By Elizabeth Coleman
While running an independent physician practice comes with many benefits, there are many administrative considerations that can create pitfalls for unsuspecting physicians. Practices must ensure their employment policies and arrangements are legal, especially considering recent developments in Virginia law.
Finding and retaining competent staff can be difficult. Employers often think that independent contractor arrangements are more effective for bringing in staff. Yet recent Virginia law has significantly hindered independent contractor arrangements.
Virginia now presumes that individuals working for renumeration are employees unless the individual or company demonstrates otherwise. The considerations for whether an individual is an independent contractor or employee track the IRS guidelines – a 20-factor “test” to evaluate who controls the individual’s work. Considerations include who provides the equipment or means to perform the service, the continuity of the parties’ relationship, and the level of training and direction provided. Review your contracts with alleged independent contractors. You would be surprised how many contracts expressly refer to the individual as an “employee” or provide significant oversight requirements.
The risk of misclassification of an employee can be expensive. Virginia law provides a private right of action to sue the employer for damages in the amount of any wages or benefits (including expenses) that would have been covered had the individual not been misclassified, other compensation lost, and reasonable attorneys’ fees and costs. The law also protects an individual who reports misclassification from retaliation. The Department of Labor and Industry may also institute proceedings against the employer for damages and other penalties.
Ultimately, there is little difference in hiring individuals as employees or independent contractors. Hiring individuals as employees creates an extra layer of protection and avoids any future disputes.
Another important update of which physicians should be aware is the current state of non-competes. Many agreements include clauses that prohibit former employees from working for competitors. In the past, the enforceability of a non-competition clause primarily rested on the reasonableness of the restrictions. Virginia now also prohibits including non-competition clauses in agreements with “low-wage earners.” Low-wage earners are employees whose average weekly earnings are less than the average weekly wage of Virginia employees. For 2023, this is any individual making less than $69,836 a year. Low-wage earners also include interns, apprentices, trainees and independent contractors compensated at an hourly rate less than the Virginia median hourly wage. Low-wage earners do not include employees who primarily derive earnings from sales commissions, incentives, or bonuses.
Still, this prohibition covers a greater number of employees than one would expect. Like the misclassification law, this law creates a private right of action and allows courts to void the non-compete and award damages and attorneys’ fees. The Department of Labor and Industry may also fine the employer $10,000.00 per violation. Non-competition clauses are frequently included in standard template agreements, so every contract should be carefully reviewed to confirm compliance.
These are just two potential pitfalls that independent physicians operating their own practice should be aware of when engaging individuals to provide services. Virginia employment law changes frequently, and there have been significant departures from past practices. It is important to review your employment policies with an attorney to ensure that you do not run afoul of relevant federal and Virginia law – leaving you to focus on providing patient-centered, quality healthcare services.
Elizabeth Coleman is an attorney with Goodman Allen Donnelly. She assists healthcare providers with a wide variety of healthcare related issues. She also routinely assists healthcare providers with employment issues, such as contract disputes and grievance processes. Goodmanallen.com