Practical Tactics to Reduce Your Practice's Corporate and Human Resources Risk

Practical Tactics to Reduce Your Practice's Corporate and Human Resources Risk


By now, it is well known that the Obama Administration's emphasis on healthcare reform will include the mandate that there be an increasing focus on the use of preventive care. Reform of the employment laws will only increase the potential liability of and exposure to employee lawsuits. Medicine is not the only arena in which major problems might be avoided if issues are addressed as early as possible. Too often we are engaged as corporate healthcare and employment attorneys only after matters have gone beyond the "simple fix" stage. Considerable time, angst and expense can be saved if practices expend a minimal amount of effort now on considering ways to avoid difficulties in the future. Set forth below are a few points to consider when seeking to protect your practice's "health."


Benefits of Periodic "Audits" of Shareholder and Operating Agreements. We can all acknowledge that healthcare law seems to be always changing and that medical partnerships are similar to "living organisms" with needs that shift to fit those of their partners. Under such circumstances, it would be remarkable if a practice's governing documents did not require a thoughtful re-evaluation from time to time. In addition, even though parts of a practice's operating or shareholder agreements might seem like boilerplate when drafted, these portions may actually prove decisive in a dispute at a later date. A few issues that may require revision or deserve attention are noted below.

Compensation Provisions. For the most part, medical practices enjoy considerable legal flexibility when determining how their partners will be paid. Methodologies such as productivity bonuses are common and useful. However, if a practice treats Medicare patients and offers diagnostic services that fall within the definition of "designated health services" in the Ethics in Patient Referrals Act (known as the Stark Law), the manner in which practice members can be compensated for referrals of such services to their practices will be highly restricted. If "designated health services" are performed by a group practice, the practice itself will also need to be structured in a manner which satisfies the Stark Law's definition of a "group practice." Consequently, if a practice performs diagnostic testing services for Medicare patients, it must consult with counsel periodically to ensure that every aspect of the Stark Law is being satisfied. The Stark Law is a "strict liability" statute that imposes liability regardless of whether a party intends to violate it and particular attention must be focused on the statute as a result.

Buy-Sell Considerations. All well-drafted practice documents will specify the conditions under which a partner can be removed and the economic terms upon which such removal can be executed. Because a medical practice's situation may have changed since its documents were first drafted, and because litigation among partners frequently results when expulsions or buyouts occur, partners should periodically review the portions of their governing documents dealing with such separation events. Questions that might be asked during such a review could include whether the list of Buy-Sell Events is long enough. Has operating for a period of time highlighted concerns for the partners that might not have previously been on their minds? Additionally, partners might consider whether the economic terms of their governing documents' Buy-Sell provisions really work for the practice in its current circumstances. For example, if a number of partners are slated to retire in the near future, should an amendment be made to the governing documents now to provide that repurchased interests may be paid for overtime so that the practice is not overburdened by debt obligations?

Documents Regarding Assumed Liabilities. It is common for governing documents to expressly state that all members in the practice must personally guarantee their portion of the practice's financial obligations. The assumption in such cases is that separate guarantees will be executed by each partner. In many cases, when we are engaged to review the documents of a struggling practice, we find that some but not all of the partners have actually signed these separate documents. As a result, group members are placed in the undesirable situation of suing their own partners for their portion of the guaranteed debts. Persistent follow-through on details by using simple techniques, such as checklists, which must be completed whenever a new partner is added, can help avoid these unnecessary difficulties in the future.

Lorin E. Patterson and Betty S. W. Graumlich are both partners in Reed Smith, LLP, an international law firm with approximately 1700 attorneys located in 23 offices worldwide. The authors do not have any financial interests to report. Mr. Patterson may be reached via e-mail at


Compensation Issues. When we are asked to assist a practice with their employment needs, one of the first areas we investigate is the practice's compliance with the Fair Labor Standards Act (FLSA), which governs minimum wage, overtime pay, equal pay, record-keeping, and child labor standards for certain workers. Today, it is still one of the most widely misunderstood and misapplied federal laws governing the employer-employee relationship.

Most frequently, employers fail to characterize employees properly for purposes of the FLSA's overtime requirements. In 2008 alone, the US Department of Labor (DOL) completed more than 21 000 compliance actions involving claims of unpaid overtime or minimum wages. Those actions resulted in the recovery by DOL of $16.5 million in back pay for unpaid minimum wages and $123.6 million in back pay for unpaid overtime and $3.1 million in civil penalties assessed against employers for FLSA violations.

Below, we review two common mistakes that employers make and ways to avoid them.

Mistake No. 1: You can avoid paying overtime by simply paying all of your employees an established salary.

Perhaps no greater misconception exists in the employer community than the belief that paying an employee a salary enables an employer to avoid paying overtime. It is true that, to be exempt from overtime, an employee must (with limited exceptions) be paid on a salary basis. However, in addition to the salary basis requirement, an employee must also satisfy one of the various the "duties tests" in order to be considered exempt under the FLSA. While physicians and nurses are exempt under the professional category, many of a practice's office staff will not be. If those employees work more than 40 hours in a work week, they must be paid overtime. If a practice fails to pay required overtime, the liability could be high. Consequently, when nonexempt employees are paid a salary, the employees' normal working hours must be divided into their salaries to determine their regular rate of pay for the purpose of calculating overtime at the premium rate of 1.5 times their regular rate of pay.

Mistake No. 2. You can refuse to pay a nonexempt employee for unauthorized overtime.

The FLSA requires that an employer pay overtime to a nonexempt employee for all hours in which the employee is "employed" in excess of 40 in a work week. The Act defines the term "employ" as including "to suffer or permit work." Accordingly, whenever an employer knows or should have known that an employee was working more than 40 hours in a week, overtime must be paid. Most employers have policies that prohibit employees from working "unauthorized overtime." Such policies are permissible, but should not state that the employee will not be paid for such time. Rather, the policy and practice should call for disciplinary action against the employee if the employee works unauthorized overtime.

Harassment and Retaliation Claims. The second area we generally examine is the practice's antiharassment policies and complaint procedures. Why should a practice's member worry about workplace harassment? Practices should be concerned because workplace harassment costs business owners millions of dollars each year. The cost of defending charges, settling cases, and paying off judgments is just part of the cost, albeit a significant part.

For example, the Equal Employment Opportunity Commission (EEOC) recently announced that it entered into a settlement agreement with First Street Surgical Center, LLC, and First Surgical Partners, LLC, a Houston-based surgical center under which the Surgical Center will pay $290,000 and provide significant remedial relief to several female nurses to settle a sexual harassment and retaliation lawsuit brought on their behalf by the EEOC. The complaint alleged that a male nurse, who eventually was promoted to a supervisory position, made unwanted sexual advances and sexual jokes and innuendos to female colleagues and subordinates. According to the press release, women who rejected the advances or complained about harassment were then burdened with more difficult job assignments and had their work performance unfairly disparaged. A nurse who made a written complaint detailing acts of alleged sexual harassment by the supervisor was fired the following day. Another woman was given a poor evaluation because she complained about harassment.

In addition to the monetary liability, workplace harassment creates disruption in the workplace, lowers morale and productivity, causes emotional injuries that lead to greater absenteeism and higher healthcare costs, and results in a substantial loss of management time in investigating and handling harassment complaints and defending EEOC charges and lawsuits. In addition, harassment charges create negative publicity for the business. In short, workplace harassment is costly business.

What should a practice do? Develop and adopt a strong antiharassment policy and distribute a copy to each employee. Have each employee sign a statement acknowledging that he or she has read the policy, understands it, and agrees to abide by it. Go over the policy with the practice's employees at least annually and get an updated acknowledgement form. The practice should also develop an internal complaint procedure and publish that procedure as part of its policy. Set the right tone in the workplace with the practice member's actions and make sure that all supervisors understand the seriousness of the issue and the consequences to them if they fail to abide by or enforce the policy.

In addition, make sure that the person responsible for receiving harassment complaints is properly trained to handle the complaint or has access to a qualified attorney or human resources professional who can advise or assist in handling the complaint. Most important, if a practice administrator receives a complaint, he or she must conduct an immediate, thorough, and balanced investigation of the complaint and take appropriate remedial action, if merited by the results of the investigation. By taking these simple steps and being consistent, any practice can improve workplace morale and save significant costs. RP