Keefe, Campbell & Associates, LLC

Editor’s Comment: Strict adherence to the language of the Illinois Employment Security Act brings likely unintended results in Emergency Treatment S.C. v The Department of Employment Security, No. 1-08-1437 (1st Dist. Sept. 30, 2009).This one reminds us of quality cheese, in that it is properly prepared and measured but undeniably smells foul. The Department of Illinois Employment Security seems intent on providing unemployment benefits to doctors and surgeons, and we can only assume mayors, governors, state senators and million-dollar executives are next. This case centers on whether administrative medical staff and medical professionals, doctors hired as independent contractors to work at a hospital emergency department, are employees as under the Illinois Employment Security Act, rendering Plaintiff liable for payment of unemployment contributions under the Act. The Department found they were and ordered Plaintiff to pay contributions on behalf of the employees hired under what is clearly an independent contractor relationship.

Plaintiff, an Illinois corporation, entered into an exclusive contract with Rush Copley Medical Center in Aurora, Illinois (Copley) to staff Copley’s ER department. Under the contract, Plaintiff was responsible to recruit physicians, provide physicians to staff Copley’s ER department, set hourly compensation and create schedules to ensure proper staffing. Plaintiff entered into independent contractor agreements with 15 physicians. Each physician worked as an independent contractor and not an employee of Plaintiff or Copley. Each physician was free to accept work assignments with other institutions, but was required to give prior notice of such employment and give Plaintiff first priority. Physicians gave scheduling requests to a scheduler, and schedules were submitted a month in advance. Physicians could be terminated with or without cause, and were required to attend continuing medical education, staff meetings and obtaining staff membership. Plaintiff could not terminate physicians until the end of each monthly schedule, but Copley could effectuate the termination of any physician at any time by withdrawing hospital privilege0. No physician could work for Copley within three years of ceasing tenure. Copley provided office space and supplies, liability insurance coverage for physicians and indemnification arising from physician negligence, but did not provide workers’ compensation insurance, liability insurance, health insurance or retirement benefits. Plaintiff did not withhold income taxes, nor pay for lost time for sickness, holiday or vacations.

Upon independent audit by the Department of Illinois Employment Security for fiscal year 2000, the Department’s Field Agent determined Plaintiff owed unemployment insurance contributions in the amount of $670.46, including statutory interest. Plaintiff filed a written protest and petition for hearing citing error in light of the independent contractor relationship. Upon hearing before the Department’s Director, Plaintiff established several of the physicians worked for other institutions concurrent with Plaintiff, as did the scheduler. The Director determined the Field Auditor’s report erred in excluding two of the physicians as not performing services for Plaintiff, and three others excluded as operating under a professional corporation despite being involuntarily dissolved prior to 2000. He determined the Field Auditor’s report under-calculated the amount of unemployment insurance contributions owed and that the Plaintiff failed to meet its burden of satisfying exclusion under Section 212. Plaintiff was ordered to pay $670.62, plus interest. The decision was affirmed by the Circuit Court and upon appeal to the First District Appellate Court; the matter was affirmed as outlined below.

Analysis: Section 206 of the Illinois Employment Security Act defines employment as any service performed by an individual by an employing unit. Section 204 defines an employing unit as any entity employing one or more individuals to perform services for it. Section 212 of the Act provides an exception to employment for service meeting all three of the following conditions:

1. The individual is free from the control of the employing unit in the performance of the service;
2. The service is outside the usual course of the employing unit’s business or is performed outside all the places of business of the enterprise for which the services are performed;
3. The individual is engaged in an independently established trade, occupation, profession or business.

The burden rests with the employing unit to prove satisfaction of these conditions to avoid obligation for unemployment insurance contributions.

The Director’s Decision noted Plaintiff controlled the employees by setting specific rules for the positions, setting the schedule for all physicians, requiring the scheduler to be available 24 hours a day and retaining the right to discharge these individuals, thereby failing to meet the first factor. The Director found the work performed by the physicians were essential to and in the usual course of Plaintiff’s business, and the fact the scheduler and auditor worked from home was insufficient to show compliance with the second factor. He further found Plaintiff could not establish the individuals were engaged in a service independent of Plaintiff’s trade, and the third factor could not be met. Plaintiff appealed to the Circuit Court, and ultimately to the Appellate Court alleging denial of Due Process because the Director held a pecuniary interest in the outcome of administrative hearings in that his department derived funding from the payment of unemployment insurance benefits paid to the department, and alleging the Director’s conclusion the physicians, Auditor and Scheduler were employees and not subject to the exception under Section 212.

Noting Plaintiff must satisfy all three requirement of Section 212 of the act and focusing specifically on the two alternative methods of satisfying the Section 212B of the Act, the Court determined Plaintiff failed to meet its burden. In analyzing Section 212b, the Court noted:

• Services which merely render the place of business more comfortable, such as window washing, or otherwise are not necessary to the employing unit’s business, are outside the usual course of business and meet the exclusion, but
• The performance of services outside the employing unit’s premises, such as a typist typing manuscripts from home, renders the place where those services are performed as the employing unit’s place of business.

Plaintiff argued the cases setting forth liability for unemployment insurance benefits were distinguishable, as they all involved employment of nonprofessionals or day laborers and not “highly trained, licensed and highly paid professionals acting on their own accord in voluntarily choosing a relationship of independent contractor and not employee.” Plaintiff argued its business focused on supplying physicians to hospitals and it is not qualified to render medical services, while the business of the physicians was treatment of emergent medical conditions. The Court noted Plaintiff did not only supply physicians, it created hospital staff schedules, established protocol and set salaries, and found the services of the physicians, Scheduler and Auditor necessary components of Plaintiff’s business, without which there would be no business. The Court found Copley’s ER department as the location of Plaintiff’s business to the extent it was the sole location from which Plaintiff’s physicians worked on Plaintiff’s behalf, and the homes of the Auditor and Scheduler were locations of Plaintiff’s business similar to the example of the typist above. The Court noted the preparation and maintenance of the work schedules were within the course and scope of Plaintiff’s business, and Plaintiff paid the schedules expenses in setting up her home office. Based on these factors, Plaintiff failed to satisfy the Act’s requirement of Section 212B to show the individuals’ services were outside the usual course of the Plaintiff’s business or performed outside all the places of Plaintiff’s business, and the Court affirmed the Department’s decision finding Plaintiff liable for unemployment insurance contributions of all its physicians, Auditor and Scheduler.

The problem with this result isn’t that it’s improperly reasoned in accordance with the specific language of Section 212 of the Illinois Employment Security Act, but that it’s simply wrong in its result. We find it impossible to believe unemployment benefits, the rescue of the recently unemployed, the hand up never regarded as a handout, were ever intended for the wealthiest of our society simply because they fit the build of a poorly molded statute. Such well-paid professionals are not on the same economic footing as typical laborers and factory workers, nor do such laborers and factory workers possess the same level of transferable skills, training and education as the members of Plaintiff’s staff, nor the same odds of acquiring alternative employment in the face of severance. To equate Plaintiff’s staff with such individuals is to defeat the inherent purpose of the Illinois Employment Security Act, meant to serve as a sort of earned welfare to those lower members of the Illinois workforce struck with temporary unemployment; assistance to the “little guy” to keep him on his feet during hard times.

This article was researched and written by Joe Needham, J.D. Please forward your thoughts and comments to Joe at jneedham@keefe-law.com.