Staffing Agencies at the Center of Misclassification Scandal

But there are a lot of similar California cases. In February 2024, Federal Trade Commissioner Alvaro M. Bedoya described independent contractor/employee misclassification as a “pervasive and national scandal.”

Some may be shocked that California medical professionals – nurses, med techs and doctors (maybe even your cardiac surgeon?) – are in the same boat as truckers, farm, construction and warehouse workers. Their work is different, but their legal rights are the same.

So are the challenges.

To get a better view of the big story, medical staffing agency workers must look outside their own industry.

California independent contractors lose

Workers who are wrongly classified as independent contractors are denied minimum wage and overtime; they don’t earn Social Security, Medicare, workers compensation or unemployment insurance benefits; and they do not qualify for retirement benefits or health insurance coverage.

According to Bedoya, misclassification takes billions of dollars from working people nationwide. There is no single culprit or industry responsible for this (alleged) heist. But there is a very common mechanism.

It’s staffing agencies, also known in some industries as labor brokers.

California labor law protects employees

California employees, as defined through the “ABC” test (and later codified as Section 2775 of the California Labor Code), have a legal right to:

• a minimum wage (currently $16.90 in most of California);
• overtime for hours greater than 40 in a workweek;
• paid meal breaks;
• uninterrupted rest breaks;
• accurate, itemized pay stubs;
• reimbursement for work-related expenses;
• timely payment of wages; and
• sick pay.

Under state and federal law, employees are also protected from employment discrimination and unsafe working conditions. Separate and apart from the much-touted benefits of gig independence, most workers are better off when they are classified as employees.

On the other side, many organizations, which benefit from the labor that workers perform, struggle to dodge the “employer” label. No surprise here – employees are expensive.

This is where staffing agencies come in.

Who’s the boss?

In California, both the health staffing agency and the healthcare facility are joint employers. The staffing agency is typically the primary employer and is responsible for:

• issuing paychecks;
• withholding payroll taxes; and
• providing workers compensation insurance.

The hospital, clinic, medical center or nursing home (often referred to as the “host employer”) is responsible for:

• directing and supervising clinical roles; and
• providing a safe environment that complies with CalOSHA rules.

When workers are misclassified and suffer wage theft, discrimination or hazardous working conditions, they may be able to file a lawsuit against either or both the staffing agency and the host employer, depending on what happened. Anyone who has had the pleasure of helping to organize a community barbeque, however, knows the perils of ill-defined responsibilities.

Here, the stakes are not hotdogs, but billions of dollars for workers who may struggle to pay the rent. And the players are not your friendly neighbors but well-funded California businesses with financial interests that are diametrically opposed to the interests of workers.

For the sake of wider perspective, staffing agency workers should keep several scenarios in mind.

The HR spinoff

Some staffing agencies place workers primarily with one client or a small group of clients. This has advantages for two sides of a three-sided deal.

• The agency has a steady client base and a steady source of fees.
• The client host employers have a steady source of workers.
• Perhaps more importantly, these hosts may spin off a part of their HR functions to an independent legal entity. The California labor law liabilities that may follow from violating employee rights, become someone else’s problem.
• The third side of the triangle, the workers, may find themselves without a realistic legal route to get paid for the value of their work.

It’s not a perfect analogy, but the situation is reminiscent of the controversial “Texas two-step” bankruptcy scheme recently used by Johnson & Johnson to lessen the financial sting of huge judgments in Baby Powder lawsuits. In those cases, J&J tried to spin off liabilities to a thinly-funded subsidiary. The bankruptcy court largely nixed the deal when it became apparent that plaintiffs could be left without an adequate remedy.

You can’t get blood from a stone

As many potential litigants have come to find out, a successful California wage and hour lawsuit can turn out to be financially worthless if a defendant does not have the money to pay a judgment.

Again, through the lens of imperfect analogy, construction workers who have been recruited and hired by labor brokers can find themselves out of luck when they pursue wage claims. The California legislature passed A.B. 1002 in 2025 to address this problem, but only as it affects the construction industry.

Sand in the gears

Neither one of these two issues is necessarily enough to defeat California medical staffing workers wage and hour claims. But they can create enough sand in the gears to make enforcement of California labor law slower and more difficult.

A wider focus may help medical staffing workers like Jacquilyn Vigay enforce their legal rights. All California workers are in the same boat now.