth workers have to use their own technology and pay for software as out-of-pocket costs. These are professional expenses that the telehealth physician would not otherwise incur if he or she were classified as a full time employee.
When a healthcare company puts limits on vacation time, directs how to provide services and imposes requirements in line with company standards, requires the physician to see a certain number of patients, and sets the worker's specific hours including requiring the length of time spent with patients during consultations, independent contractors could potentially be eligible to pursue misclassification claims.
As a result of potential misclassification, telehealth physicians would not receive overtime pay, health insurance and other benefits, workers' comp, employment insurance, and other protections. It is important to note that remote work, as in the profession of a telehealth provider, is not automatically a condition of an independent contractor. Telehealth physicians who suspect they may be misclassified could be entitled to back pay for unpaid overtime, reimbursement of business expenses, reclassification as an employee, and statutory penalties under different state laws.
Legal Actions and Recent Court Rulings on Worker Misclassification
While several healthcare companies have had to pay back wages and damages as a result of judge rulings on medical provider misclassification, there are fewer examples of actions specific to telehealth workers, which shows that it is a relatively unprecedented terrain. In September 2022, the U.S. District Court for the Eastern District of Pennsylvania (EDPA) issued a judgment requiring the U.S. Medical Staffing Inc. to pay $4,650,000 in back wages after finding that the company misclassified over 1,756 workers and willfully denied their overtime pay. In a recent July 2025 ruling, Chavez-DeRemer v. Medical Staffing of America, LLC, dba Steadfast Medical Staffing, the U.S. Court of Appeals for the Fourth Circuit issued a $9.3 million judgment against Steadfast Medical Staffing for failing to classify around 1,100 nurses as employees rather than independent contractors. However, both of these above examples concern in-person healthcare workers and do not speak to the added complexity of telehealth provider potential misclassification.
How Misclassification Impacts Patient Care and Employer Liability
Ultimately, the potential misclassification of telehealth physicians is a major issue for patient care. Not only does misclassification jeopardize quality patient care, it also puts healthcare companies at risk of tax compliance and labor law violations. If independently contracted telehealth physicians are overworked, suffering from inadequate and costly technology, and are not receiving benefits they are entitled to, it can potentially raise class action lawsuits.
Workers who have believe they have been misclassified can contact an employment attorney and file a lawsuit in court. The legal team at Miller Shah LLP has extensive experience representing misclassification matters. If you have any questions regarding this subject or this post, please fill out a form or call us toll-free at (866) 540-5505.
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