Our lead New York Employment Law Attorney is often asked if a worker should be classified as an independent contractor or employee. As readers of our blog will know, this can be a tricky and fact specific question. Not one size fits all here and it does really depend on the circumstances. This post will discuss a medical related’s practice of identifying a psychiatrist as an independent contractor and the court’s decision. If you have any questions on how to classify a worker or if you were improperly classified, contact our Award Winning New York Employment Lawyer at (800) 893-9645 for a confidential consultation.
Samuel Lustgarten, a psychiatrist, performed services for clients of New York Psychotherapy and Counseling Center for approximately a decade. During this time, he was issued a 1099 tax form and treated as an independent contractor by the Counseling Center. After his working relationship with the Counseling Center ended, he applied for unemployment insurance benefits. The Department of Labor did not have any records of employment with the Counseling Center for Dr. Lustgarten so it conducted its own analysis of his working relationship. After considering information regarding the parties’ relationship, the DOL made a determination that Dr. Lustgarten was indeed an employee and entitled to unemployment insurance benefits. The DOL also determined that other similarly situated workers at the Counseling Center were employees. As a result, the Counseling Center was required to make certain payroll contributions based on Dr. Lustgarten’s compensation. This determination presumably affected the Counseling Center’s business model in material way. The Counseling Center filed an appeal and argued that Dr. Lustgarten was an independent contractor. An Administrative Law Judge affirmed the DOL’s decision that Dr. Lustgarten was an employee and that decision was also affirmed by the Unemployment Insurance Appeal Board.
Why the Counseling Center Lost
The Counseling Center filed another appeal to the Appellate Division and lost yet again. The Court stated that employee-employer relationship should be determined by the Unemployment Insurance Appeal Board when factual issues exist. In this case, the Court decided there was “substantial evidence” in the record to support the Board’s finding. Specifically, the Court stated that when a classification issue exists for doctors and medical professionals, the focus of the classification analysis should be on the whether an alleged employer “exercised overall control of the work performed.” The greater a company exerts control over a worker – the greater likelihood that an employer-employee relationship will be found.
In this case, the Board had found the following facts supported a determination of an employee status:
1. The Counseling Center referred its patients to Dr. Lustgarten and scheduled their initial appointments;
2. The Counseling Center paid Dr. Lustgarten an hourly rate and not an amount set by an invoice which is more typical of a vendor;
3. The Counseling Center billed Dr. Lustgarten’s patients for his services;
4. The Counseling Center paid Dr. Lustgarten regardless of whether it was paid by his patients or health insurance providers; and
5. Importantly, Dr. Lustgarten worked in the Counseling Center’s offices. Although he paid some money that could be considered rent – the amount he paid was so low – $9.87 per week and most likely not close to fair market value.
The above facts show that the Counseling Center exercised a great deal of control in how he performed his services and in essence treated him like an employee. Intent is not a factor in these cases — the nature of the working relationship controls. Even if an independent contractor agreement was signed by both parties – a finding of employee-employer status can be made. Contrary to what may businesses believe, a contract will not make it bullet proof. The Counseling Center should have created and followed best practices on a contractor relationship and made sure it did not treat him like other employees. A finding of employment status goes beyond payment of the payroll taxes and exposes it overtime pay claims and inquiries by other administrative agencies including the Internal Revenue Service. Our office has represented many small businesses in protecting their assets and business interests. Contact our Award Winning Employment Lawyer at 800-893-9645 to learn your rights and best practices.
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