Eighth Circuit: Doctor Is Unable to Maintain Employment Claims Due to Determination of Independent Contractor Status

Hinshaw & Culbertson LLP

From 1991 until 2011, Larry Alexander worked as a pathologist for Avera St. Luke's Hospital in South Dakota. Under the terms of his contract, Alexander was an independent contractor free from control of Avera. Alexander paid his own taxes, maintained his own malpractice insurance and paid for his own professional licenses. Avera required him to have medical privileges at its facility, billed patients on his behalf, and paid Alexander in equal monthly payments for his services.

In August of 2011, Avera exercised its right to terminate Alexander's services by giving appropriate notice. Thereafter, Alexander sued, claiming that he was terminated in violation of the ADEA, ADA, FMLA and state law. Avera moved for summary judgment on the basis that the pathologist was not an employee as defined by these statutes and thus he was not entitled to protection under any of them. The district court agreed.

On appeal in the case, Alexander  v. Avera St. Luke's Hosp., No. 13-2592 (8th Cir. Sep. 30, 2014), the Eighth Circuit considered the appropriate tests for independent contractor under the laws implicated. The court held that under the ADA and ADEA, the term "employee" meant the common-law master-servant relationship in which the court weighs a "nonexhaustive list of relevant common-law factors." Of this nonexhaustive list, the right to control the manner and means of the work of the individual is central, though not particularly illuminating in a hospital setting where the hospital/defendant must exercise some degree of control "'to discharge its own professional responsibility to patients,' regardless of whether the physician is an employee of independent contractor." Nonetheless, Alexander admitted that he performed his duties free from control of Avera, he had sole control over his schedule, and he personally determined whether to hire substitute doctors in order to cover the pathologist functions. Other common-law factors that supported an independent contractor relationship included the fact that he paid his own taxes and provided his own insurance.

The court then turned to the FMLA, which has a broader different definition of employee. The test for employee status under this law is a hybrid of the common-law test and the economic realities test. With the common-law factors already met, the court concluded that Alexander had the freedom to use his contractual compensation to hire substitute physicians and staff, he paid for his own licensing and insurance, and his tax returns reflected his economic independence. The hospital thus met the hybrid test for independent contractor under the FMLA.

While this case attempts to distinguish the common-law agency factors from an economic realities test, the factors often blur and nearly always start with an analysis of who has the right to control the individual's work and the freedom the individual has to work elsewhere, hire subcontractors, and set his/her own schedule. The common-law factors and economic realities of the relationship should be considered when determining whether an individual is truly independent and who is not covered by substantive federal and state employment, tax and wage/hour laws. 



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