Classification of a physician as an independent contractor rather than an employee may affect the physician’s legal rights.
Being classified as a hospital employee has some advantages over an independent contractor arrangement. Employees work for the health care entity and taxes are withheld from the employee’s paycheck. An employment relationship may provide protection under federal laws such as worker’s compensation, discrimination laws, the Family Medical Leave Act, the Americans with Disabilities Act, and protections against retaliatory discharge. However, employees may be restricted to working within one hospital or one hospital system. Independent contractors work for themselves and therefore enjoy more tax write offs and more freedom in contracting. However, independent contractors have added tax responsibilities including paying quarterly taxes and self employment tax. Independent contractors also have fewer legal rights than employed physicians. In emergency medicine contracts, both employed and contracted physicians are often forced to waive due process rights and the peer review process.
The general rule the IRS uses to define an independent contractor is that the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. This is one of the reasons why contracts often contain language specifically stating that the hospital or group has no degree of control over the physician’s medical decisionmaking or method of practice. As an aside, another reason hospitals try to avoid an employer-employee relationship is to avoid legal responsibility for a physician’s actions through the theory of vicarious liability. The process of determining independent contractor status is much more complex. See this IRS document for more information.
Courts have ruled that an independent contractor arrangement may provide a physician with fewer rights than a hospital employee.
- In Alexander v. Avera St. Luke’s Hospital, No. 13-2592 (8th Cir. 2014), a pathologist with several medical conditions working at a hospital was terminated after he underwent a heart transplant and then was hospitalized for bipolar disorder. The pathologist sued under the Americans with Disabilities Act, the Family and Medical Leave Act, the Age Discrimination in Employment Act. The district court dismissed the case, holding that because he did not have employee status, he could not avail himself of these laws. The Court of Appeals upheld the decision.
- In Schueller v. Goddard, et al., No. 09-3047, (8th Cir. 2011), an emergency physician entered an independent contractor arrangement with a staffing company which stated in part that “[e]ither party may terminate this Agreement . . . with reasonable cause” upon written notice to the other party which includes “the request by [the hospital] for the immediate removal of Independent Contractor from further service.” When the physician was terminated with less than one month’s notice after receiving too many patient complaints, he sued for breach of contract, due process violations and tortious interference with a contract. However, because the physician signed an agreement allowing him to be terminated immediately, the court ruled that he had no reasonable belief of continued work. The Court of Appeals upheld this decision as well.
- In Henry v. Adventist Health Castle Med. Ctr., 970 F.3d 1126 (9th Cir. 2020), a physician complained of discrimination at a Hawaii hospital. The hospital then initiated review of his past surgeries and issued a summary suspension. When that suspension was upheld on review, the physician sued for racial discrimination and retaliation under Title VII of the Civil Rights Act of 1964 which applies to “unlawful employment practices.” Again, the Court of Appeals ruled that since the physician was in an independent contractor relationship, he was “not entitled to Title VIII protections.”
Independent contractor status may afford you with extra freedom and increased tax write offs, but those benefits may come at the expense of losing many legal rights afforded to employed health care professionals.
For other articles on physician contracts, see the Contracts section of this site.
If you need a medical employment or independent contractor agreement reviewed, give me a call.