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Independent Contracting in Healthcare (Alexander v. Avera St. Luke’s Hospital)

Doctor -- Independent Contractor

In our last post, we discussed the Wage and Hour Division’s continuing crackdown on “fissured industries,” i.e., industries that use techniques to make the employment relationship between the lead company and its low-wage workers more remote and less transparent.  One such technique is classifying personnel as independent contractors, rather than as employees.  But that’s not to say that all independent contractor relationships in the healthcare industry are a sham.  Far from it.

Last Tuesday, the Eighth Circuit issued Alexander v. Avera St. Luke’s Hospital, which provides a useful reminder about the value and vitality of independent contractor relationships in the healthcare field.  Now, to be clear, this case involved a physician, not the type of vulnerable worker that the WHD believes is victimized by fissured employment relationships.  But the case still carries valuable lessons for would-be employers.

In Alexander, a physician entered into a series of contracts with Avera St. Luke’s Hospital, to act as the Medical Director of its Department of Clinical and Anatomical Pathology.  These contracts — including the last one, signed in 2008 and called a “Pathology Services Agreement” — identified Dr. Alexander as an independent contractor.  But when the hospital terminated the arrangement in 2011, Dr. Alexander sued.  Dr. Alexander alleged he was really an Avera employee, and that he was fired after suffering a series of serious health complications over the prior few years.  The District Court ruled in the hospital’s favor, after concluding that Dr. Alexander was, in fact, an independent contractor, and therefore ineligible to sue under various federal anti-discrimination statutes.  The Eighth Circuit just affirmed the District Court’s ruling.

As the Court pointed out, no one factor determines whether someone is deemed an employee or a contractor.  But the Court mentioned a number of data-points that helped persuade it that the district court got it right.

  • Dr. Alexander’s contracts — stretching back to a point in time when he was assisting the then-Director of Pathology — identified him as “a professional physician working as an independent contractor,” and not as an employee.
  • The hospital had no authority to control the manner in which Dr. Alexander performed pathology services.
  • Dr. Alexander was responsible for paying all his federal and state taxes and withholdings, including Social Security taxes.
  • Dr. Alexander was responsible for securing and maintaining all required professional liability insurance.
  • In the event Dr. Alexander was unable to perform in his role for a sustained period of time, he had to arrange for, and pay, a substitute Director of Pathology until Dr. Alexander could resume his duties.
  • The hospital issued Dr. Alexander a 1099 tax form (for contractors), not a W-2 form (for employees).
  • Dr. Alexander, taking advantage of the opportunity afforded to him by the Pathology Services Agreement, also served as a medical director at the South Dakota State Public Health Laboratory.

Given these factors, the Eighth Circuit agreed that Dr. Alexander was, in fact, an independent contractor.  As a result, the Court found that Dr. Alexander could not sue for discriminatory treatment under the Americans With Disabilities Act, the Age Discrimination in Employment Act, the Family Medical Leave Act and South Dakota’s anti-discrimination statutes (The ADA, ADEA and FMLA “limit[ ] its protections to ’employees.’  Independent contractors are not covered.”).

Certainly, there were factors supporting Dr. Alexander’s argument, such as the fact that the hospital provided all necessary equipment, facilities, and non-medical assistants, and that it billed the patients and paid Dr. Alexander in equal monthly installments.  But it isn’t unusual to have contradictory factors in these cases.  That’s why courts view these matters in their totality and test them against economic-reality.  When that occurs, a court may find that a valid independent contracting relationship exists in the healthcare context.

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