Employee v. Independent Contractor: USERRA Protections Hang in the Balance

Murphy v. Tuality Healthcare - United States District Court, District of Oregon

Facts:  In May 2008, Dr. James Murphy ("Murphy") signed a Practice Development Agreement ("PDA") with Tuality Healthcare ("Tuality").  Under the PDA, Tuality provide Murphy with financial assistance to develop an anesthesiology practice.  In exchange, Murphy worked full time, five days a week at Tuality's hospital.  

In June 2008, Murphy and Tuality entered into an Anesthesia Services Agreement ("ASA").  The ASA described Murphy as an "independent contractor" and the nature of the relationship between Murphy and Tuality was not that of employer-employee.  Murphy was in charge of paying his own taxes, billing patients for his services, and collecting payment from the patients.  Tuality provided Murphy with equipment, supplies, materials necessary to perform anesthesia work, and a quarterly stipend.  Although either party could terminate the relationship under the ASA's 90 days notice clause, Murphy could not provide anesthesia services at another hospital in the area unless provided otherwise.  

In mid September 2009, after Murphy got into a physical altercation with another doctor (after Murphy had been drinking), he left Tuality to serve in the National Guard for six weeks.  No formal leave of absence was taken by Murphy.  Upon his return, Murphy requested not to work with the doctor he got into an altercation with.    In late October 2009, Tuality sent Murphy the 90 day notice letter that he would be terminated without cause.  

Murphy subsequently brought suit against Tuality and alleged a violation of the Uniformed Services Employment and Reemployment Rights Act ("USERRA") for three reasons:

1. Tuality failed to reemploy Murphy after he completed his military service;
2. Tuality discharged Murphy without cause within 180 days of his military service; and
3. Tuality discriminated against Murphy because of his service.

Holding:  The District Court pointed out that USERRA grants reemployment rights to employees who leave civilian jobs to perform military service and provides protections for those employees against employment discrimination.  However, USERRA does not provide protections for individuals who are independent contractors rather than employees.  Consequently, the Court began its analysis of whether Murphy was in fact an employee or instead an independent contractor of Tuality.

Under USERRA, "employee" is defined in the same expansive manner as under the Fair Labor Standards Act ("FLSA").  Under Ninth Circuit precedent, an "economic realities" test is to be applied to determine whether an individual is an employee or an independent contractor.  Perhaps most importantly, a contract that describes an independent contractor is not dispositive.  Instead, several factors are considered, including 1) the degree of the alleged employer's right to control the manner in which work is performed; 2) the opportunity for profit or loss that depends upon the individual's managerial skill; 3) any investment in equipment or materials required for the individual's task; and 4) whether the individual's work was an integral part of the employer's business; among a few other factors.  It is important to note that no single factor is controlling.

In this instance, the Court looked at the first factor and held that Tuality exercised a great deal of control over Murphy's work schedule, including requiring him to work full time and at least 42 weeks per year.  As well, although Murphy did not receive a salary from Tuality, he was not free to charge whatever he chose.  Instead, the ASA required Murphy's rates to generally conform to those of other anesthesiologist in the area.  In addition, Tuality provided Murphy with most of the equipment and supplies he needed to complete his work.  As for the fourth factor, the Court noted that there was no dispute that the provision of anesthesiology services was an integral part of Tuality's business.

Judgment:  The District Court granted Murphy's motion for summary judgment and held that he was in fact an employee of Tuality, rather than an independent contractor, based upon an analysis of the "economic realities" test.  Therefore, Murphy was entitled to USERRA protections.

The Takeaway:  Interesting to note how the applicability of the Act revolved around an employee v. independent contractor dispute, right?  I am sure that many readers did not realize that USERRA claims could be barred if an individual is found to be an independent contractor.  In this instance, I think the Court did a good job walking through the "economic realities" test to arrive at the conclusion that Murphy was actually an employee of Tuality.  While not every factor could have gone in Murphy's favor, note that the Court had pointed out that no one factor was controlling in its analysis.

As well, it is important to remember that the Court pointed out several times that just because an agreement states whether an individual is an employee or independent contractor does not control the analysis and applicability of USERRA.  Instead, the Court turned to an "economic realities" test and took a closer look at several factors to determine the issue.  I cannot stress enough that just because a contract, employment agreement, etc. etc. states one thing, that alone does not necessarily resolve the matter when it comes to litigation.  

Majority Opinion Judge:  Judge Simon

Date:  January 15, 2016

Opinion:  hr.cch.com/ELD/MurphyTuality011516.pdf