Thousands of Employed Emergency Physicians are Misclassified as Independent Contractors

How the US Dept. of Labor rules on classifying workers as employees or ICs under the Fair Labor Standards Act apply to emergency medicine.

This newsletter usually starts with a question to be explored. In this case, we’ll go Jeopardy-style and start with the answer: thousands of practicing emergency physicians in the United States are misclassified by their employers as independent contractors (IC) when they meet federal criteria to be employees. 

Employment status misclassification can cost workers protections and compensation, potentially costing employers millions in fines. Per ADP, “The cost of non-compliance can be staggering. Fines levied by the US Department of Labor (DOL), IRS, and state agencies for worker misclassification can exceed millions depending on the severity of the infractions. The threat of class action lawsuits should also serve as a further deterrent for companies straddling the boundaries of improper classification.”

According to the American Medical Association’s 2020 Physician Practice Benchmark Survey, 20.5% of emergency physicians’ primary clinical job employment status is as an independent contractor. This share of ICs is the highest of any specialty in the House of Medicine. (see image below)

Locum tenens - temporary - physicians do not explain this high rate of ICs in emergency medicine. CHG Healthcare estimates that 7% of physicians worked as locum tenens in 2021. Emergency physicians are only slightly over-represented among locum physicians compared with other specialties. And some physicians who work locum shifts do so as a secondary job. 

Employment classification matters to workers for two main reasons: protection and compensation. As the Acting Secretary of Labor, Julie Su, recently wrote, “Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections.”

Independent contractors generally are not protected by labor regulations like the Americans with Disabilities Act, OSHA, or unemployment compensation. For example, William Sullivan, DO, JD (an emergency physician and lawyer) points to the case: “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 a 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 VII protections.’”

Compensation rates can also be impacted by misclassification of worker employment status. Salary.com estimates that, on average, 22.3% of the total value of employed emergency physician compensation is in the form of benefits. (see below)

The US Department of Labor recently clarified the criteria for differentiating employees and independent contractors. The US DOL explained, “The guidance provided by the final rule aligns with longstanding judicial precedent on which employers have previously relied to determine a worker’s status as either an employee or independent contractor. The new rule will preserve essential worker rights and provide consistency for entities covered by the Fair Labor Standards Act.” The Department of Labor’s final rule on classifying workers as employees or independent contractors under the Fair Labor Standard Act goes into effect on March 11, 2024.

The following six differentiators - termed the Economic Reality Test - are used to analyze whether a worker is legally an employee or an independent contractor (IC), with none having a predetermined weight:

(1) opportunity for profit or loss depending on managerial skill;

(2) investments by the worker and the potential employer;

(3) degree of permanence of the work relationship; 

(4) nature and degree of control;

(5) extent to which the work performed is an integral part of the potential employer’s business; and

(6) skill and initiative.

Let’s explore what the Department of Labor means by each criterion and how it applies to emergency medicine. 

Opportunity for profit or loss depending on managerial skill

Per the DOL, “The following facts, among others, can be relevant: whether the worker determines or can meaningfully negotiate the charge or pay for the work provided; whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed; whether the worker engages in marketing, advertising, or other efforts to expand their business or secure more work; and whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space.”

Most emergency physicians who work for the long term (not locums) as independent contractors no longer “meaningfully negotiate” their compensation. Large employers generally have rates they are willing to pay for long-term positions. Negotiations for IC emergency physicians are no more flexible than would be expected for employed physicians. 

Non-locum emergency physicians do not choose the order in which the jobs are performed. The long-term IC emergency physician has the same scheduling obligations within the medical practice as any employed EP would. Most patients are seen per emergency department protocols, not by independent decisions of doctors. Emergency physicians generally do not do marketing or advertising for themselves to secure more work. The hospital purchases the vast majority of equipment an IC emergency physician uses. 

Investments by the worker and the potential employer

The DOL guidance explains, “Investments that are capital or entrepreneurial in nature and thus indicate independent contractor status generally support an independent business and serve a business-like function, such as increasing the worker's ability to do different types of or more work, reducing costs, or extending market reach.”

Non-locum tenens independent contractor emergency physicians generally do not make large capital or entrepreneurial investments consistent with being an independent business. One example is that most non-locum IC emergency physicians receive malpractice insurance through the employer. IC emergency physicians' “offices” are generally whatever part of their house they can write off for tax purposes. EM employers, on the other hand, generally have significantly sized back-office operations requiring large amounts of investment.

Degree of permanence of the work relationship

“This factor weighs in favor of the worker being an employee when the work relationship is indefinite in duration, continuous, or exclusive of work for other employers. This factor weighs in favor of the worker being an independent contractor when the work relationship is definite in duration, non-exclusive, project-based, or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities.”

“Indefinite” in this case means long term without a clear end date, which describes most non-locum independent contractor emergency physician jobs. Most non-locum ICs in emergency medicine are not “project-based” or “sporadic”. They complete their schedule requests months in advance at the same ED(s), in the same manner as would be expected of employed emergency physicians. Most emergency physician ICs do not work for multiple entities concurrently.

Nature and degree of control

“Facts relevant to the potential employer's control over the worker include whether the potential employer sets the worker's schedule, supervises the performance of the work, or explicitly limits the worker's ability to work for others. Additionally, facts relevant to the potential employer's control over the worker include whether the potential employer uses technological means to supervise the performance of the work (such as by means of a device or electronically), reserves the right to supervise or discipline workers, or places demands or restrictions on workers that do not allow them to work for others or work when they choose. Whether the potential employer controls economic aspects of the working relationship should also be considered, including control over prices or rates for services and the marketing of the services or products provided by the worker.”

Most emergency departments have a central scheduler, while physicians can request certain days on or off. The IC emergency physician rarely sets their own schedule. Any EM group at scale has extensive “technological means to supervise the performance of the work.” Medical directors and regional directors supervise and discipline ICs in the same way they would employed emergency physicians. 

Emergency physicians - whether IC or employed - do not control the prices of their services. Not only do ER doctors not control the rates charged to patients for their services; many cannot even find out what the employer is charging.

Extent to which the work performed is an integral part of the potential employer’s business

“This factor weighs in favor of the worker being an employee when the work they perform is critical, necessary, or central to the potential employer's principal business.”

Medical practices generally are in a single line of business: patient care delivery with reimbursement through professional fees. To suggest that long-term practicing physicians are not an integral part of an emergency medicine employer’s business is laughable.

Skill and initiative

“Where the worker brings specialized skills to the work relationship, this fact is not itself indicative of independent contractor status because both employees and independent contractors may be skilled workers. It is the worker’s use of those specialized skills in connection with business-like initiative that indicates that the worker is an independent contractor.”

Why are one-fifth of emergency physician jobs in the United States, a higher rate than other specialties, classified as independent contractors in the first place? The likely answer is that neither employers nor physicians want to challenge the status quo. Employers can decrease compensation paid per physician by not funding benefits or paying employee-related taxes. Independent contractor physicians get to see bigger numbers on their paychecks and increase their tax deductions. (Of note, 1099-related tax deductions are usually worth less than the value of the forsaken employee benefits.)

This situation will likely evolve in one of three ways: 

1) employers acknowledge the Department of Labor’s criteria and convert their long-term physicians to employed status;

2) continued status quo; or

3) a class action lawsuit that forces employers’ hands. Per the article, “Independent Contractor Misclassification Is a High-Risk Game”:

“If it is determined that a company has misclassified workers…, misclassified workers may be eligible for expense reimbursement, unemployment insurance, workers’ compensation benefits, company-sponsored health insurance, pension plans, paid time off, medical leave, meal and rest breaks, expense reimbursement, and other employee benefits. Once deemed an employee, the worker is eligible to sue based on employment laws prohibiting discrimination, harassment, whistleblower retaliation, and wrongful termination. Employers must also reimburse the government for back taxes, FICA and SUTA contributions, workers’ compensation premiums, and unemployment insurance taxes. These are compounded by fines and penalties. For example, in Missouri, if an employer is found to knowingly commit independent contractor misclassification by calling his employees independent contractors, the employer could face penalties of $50 to $1,000 per day per misclassified worker and up to six months in jail per violation. Almost as important, employers must also address damage to their reputation.” Lawyers are looking for such cases.

You may wonder, can’t physicians waive their employee status and voluntarily remain independent contractors? The Department of Labor’s answer: “No. Under the FLSA, a worker is an employee and not an independent contractor if they are, as a matter of economic reality, economically dependent on the employer for work. While businesses are certainly able to organize their businesses as they prefer consistent with applicable laws, and workers are free to choose which work opportunities are most suitable for them, if a worker is an employee under the FLSA, they cannot waive FLSA-protected rights (such as minimum wage or overtime pay). The Supreme Court has explained that permitting employees to waive their FLSA rights would harm other employees and undermine the Act’s goal of eliminating unfair methods of competition in commerce.”

When the Department of Labor’s final rule goes into effect on March 11, 2024, the onus will be on emergency medicine employers - including TeamHealth, Envision, SCP Health, Sound Physicians, ApolloMD, and others - to classify their non-locum tenens emergency physicians’ employment statuses properly. 

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Disclosure: I have worked as a non-locum tenens independent contractor emergency physician with VEP Healthcare, ApolloMD, and TeamHealth.

Emergency Medicine Workforce Productions is sponsored by Ivy Clinicians - simplifying the emergency medicine job search through transparency.