Skip to main content

Beware of Secret Agents - The Not So Independent Contractor

Our case for this month is all about "agents,” so if you hire independent contractors, you’ll want to read on to learn more about how to manage your liability exposures.

In brief, we are specifically talking about the physician, physician’s assistant, nurse, or nurse practitioner that you classify as an independent contractors (IC) rather than an employee, often for tax purposes. There is a plethora of entangled issues involving a blend of legal doctrines1 that may affect what and how you present your ICs to the public as the following case history demonstrates. First, we need a little understanding of some terms that affect what we’re about to talk about: ostensible agent, vicarious liability, and the “ABC” test.

On-Demand Webinar: Key Strategies for Ensuring a Profitable Independent Practice
During this one-hour program, practice management expert Debra Phairas discusses how various business models and operational enhancements can increase revenue to help your practice remain successful in today’s competitive marketplace.

The first term, ostensible agent,2 is described by Cornell Law as “…one where the principal has intentionally or inadvertently induced third persons to believe that such person was its agent although no actual or express authority was conferred on him as agent...” A classic example of the ostensible doctrine in action is the independent contractor physician encountered by a patient in the emergency room or urgent care setting where the patient looks to the hospital or urgent care center for treatment. The patient goes to the emergency room for services and accepts whichever physician is assigned to his or her case. Should issues arise over quality of care, the healthcare facility may be held responsible for the actions of that contractor.

Next, we’ll briefly touch on “vicarious liability.”3 Under vicarious liability, an employer can be held responsible or liable for the acts of his or her employees or agents. This doctrine is also known as respondeat superior,4 which in Latin means let the master answer.”

Lastly, we have the “ABC”5 test under California’s independent contractors (IC) rule. The ABC test was created by a California Supreme Court decision6 to define whether a person is really an IC or an employee, regardless of how you equate them for tax purposes. In California, under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:

The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

The worker performs work that is outside the usual course of the hiring entity’s business; and

The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

It remains to be seen how these rules will churn through judicial evolution on ICs and their application to a medical practice. However, for now the rules are here to stay. Be aware of the rules and their effects on your practices as the following case illustrates:

A 29-year-old female presented to Urgent Care Center with complaints consistent with those of the flu. The patient was seen by Dr. X, an independent contractor with Urgent Care Center. The patient receives a steroid injection, Tamiflu, and prescription for a NSAID. The patient was discharged home with the usual admonitions: Return to the center if symptoms persist/worsen, or go to the emergency room.

Six days later, the patient presented to an ER with persistent flu-like symptoms. A thorough workup was performed, and patient was admitted to the hospital with a diagnosis of sepsis, UTI, and pneumonia. Patient was discharged home two days later with significant improvement. Patient subsequently filed a lawsuit against Dr. X and the Urgent Care Center.

In the complaint, the patient (now plaintiff) asserted causes of action for medical negligence and negligent hiring and supervision under both ostensible and vicarious liability theories. In essence, the plaintiff claimed that the Urgent Care Center owner/operator should not have hired Dr. X or allowed him to work unsupervised at the time she was treated. Plaintiff discovered that Dr. X had a medical board accusation filed against him and contented that the Urgent Care Center should have fired Dr. X after learning about this accusation (the accusation was not patient care or clinically related). The owner/operator of the Urgent Care Center understood that the disciplinary action involving Dr. X had nothing to do with the practice of medicine and decided not to take action to terminate their contract with Dr. X.

The owner/operator of the Urgent Care Center and the plaintiff eventually resolved this matter informally prior to trial/arbitration. Had the Urgent Care Center remained in the case, it could have been held liable for the patient’s injuries. Absent an acknowledgement by the patient of the independent nature of the providers on duty, i.e., Dr. X, the Urgent Care Center could have been held liable under an ostensible agency theory if Dr. X was found negligent in his treatment of patient.

Insofar as the issue of agency to which our Case of the Month alludes – what factors may have weakened Urgent Care Center’s argument Dr. X was an independent contractor, not an agent? There were no posted signs, documents, conditions of admissions, or otherwise at Urgent Care Center to indicate the providers on duty, regardless of license class, i.e., physician, PA or NP, were independent contractors and not employees of Urgent Care Center. Had the patient been provided with this information when she was seen by Dr. X, the nature and degree of Urgent Care Center’s involvement in this lawsuit may have been different.

The moral of the story - to reduce your liability for independent contractors:

Post proper signage stating which providers are independent contractors.

Have patients sign an acknowledgement that the provider(s) they may see are not your employees. Hospitals accomplish that under its “conditions of admission.” You should have a similar tool.

Credential your independent contractors to show your due diligence in evaluating license status, claims history, medical board actions, etc., similar to a hospital’s credentialing process for its medical staff.

Consult a healthcare attorney on agency issues, as ignorance can take you places wisdom will never lead you.  

 Margaret Martin is CAP’s Vice President, Risk Management and Patient Safety. Questions or comments related to this article should be directed to