diff --git a/crates/system-manager-engine/src/activate/etc_files.rs b/crates/system-manager-engine/src/activate/etc_files.rs
index 96bf503d..19de5ed8 100644
--- a/crates/system-manager-engine/src/activate/etc_files.rs
+++ b/crates/system-manager-engine/src/activate/etc_files.rs
@@ -255,7 +255,7 @@ fn list_static_entries(config_entries: &EtcFilesConfig) -> anyhow::Result<Vec<Et
                     source: StorePath {
                         store_path: canon_path,
                     },
-                    target: PathBuf::from("/etc").join(target),
+                    target,
                     uid: 0,
                     gid: 0,
                     group: "".to_string(),
diff --git a/testFlake/container-tests/check-ephemeral-flag.nix b/testFlake/container-tests/check-ephemeral-flag.nix
new file mode 100644
index 00000000..ef8aabaf
--- /dev/null
+++ b/testFlake/container-tests/check-ephemeral-flag.nix
@@ -0,0 +1,45 @@
+{
+  forEachDistro,
+  system,
+  system-manager-v1-1-0,
+  ...
+}:
+
+forEachDistro "check-ephemeral-flag" {
+  modules = [
+    {
+      environment.etc = {
+        "a/bar" = {
+          text = "bar";
+          mode = "0700";
+          user = "root";
+          group = "root";
+        };
+      };
+    }
+  ];
+  testScriptFunction =
+    { toplevel, hostPkgs, ... }:
+    ''
+      # Start the container
+      start_all()
+
+      # Wait for systemd to be ready
+      machine.wait_for_unit("multi-user.target")
+
+      def check_file(path, content):
+          file = machine.file(path)
+          assert file.exists, f"{path} should exist"
+          assert file.is_file, f"{path} should be a file"
+          assert file.contains(content), f"{path} should contain {content}"
+
+      # Let's activate the profile with a v0 state file (using an old system-manager checkout)
+      activation_logs = machine.succeed("${toplevel}/bin/activate --ephemeral")
+      for line in activation_logs.split("\n"):
+            assert not "ERROR" in line, line
+      machine.wait_for_unit("system-manager.target")
+
+      with subtest("Verify correct files are created"):
+          check_file("/run/etc/a/bar", "bar")
+    '';
+}