The anti-discrimination provisions of Title VII of the Civil Rights Act apply only to employees. The determination of whether an individual is an “employee” for purposes of that Act depends largely on whether a putative employer exercised control over the manner and means by which the individual performed a job. While most employers assume that an employee who is hired as an “independent contractor” does not work under such control, one federal appeals court recently determined that a hospital’s quality assurance program that led a physician, who was hired as an independent contractor, into its peer review process may have created an employment relationship, allowing the physician to move forward with claims under Title VII. Salamon v. Our Lady of Victory Hospital, W.D.N.Y., No. 1:99-cv-48, 4/3/12.

In 1999, Dr. Barbara Salamon, a board certified gastroenterologist and internist with medical staff privileges at Our Lady of Victory Hospital (“OVH”) in New York State, filed a lawsuit against that hospital and four individuals, claiming that she had been discriminated against on the basis of her gender. According to Salamon, one of the individual defendants sexually harassed her and made unwanted advances. When Salamon complained about that behavior, she allegedly received undeserved negative performance reviews. Salamon also claimed that the remaining defendants were complicit when they used the hospital’s peer review process to punish her for reporting the harassment.

The Defendants in the case moved for summary judgment in 2001. After discovery and arguments, a decision was issued by the lower court in 2006, and the motion was granted, based on the lack of an employee-employer relationship. In 2008, the 2d U.S. Circuit Court of Appeals vacated that judgment and remanded the case for further consideration. Salamon v. Our Lady of Victory Hospital, et al., 514 F.3d 217 (2d Cir. 2008). Specifically, the Second Circuit asked the lower court to again review the status of the relationship between Salamon and OVH to determine whether Salamon was an “employee” for purposes of Title VII.

The hospital did not pay a salary or other monetary compensation to Salamon; she billed patients and insurers directly for her services. In addition, however, Salamon’s clinical privileges extended to the use of the hospital’s facilities and equipment in the GI lab, both of which were vital to her practice. Importantly, Salamon was required to submit to the hospital’s “Staff Rules and Regulations.” One significant piece of hospital supervision over Salamon was a “quality assurance” process under which hospital practitioners, on a rotating basis, would review procedures conducted by various physicians at the hospital. Cases flagged as “problematic” under the process would be discussed further. Doctors whose cases were flagged would be subject to a peer review and, if appropriate, reported to the National Practitioners Data Bank (NPDB).

Salamon alleged that her relationship with the hospital changed and the level of review of her practice changed significantly after she complained of unwanted sexual attention. Her cases began to be reviewed regularly and criticized to an extent substantially greater than other (male) doctors’ cases. As a result of these reviews, Salamon was ordered to undergo a three-month “re-education” and mentoring program. Salamon was warned that her failure to complete the program would lead to a report to the NPDB.

In re-considering the facts of the case on remand, the district court’s primary focus was on whether Salamon was an independent contractor or an employee. To make that determination, the court looked to the U.S. Supreme Court’s decision in Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989). In that case, the Supreme Court set forth thirteen factors that should be considered: (1) the hiring party’s right to control the manner and means by which the product is accomplished; (2) the skill required; (3) the source of the instrumentalities/tools; (4) the location of the work; (5) the duration of the relationship; (6) whether the hiring party can assign additional projects to the hired party; (7) the extend of the hired party’s discretion over when/how long to work; (8) the method of payment; (9) the hired party’s ability to hire/pay assistants; (10) whether the work id part of the regular business of the hiring party; (11) whether the hiring party is in business; (12) the provision of employee benefits; and (13) the tax treatment of the hired party. While no single factor is dispositive, the primary emphasis is put on the first factor – the extent to which the hiring party controls the manner and means by which the worker completes her tasks.

While policies that merely reflect professional and governmental regulatory standards may not create the level of control that establishes an employment relationship for purposes of Title VII, the evidence submitted by Salamon indicated that the policies imposed upon her, and the imposition of the peer review process on her cases to such a large degree, may have been motivated by the hospital’s goal of maximizing revenue, and/or in reaction to Salamon’s complaints of harassment. Because a reasonable fact finder could conclude that the hospital’s quality assurance standards extended beyond health and safety concerns or to Salamon’s specific medical qualifications, and because Salamon was subject to possible negative peer review for violation of those standards, Salamon was able to demonstrate a genuine factual conflict regarding the extent of control exercised by the hospital over her performance. Therefore, the lower court’s decision was reversed, allowing the Title VII and related state claims to go forward to a jury.

Employers — especially hospital and heath system entities — should be aware of this decision, and should become familiar with the 13 factors set forth by the Supreme Court for use in reviewing these circumstances. Primarily, employers must recognize that the degree of control exercised over the work performance of individuals, if not established for reasons related to the quality of the service provided, can re-categorize an independent contractor into an employee for purposes of Title VII liability.