Employee at Will?
Most employer/employee relationships in New York State are considered “employment at will.” Generally this means that unless there is a written employment contract, or a union contract, the employer can generally fire the employee without cause. Similarly, the employee can leave the job without fear of being liable for money damages for not continuing the employment. Although employers may not discriminate against employees based upon race, religion, age, sex or other protected classifications, the employment at will can be terminated for most other reasons. A written employment contract can dramatically change these terms.
Employee or Independent Contractor?
Generally, an employer must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. By contrast, an independent contractor is legally responsible to pay his or her own income taxes, Social Security and Medicare taxes, since there are no payroll deductions.
The independent contractor does not enjoy the fringe benefits that employees regularly receive; such as sick leave, vacation pay, health insurance, retirement benefits, or workers compensation coverage.
The Internal Revenue Service cautions that business owners must correctly determine whether the people providing services are employees or independent contractors. The IRS is suspicious of independent contractor agreements which might attempt to incorrectly designate an employee as an independent contractor.
In determining whether a doctor who is not a partner, and has no equity interest in the medical practice, is an employee or an independent contractor, the following are some guidelines to consider:
•If there is a signed written agreement that identifies the doctor as either an employee or an independent contractor, that may have some relevance in determining the true nature of their legal relationship. Keep in mind however that the Department of Labor and the Internal Revenue Service will not simply accept the parties’ written agreement as conclusive proof of the nature of their legal relationship.
•If the medical office for whom the services are provided maintains supervision, direction and control over the doctor, that suggests that the doctor may be an employee, rather than an independent contractor.
•If the medical office provides fringe benefits to the doctor, such as sick leave, vacation pay, health insurance, retirement benefits, or workers compensation coverage, that suggests that the doctor may be an employee, rather than an independent contractor.
•If the doctor has his or her own medical practice (is in business for himself or herself), and also offers professional services to several other medical offices, that suggests that the doctor may be an independent contractor, rather than an employee.
•If the doctor provides services through his or her own professional corporation or professional limited liability company, rather than in his or own name, that suggests that the doctor may be an independent contractor, rather than an employee.
•If the doctor has the right to control the manner of the work, time of work, location where the work is performed, and the methods utilized to accomplish the work, that suggests that the doctor may be an independent contractor, rather than an employee.
•If the doctor performs work for many medical offices, that suggests that the doctor may be an independent contractor, rather than an employee.
Please keep in mind that these are only some of the factors that the IRS will consider in determining whether a particular person providing services is an employee or an independent contractor.
Employment Agreements for Medical Practitioners
Many doctors will enter into one or more employment agreements during their careers. It is important that the doctor be represented by a lawyer who is experienced in negotiating and drafting employment contracts, especially in the medical profession. The doctor’s employment agreement should include various provisions, such as :
Doctor’s Duties and Responsibilities
The employment agreement should describe the doctor’s medical and administrative duties and responsibilities to the employer and its patients, the office locations where the doctor will be required to perform services, the doctor’s obligations regarding supervision of the medical office’s staff, the number of days and hours the doctor will be required to work in the medical practice, and a schedule of the doctor’s on-call responsibilities.
Term of the Employment Agreement, and Events That May Trigger Earlier Termination
The employment agreement should state the term of the agreement, including the beginning and ending dates of employment. The agreement should also specify those events that would give either the doctor or the employer the right to terminate the agreement before the end of the term.
Compensation
The employment agreement should state the monetary compensation that the doctor will receive. This may include a base salary, as well as a formula to calculate additional compensation based upon performance standards, profits of the medical practice, or other objective standards.
Paid Vacation, Medical Insurance and Other Fringe Benefits
In addition to the doctor’s salary and other compensation, the employment agreement should clearly state the fringe benefits that the doctor will receive, such as paid vacations and sick leave, paid leave for taking licensing exams and board certifications, medical, dental and eye care insurance, life insurance, disability insurance, and retirement plan. Other possible fringe benefits might include reimbursement of medical license fees and medical society dues, cell phone fees, vehicle expenses, and relocation expenses, if applicable.
Professional Liability Insurance
The doctor’s employment agreement will usually state that the employer will provide medical malpractice insurance coverage (“professional liability insurance”) for the doctor’s services performed for the employer’s medical practice. The employment agreement should also state the liability limits of the medical malpractice insurance coverage. The agreement should also state whether the employer will pay for the “tail coverage” on a “claims made” medical malpractice insurance policy. This coverage extends the liability insurance to cover claims asserted after the expiration of the term of the claims made policy.
Medical “Partnership Agreements”
When a doctor joins a medical practice as a partner, or if the doctor’s employment matures into a partnership, it is even more important that the parties enter into a written agreement that defines each party’s rights and responsibilities. If the doctor is acquiring an equity interest in the medical practice, the agreement will be more comprehensive than the agreement for the doctor who is an employee of the medical practice. In addition to the provisions applicable to an employment relationship, the partnership agreement should also include “buy-sell” terms, such as provisions regarding voluntary sale of a doctor’s equity interest in the medical practice, and provisions relating to retirement, disability, death, etc. Depending on the legal status of the medical practice (Partnership, Limited Liability Partnership, Professional Corporation, or Limited Liability Company), the agreement may be a Partnership Agreement, Shareholders’ Agreement, or Operating Agreement.
Misunderstandings and disputes may create an unpleasant working environment and could possibly result in a lawsuit. By minimizing such misunderstandings, our goal is to avoid expensive and time consuming litigation. Every doctor who is an employee, independent contractor, partner, shareholder or other equity owner of an interest in a medical practice, and every medical practice contracting with doctors as employees, independent contractors or partners should be protected by a carefully negotiated and drafted employment contract, independent contractor agreement, partnership agreement, shareholders’ agreement or operating agreement.