California's highest court recently issued a landmark decision that changed the legal standard to determine independent contractor status. This ruling makes it inordinately more difficult for EPs to practice medicine as independent contractors in California, and the physician groups and hospitals that hire independent contractors may need to offer employee benefits or run afoul of the decision.
Physician groups in California may now be required to pay for a physician's Social Security taxes, Medicare, worker's compensation, and health insurance even if they were hired as independent contractors. The court in Dynamex Operations West, Inc. v. Superior Court, adopted the so-called ABC test, which makes it much more difficult to demonstrate independent contractor status.
One potential upside for EPs is that independent contractors hired by physician groups may be able to obtain employee benefits covered by their “employer.” The downside? Physician groups and hospitals that contract with physicians as independent contractors must assume the responsibilities of an employer. Physicians no longer have the opportunity to incorporate as a business entity distinct from the hiring entity or be free of control imposed by hiring entity. Dynamex will increase the overhead of physician practices to maintain their physician workforce because providing employee benefits is the cost of doing business. Suddenly, physician groups must pay for Social Security taxes, Medicare, workers compensation, health insurance, and other employee benefits, even if the physicians were originally hired as independent contractors.
The ABC Test
Dynamex, a courier and delivery service, changed its workforce of drivers from employee to independent contractor status in 2004 to save money. The plaintiff, Charles Lee, filed a certified class action in 2005 asserting that Dynamex improperly classified him and others as independent contractors.
Before the Dynamex suit, the Borello test identified the “right to control” as the most important factor in determining independent contractor status. (S.G. Borello & Sons, Inc. v. Department of Industrial Relations; http://bit.ly/2OvReMq.) Another ruling, Martinez v. Combs, held that a determination of the employer-employee relationship can be made based on satisfying one of three definitions: exercising control over hours, wages, or working conditions; permitting to work; or engaging and creating a common law employment relationship. (https://stanford.io/2OtrQGV.)
The Dynamex court refuted that the “right to control” test is controlling and instead opted for the ABC test, which presumes employment status unless all three requirements are met: The worker is free from control and direction of the hiring entity in performance of the work in fact and under contract; the worker performs work outside the usual course of the hiring entity's business; and the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Most problematic for EPs is the second requirement. Any EP hired to provide professional medical services in the ED could not possibly be considered to be performing work outside the usual course of an emergency physician group's business. An EP group is hired for the express purpose of providing medical care to emergency department patients.
The first requirement is also troublesome—professional services agreements between the hospital and an ED group require that the EPs perform under certain acceptable metrics, sufficiently staff the ED, and follow certain protocols. It is a compelling argument that an EP group is not free from the control and direction of the hiring company.
Dynamex allows the twisted conclusion that every physician group in California must now employ its provider workforce. This is impractical because most EPs are accustomed to dictating the number of shifts for a particular group and the number of groups to work for, especially for young EPs coming out of residency.
Legislation should carve out physicians from the implications of Dynamex to prevent the nonsensical conclusion that all physicians must be employed by their physician groups. A call to action is in order to prevent this in California, or other state courts may follow suit and adopt the ABC test to prevent EPs from practicing medicine as independent contractors.
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