Independent Contractor Alert! What Mental Health and Healthcare Providers Need to Know After Galarza v. One Call Claims

If your mental health or healthcare practice relies on 1099 contract clinicians, a recent federal court decision should have you reviewing your contractor agreements immediately. In Galarza v. One Call Claims, LLC, the U.S. Court of Appeals for the Eleventh Circuit sent a clear message: calling someone an independent contractor doesn't make them one—especially when the working relationship looks and feels like employment.

 

What Happened in Galarza?

 

Three licensed insurance adjusters thought they were independent contractors. They had signed contracts that said so. They filed their taxes that way. But after working exclusively for the same companies for nearly two years under close supervision and controlled schedules, they sued for unpaid overtime wages under the Fair Labor Standards Act (FLSA).

 

The district court initially sided with the companies, finding the workers were properly classified as independent contractors. But on appeal, the Eleventh Circuit reversed that decision, holding that a jury could reasonably find these workers were actually employees based on the economic reality of their working relationship.

 

Why This Matters for Healthcare Providers.

 

While this case involved insurance adjusters, the court's analysis has significant implications for any healthcare practice using 1099 clinicians—therapists, counselors, psychiatric nurse practitioners, psychologists, and other mental health professionals.

 

The Eleventh Circuit (covering Alabama, Florida, and Georgia) applied a six-factor "economic reality test" that focuses not on what the contract says, but on how the working relationship actually functions day-to-day.  They pointed to a six factor test---

 

The Six Factors Courts Examine:

 

1. Control Over the Work: Does the practice dictate when clinicians see patients, how they document sessions, what EMR system they use, or what treatment protocols to follow? In Galarza, the companies controlled schedules, monitored performance, and approved overtime—all pointing toward employee status.

 

2. Opportunity for Profit or Loss: Can clinicians truly affect their income through their own initiative and business decisions, or are they paid a fixed rate per session with no real ability to increase earnings through managerial skill? The Galarza workers received non-negotiable daily rates with no opportunity to earn more through their own efforts.

 

3. Investment in Equipment or Materials: Who provides the office space, EMR software, billing systems, and clinical tools? While the adjusters had some business expenses, the court noted many were just normal personal expenses (phone, transportation) that any employee might have.

 

4. Special Skills Required: This is where licensed clinicians might seem more like independent contractors—they have specialized training and licenses. But in Galarza, even though the adjusters had specialized licenses, this single factor wasn't enough to outweigh the others.

 

5. Permanency of the Relationship: Are clinicians working for you temporarily on specific projects, or are they part of your ongoing practice operations? The Galarza workers were retained for extended, indefinite periods similar to at-will employment, which favored employee status.

 

6. Integral Role in the Business: This is critical for healthcare practices: are your 1099 clinicians performing the core function of your business? If you run a therapy practice and contract therapists are seeing your patients, they're performing work integral to your business—just like the adjusters were central to the insurance claims business.

 

The Bottom Line: Economic Dependence.

 

The court emphasized that the ultimate question is whether workers are economically dependent on the practice. If your 1099 clinicians rely on your practice as their primary or exclusive source of income, work under your policies and procedures, see patients through your intake process, and have little independence in how they operate—they may legally be employees, regardless of what their contract says.

 

Real-World Risks for Healthcare Practices.

 

Misclassifying employees as independent contractors can expose your practice to:

• Unpaid overtime claims under the FLSA
• Back taxes and penalties for unpaid payroll taxes
• Workers' compensation and unemployment insurance violations
• Employee benefits claims (including health insurance and retirement plans)
• State law employment violations

Beyond legal liability, there are compliance implications under the Fair Credit Reporting Act (FCRA) if you conduct background checks, and potential issues with licensing boards if the relationship doesn't match state scope of practice requirements.

 

Warning Signs Your 1099 Clinicians Might Be Misclassified.

 

Consider whether your practice:

• Sets the clinician's schedule or requires specific office hours
• Requires exclusive or near-exclusive availability
• Provides the office, computer systems, and clinical tools
• Controls how sessions are documented or what treatment approaches are used
• Prohibits the clinician from seeing clients elsewhere
• Pays a fixed hourly or per-session rate with no room for negotiation
• Requires attendance at staff meetings or trainings
• Directly assigns patients rather than allowing clinicians to build their own caseload
• Monitors productivity, client retention, or clinical outcomes
• Maintains long-term, ongoing relationships (beyond specific projects or coverage needs)

If several of these apply to your practice, it's time for a serious review.

 

What Healthcare Practices Should Do Now.

 

The Galarza decision is a reminder that courts are looking past labels to the substance of the working relationship. Here are practical steps to take:

1. Audit your current contractor relationships against the six-factor test
2. Review how much control you exercise over day-to-day clinical work
3. Assess whether clinicians have genuine independence in building their practice
4. Examine exclusivity arrangements that might create economic dependence
5. Consider whether the work is truly project-based or ongoing operations
6. Evaluate compensation structures for opportunities for profit/loss

Need Help With Your 1099 Contracts?

 

Whether you're establishing new independent contractor relationships or need to review and update existing agreements, proper classification is essential—not just for legal compliance, but to protect your practice from costly misclassification claims.

 

If your practice needs guidance on structuring compliant 1099 contractor arrangements, reviewing existing agreements, or determining whether your current relationships should be reclassified, please contact us. We can help you navigate these complex issues and ensure your practice is protected while maintaining the flexibility you need.

Don't let a contract label create a false sense of security. The economic reality of your working relationships is what matters—and getting it right from the start can save your practice significant headaches down the road.

 

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