An African-American doctor’s race discrimination claims against a hospital failed because he couldn’t prove an employment relationship with the hospital. He had entered into a contract with a separate entity in which he agreed to provide medical services at the hospital. Under the hospital’s agreement with the other entity, it had the right to request a physician’s removal, a right it ultimately exercised. The U.S. 5th Circuit Court of Appeals (which covers Louisiana, Mississippi, and Texas) ruled the evidence wasn’t enough to make the hospital part of an integrated enterprise or a joint employer for liability purposes. Be warned, however, certain factors can tip the scale in the other direction and result in liability.
North Central Baptist Hospital in San Antonio, Texas, is owned and operated by VHS San Antonio Partners, L.L.C. To ensure sufficient staffing, VHS contracted with Pediatric Inpatient Critical Care Services (PICCS) to become the exclusive provider of doctors for the hospital’s pediatric intensive care unit. The agreement included the following terms:
- PICCS and its physicians are independent contractors of VHS;
- VHS has the right to “request removal” of any PICCS physician if continued service could jeopardize patient care or safety; and
- PICCS would remove the physician immediately in the event of a violation.
Dr. Perry’s Arrival
PICCS needed more physicians and hired Dr. Melvin G. Perry, Jr., an African-American pediatric intensivist. In the professional services agreement between the two parties, the doctor stated he would (1) provide services at the hospital as an independent contractor of PICCS and (2) execute a separate physician agreement with VHS.
Perry later signed the physician agreement in which he stated he understood he was bound by the terms of the agreement between VHS and PICCS, he would comply with the hospital’s medical staff bylaws and other rules, and the bylaws controlled the termination of clinical privileges.
Short Tenure And Lawsuit
Less than two years after Perry began working at the hospital, VHS asked PICCS to terminate its professional services agreement with him because he had created a hostile work environment that was putting patient care in jeopardy. PICCS notified him, and he stopped treating patients at the hospital.
Perry sued VHS and PICCS, claiming race discrimination under Title VII of the Civil Rights Act of 1964 and 42 U.S.C. § 1981, the post-Civil War civil rights statute. The lower court granted summary judgment, dismissing the doctor’s lawsuit without a trial and concluding no reasonable jury could believe he had an employment relationship with VHS. The court also dismissed the Title VII claim against PICCS because it had fewer than 15 employees and therefore wasn’t a covered “employer” under the law.
Perry appealed the dismissal to the 5th Circuit, which confirmed the lower court’s ruling that he had no employment relationship or enforceable contract with VHS.
5th Circuit Sides With Hospital, Too
No integrated enterprise. Because PICCS had fewer than 15 employees, Perry attempted to argue it and VHS were superficially distinct entities engaged in a single “integrated enterprise.” If successful, he would have been able to combine the number of PICCS and VHS employees to satisfy the 15-employee threshold for coverage under Title VII, and both entities could be sued as an integrated enterprise under the Act.
Three of the four factors required to prove an integrated enterprise leaned against such a finding. Perry failed to show the hospital excessively influenced the operations of PICCS. Nor was there common management, ownership, or financial control between the entities. On the other hand, the factor courts consider most important (i.e., which entity made the final employment decision) favored the conclusion that VHS and PICCS constituted an integrated enterprise.
The 5th Circuit previously hadn’t considered whether meeting the “decision-maker” factor alone was enough to establish an integrated enterprise. Ultimately, the court ruled VHS’s exercise of its right to request the termination of Perry’s professional services agreement (notably, the first time it had exercised the contractual right with PICCS) wasn’t enough to justify treating the entities as a single employer for Title VII liability purposes.
Not a joint employer. Perry also argued he could pursue the Title VII claim against VHS because it exercised sufficient control over him to qualify as a joint employer. The 5th Circuit disagreed, finding little evidence of its control over him. Although VHS provided him with the equipment and facilities needed to treat patients, it did not do the following:
- Pay his salary;
- Bill for his services;
- Reimburse him for his continuing education or malpractice insurance;
- Create his schedule;
- Restrict him from working elsewhere;
- Supervise him in any meaningful respect; or
- Keep his personnel records.
Based on the above factors, the 5th Circuit concluded VHS wasn’t Perry’s joint employer.
No contractual relationship. Perry also argued the physician services agreement he signed with PICCS created a contractual relationship with VHS, allowing him to assert a Section 1981 claim against VHS. The law prohibits race discrimination in contractual relationships.
The 5th Circuit rejected the argument, however, because the physician services agreement was between Perry and PICCS. VHS wasn’t a party to the arrangement. Thus, it couldn’t be held liable under Section 1981 for “interfering” with the contract. Perry v. VHS San Antonio Partners, L.L.C., No. 20-50356, 5th Cir., March 10, 2021.
Takeaways for Employers
Balancing tests, like the one the 5th Circuit employed in Perry’s case, mean one thing for employers: uncertainty. Any given set of facts could result in a different outcome. To avoid unintended coverage under Title VII, you must consider carefully whether any of your contractual agreements with third parties or independent contractor relationships could result in liability.
The integrated-enterprise theory surfaces most frequently when an employee’s direct employer doesn’t have at least 15 employees or enough revenue to be covered under Title VII. In those cases, savvy lawyers for employees often try to argue the employer and another entity, such as a parent or a related company, constitute an integrated enterprise so the number of employees or amount of revenues can be aggregated.
In Perry’s case, VHS’s involvement with the termination wasn’t enough. The outcome might have been different, however, if another factor had been present (e.g., a parent-subsidiary relationship, overlapping management, shared records, and/or a common headquarters).
Likewise, keep in mind the level and nature of control you have over your workers. If a court finds an entity exercises enough control, a company may face liability as a joint employer under Title VII.
The main control factors considered by the courts are the rights to (1) hire and fire, (2) supervise, and (3) set an employee’s work schedule. Courts also consider certain financial factors, such as which entity pays an employee’s salary, withholds taxes, provides benefits, or sets the terms and conditions of employment. Although VHS did have the limited right to remove Perry, the other control and financial factors weighed against a joint employer finding.
Successfully navigating the above factors is no easy task but is a necessary one. Be sure to consult your employment counsel if and when questions arise.