More Dental Workers Likely to Be Considered Employees Not Independent Contractors Under Final Department of Labor Rule
May 21, 2024
Like owners of other businesses, dental practice owners often hire staff members as independent contractors rather than as employees. They do so to keep expenses down, minimize tax obligations, and reduce time spent worrying about personnel and payroll matters such as overtime pay, sick leave, insurance, and other employment law issues. Ultimately, however, whether an associate dentist, hygienist, or other team member is appropriately classified as an employee or contractor isn’t up to the practice owner. It is up to the law and the rules promulgated by the U.S. Department of Labor (DOL). And under a DOL Final Rule that became effective on March 11, 2024, more dental workers are now likely to be considered employees instead of contractors, no matter what label a practice owner uses for them.
The Final Rule, which was initially published in January 2024, revises the DOL’s analysis for determining employee or independent contractor classification under the Fair Labor Standards Act (FLSA). Specifically, the new Final Rule rescinds a rule promulgated under the previous administration which identified five “economic reality factors” to be used in determining whether a worker was an employee or independent contractor. Under the prior rule, two of the five factors— “the nature and degree of control over the work and the worker's opportunity for profit or loss” were designated as “core factors” that were to carry more weight in the analysis.
Six-Factor “Economic Reality Test” To Determine Proper Classification
That rule was generally seen as more employer-friendly in that it made it easier to classify a worker as a contractor. Under the new Final Rule, the “core factors” mentioned above are no longer part of the analysis. Instead, the new rule uses a “totality-of-the-circumstances” approach and an “economic reality test” that looks at the economic reality of the worker’s activities and the nature of the working relationship with the employer.
The new rule sets forth six factors to be used in determining whether the “economic realities of the working relationship” reveal a worker to be economically dependent on the employer – in which case they would be likely considered an employee – or whether the worker is in business for themselves such that they are an independent contractor. These factors, described in the economic reality test of the final rule, are:
- opportunity for profit or loss depending on managerial skill;
- investments by the worker and the potential employer;
- degree of permanence of the work relationship;
- nature and degree of control;
- extent to which the work performed is an integral part of the potential employer’s business; and
- skill and initiative.
No one factor or subset of factors determines if a worker is an employee or independent contractor. Rather, all the circumstances of the relationship should be examined. The weight given to each factor may depend on the facts and circumstances of the particular relationship. Also, additional factors may be relevant if they in some way indicate if the worker is in business for themself as opposed to being economically dependent on the employer for work.
In the case of associate dentists, these factors in the abstract would likely make most such practitioners employees rather than contractors. As noted, however, the ultimate determination as to the proper classification comes down to the specific circumstances of each employment relationship.
In conjunction with the publication of the Final Rule, the DOL has issued guidance for employers through Frequently Asked Questions and a Small Entity Compliance Guide. These resources provide important insights for dental practice owners as they evaluate the status of their current employment relationships and make any needed adjustments to comport with the new rule’s classification standards. However, given the fact-specific nature of the classification analysis established by the rule, practice owners are strongly advised to consult with experienced counsel to ensure compliance. The financial cost of non-compliance to the practice can be substantial, but it can also cost owners personally, as they can be held liable individually for any intentional misclassification.
To avoid such consequences, dental practice owners should discuss any questions or concerns with an experienced employment and dental practice attorney.
At Grogan, Hesse & Uditsky, P.C., we focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you.
Please call us at (630) 833-5533 or contact us online to arrange for your free initial consultation.
Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices, and this blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals.
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While legislators and regulators debate about appropriate guardrails to put on DSOs to prevent their overreach into a dentist’s clinical responsibilities, it ultimately falls on the dental practice owner — and their counsel — to take the steps needed during negotiations to ensure that the documents governing the transaction include robust protections to preserve the dentist’s appropriate authority over clinical decisions. Are you interested in speaking with one of our attorneys? Click here to contact us now. Make Clinical Independence Explicit and Detailed in Writing One of the most important protections is an unequivocal contractual statement that clinical decisions remain under the licensed dentist's control. The purchase agreement, employment or professional services agreement, and other transaction documents should clearly distinguish between business decisions and clinical decisions. As with any contract, vagueness or lack of defined terms can plant the seeds of misunderstanding and conflict. Accordingly, a general promise that the dentist will maintain “clinical autonomy” without delineating what that actually means in practice is insufficient. The agreement should define what that autonomy means and identify decisions that cannot be dictated by non-clinical personnel, including, but not limited to: · Diagnosis · Treatment planning · Selection of appropriate treatment · Referrals · Patient communications concerning treatment · Prescribing · Use of clinical techniques and materials. Additionally, a dentist should consider provisions stating that treatment recommendations will be based on the patient's clinical needs and the dentist's independent professional judgment, rather than production targets, revenue goals, or other financial considerations. 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Individual Clinical Decisions Many DSOs have standardized policies that affect clinical practice which should be reviewed and addressed before closing. During due diligence and contract negotiations, practice owners and their counsel should understand the DSO's policies involving treatment protocols, referrals, supplies, laboratories, prescribing, infection control, scheduling, patient communications, and quality assurance. Such policies should allow appropriate clinical judgment where patient circumstances warrant an individualized approach, and the parties should establish how legitimate clinical exceptions will be handled. Clinical Autonomy Is Not a Set-It-and-Forget-It Issue The signing of documents at the consummation of a sale to a DSO may be the end of one process, but it is also marks the start of the actual, functioning relationship between the DSO and now-former practice owner. And that relationship can evolve over time in ways that can impact clinical autonomy. Another company may acquire the DSO; the practice could be transferred to another affiliated entity; and other management changes can alter or threaten the carefully negotiated dynamic reflected in the underlying agreements. Those agreements should address whether clinical-independence provisions survive such events and, where appropriate, whether they bind successors and affiliated entities. Selling a dental practice does not necessarily mean surrendering professional judgment. But clinical autonomy should not be left to assumptions, informal assurances, or legislators or regulators. It should be addressed explicitly in the transaction documents by sellers and their counsel. By doing so, dentists can reap the benefits of a DSO sale while retaining control over the one thing that no corporation or entity can or should: the practice of dentistry. 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Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices, and this blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals.
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