the physicians controlled CGA, asdirectors, the Court held that the physi-cians may not be employees.It should be noted that while theCourt used the
case to pro-vide guidance on how to define anemployee, the decision as to whetherthe Clackamas physician-shareholderswere ultimately employees was seen asan issue of fact that exceeded the scopeof review of the Court.The Equal EmploymentOpportunity Commission is the admin-istrative department responsible forenforcement of the ADA. Accordingly,the Court considered the EEOC’s defin-ition of an employee.In administrative reference docu-ments, the EEOC has suggested “if theshareholder-directors operate indepen-dently and manage the business, theyare proprietors and not employees; if they are subject to the firm’s control,they are employees.”In determining whether the physi-cian-shareholders operate independent-ly, the Court adopted six factors fromthe EEOC Compliance Manual. The sixfactors are:• whether the organization can hireor fire the individual or set the rules andregulations of the individual’s work;• whether and, if so, to what extent,the organization supervises the individ-ual’s work;• whether the individual reports tosomeone higher in the organization;• whether and, if so, to what extent,the individual is able to influence theorganization;• whether the parties intended thatthe individual be an employee, asexpressed in written agreements or con-tracts; and• whether the individual shares inthe profits, losses and liabilities of theorganization. 123 S. Ct. 1680.In determining the definition of anemployee, labels, as created by docu-ments such as employment agreements,no longer stand alone. The Courtadvised that the above six-factor testmust be used for such a determination.In doing so, all six factors should begiven equal consideration, and “no onefactor (should) be decisive.”Based on the records leading to theCourt’s review of
, the Courtsuggested that under this inquiry, thephysician-shareholders are not likely tobe employees. However, because aproper inquiry would require fact find-ing, the Court remanded the issue to theNinth Circuit.
On its face, the
holdingeliminates one disincentive for choosinga professional corporation as the form of entity for a professional practice.The six-factor test adopted by theCourt allows physicians, when they areshareholders of the professional corpo-ration, to be excluded from the employ-ee count for the purposes of ADAexemption.What is unknown, however, is theextent to which this holding will affectstatutes and regulations other than theADA.As of Oct. 16, 2003, theAdministrative SimplificationCompliance Act requires that allMedicare claims be submitted electron-ically. 42 U.S.C. 1305. The ASCAdoesallow small providers an exemptionfrom this requirement. Asmall provideris defined as a “physician, practitioner,facility or supplier (other than aprovider of services) with fewer than 10employees.”If a small provider elects to submitpaper claims and does not transmit anyprotected health information electroni-cally, the provider would not be consid-ered a covered entity under HealthInsurance Portability andAccountability Act. It is unclear as towhether the
holding appliesto the ASCA.Certain limitations already havebeen set on the
holding.Less than three months after
, the U.S. Tax Court distin-guished
Western Management v. Commissioner of IRS
,T.C. Memo 2003-162 (June 3, 2003),suggesting that the
test forthe definition of an employee shouldnot be applied to tax issues.In
, a corpora-tion tried to argue that its sole share-holder/officer was not an employeeunder the
test and, hence,the corporation should not be requiredto pay federal employment taxes formonies received by the sole sharehold-er/officer. The U.S. Tax Court did notaccept this argument for defining anemployee.The
holding, implyingthat one must look past an entity’s labelto the substance of the entity, may haveserious negative implications that werenot fully realized by the Court.For example,
providesan incentive to a potential plaintiff topursue a claim that would otherwise bebarred by corporate immunity byattempting to pierce the corporate veil.One significant area where the corpo-rate veil may be pierced is that of minority shareholder rights.
The Corporate Veil
Traditionally, shareholders havebeen unable to bring federal discrimina-tion claims, like those under the ADAorTitle VII, against their fellow share-holders. In New Jersey, in corporationswith 25 or fewer shareholders, minorityshareholders are protected by statutefrom fraud, illegality, mismanagement,oppression or unfairness by those in
HEALTH CARE LAW
DECEMBER 15, 2003
174 N.J.L.J. 962
The six-factor test adopted in
allows physi-cian-shareholders to be excluded from the employeecount for the purposes of ADA exemption.