Dr. Chudnovsky received an award against Chapman Medical. On appeal the defendant claimed that Dr. Chudnovsky's award should be reversed based upon the
"Hospitals Can't Employee Physicians" defense. Physician Lawyer Daniel Horowitz discusses the weakness of that defense and the strength of Dr. Chudnovsky's position from a legal perspective with strong legal precedent that focuses on the conduct of the doctor and hospital and not on mere labels.
Award and Appeal
Dr. Chudnovsky received an award against Chapman Medical. On appeal, the defendant claimed that Dr. Chudnovsky's award should be reversed based on the "Hospitals Can't Employ Physicians" defense. Physician Lawyer Daniel Horowitz discusses the weakness of that defense and the strength of Dr. Chudnovsky's position from a legal perspective, emphasizing strong legal precedent that focuses on the conduct of the doctor and hospital rather than mere labels.
Agreement Details
In January 2008, Chapman Medical entered into a two-year agreement with Chudnovsky Corporation for radiology department coverage at its hospital (the "Agreement"). The Agreement included an arbitration clause and was renewed for an additional year effective January 2010. These contractual documents were drafted solely by Chapman Medical.
Role of Dr. Chudnovsky
Dr. Chudnovsky signed the Agreement as president of Chudnovsky Corporation and was identified as the individual designated by Chudnovsky Corporation to perform the duties contemplated by the Agreement. Chudnovsky Corporation was essentially a tax-advantaged "loan out" corporation for Dr. Chudnovsky's professional services.
Ambiguities in the Agreement
The Agreement did not clearly distinguish between Dr. Chudnovsky and Chudnovsky Corporation in its assignment of obligations and benefits. It referred at times to the "Director" (a term ambiguously defined in the introductory clause to perhaps include Dr. Chudnovsky) and at other times to the "Physician" (presumably referring to Dr. Chudnovsky). For instance, the Agreement stated, "Director shall provide and/or provide Physicians to cover the Department and provide the Services (to include Teleradiology services) on a 24-hour per day basis every day of the calendar year." However, it also stated, "For services rendered under this agreement, hospital shall pay physician as full compensation for services hereunder, a monthly fee of twenty thousand dollars ($20,000.00). Physician shall have the sole responsibility to compensate Physicians." Additionally, "Director shall separately bill patients for professional services rendered pursuant to this Agreement and have the exclusive right to collections therefrom."
Arbitrator's Ruling
An arbitrator ruled in favor of Dr. Chudnovsky personally. The hospital raised the standard claim that a private, for-profit hospital may not employ (and pay wages to) doctors because it would violate the prohibition against the practice of medicine by a corporation (see Bus. & Prof. Code, § 2400).
Similar Case: Dr. Alicia Kalamas
We recently had a similar argument when our client, Dr. Alicia Kalamas, sued John Muir Health for employment retaliation. We argued that California Labor Code § 2783 addresses the employee vs. independent contractor determination as applied to physicians and utilizes the Borello test (Labor Code § 2783(c)). There is no case law that holds that any other standard applies to physicians. Any argument that Plaintiff cannot be an employee, as prohibited by Business & Professions Code § 2400 preventing the corporate practice of medicine, is a red herring. Business & Professions Code § 2400 is a 1980 statute which does not conflict with Labor Code § 783, enacted in 2020. If there is a conflict, basic rules of statutory interpretation apply. Code of Civil Procedure § 859 states that when a general and particular provision are inconsistent, the latter is paramount to the former and a particular intent will control a general one that is inconsistent with it. See also: Collection Bureau of San Jose v. Rumsey (2000) 24 Cal.4th 301, 310 ("if conflicting statutes cannot be reconciled, later enactments supersede earlier ones [citation], and more specific provisions take precedence over more general ones [citation]").
Common Law Employment Relationship
The principal test of a common law employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired (G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 350 quoting Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 946).
Right to Control
Under the common law test for employment, perhaps the strongest evidence of the right to control is whether the hirer can discharge the worker without cause, because "the power of the principal to terminate the services of the agent gives him the means of controlling the agent's activities" (Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522, 531 (2014) (internal quotation marks and brackets omitted) (quoting Malloy v. Fong, 37 Cal.2d 356, 370 (1951)). Likewise, the worker's corresponding right to leave is similarly relevant: "an employee may quit, but an independent contractor is legally obligated to complete his contract" (Ayala, supra, 59 Cal.4th at p. 531 fn. 2).
Conclusion
The Kalamas case has not yet been decided. We will update in the future. The takeaway from the Chudnovsky case and the Kalamas case is that the term "employee" may be missing from the physician-hospital paperwork, but in terms of filing claims for employment wrongdoing, the doctor may in fact have an employer-employee relationship with the hospital.
The Horowitz office represents doctors in whistleblower, Labor Code section 1102.5 actions. Call us if we can help.