Keeping Tabs on the Ninth Circuit
August 20, 2020 - This Week at the Ninth

This Week at The Ninth: Employees, Independent Contractors, and ERISA

This Week at The Ninth: Employees, Independent Contractors, and ERISA

This week, this Ninth Circuit once again issued a number of opinions arising from the employment relationship. Here, we focus on two of particular interest. In the first, the Court sought to unravel whether an emergency room physician was an employee of the hospital at which he worked. In the second, the Court untangled a difficult question of statutory interpretation, holding that ERISA “equitable relief” does not encompass an award of fees incurred in an administrative appeal.

The Court holds that an emergency room physician was an independent contractor, not an employee, of the hospital at which he worked, and thus could not sue it for discrimination under Title VII.

Panel: Judges Owens, Friedland, and R. Nelson, with Judge Owens writing the opinion.

Key Highlight: “In arguing that he was an employee, Henry cites the high skill level that his surgeries require, Castle’s provision of assistants and medical equipment, and Castle’s mandatory professional standards as factors weighing strongly in his favor. In certain lines of work, these facts might be persuasive. Yet, as our sister circuits have observed, in the physician-hospital context, the level of skill required, location of the work, and source of equipment and staff are not indicative of employee status because all hospital medical staff are skilled and must work inside the hospital using its equipment.”

Background: Plaintiff David Henry, a white male, had clinical privileges at defendant Castle’s hospital. Pursuant to his agreements with Castle, Henry served 5 days a month as an on-call physician in the emergency department. After he complained of discrimination, Castle reviewed his past surgeries and then suspended him. Henry responded by filing suit for alleged violations of Title VII of the Civil Rights Act, claiming racial discrimination and retaliation. The district court granted Castle’s motion for summary judgment, concluding that Henry was an independent contractor and thus could not invoke Title VII.

Result: The Ninth Circuit affirmed. As the Court explained, whether someone is an employee rather than in independent contractor turns on “the hiring party’s right to control the manner and means by which the product is accomplished,” an inquiry that requires evaluating a host of factors. Here, the Court focused on three in particular. First, the Court declared, “we follow the money.” Castle had paid Henry varying amounts which totaled less than 10% of his income, had not provided him any benefits, and had issued him a 1099 rather than a W-2 tax form—all indicators that he was an independent contractor. Second, the Court emphasized, “Henry’s obligations to Castle were limited,” as he was on call only five days per month, could readily shift those dates, and was free to conduct his private practice at Castle or at a competing hospital—again demonstrating his “professional independence.” Third, Henry’s contracts with Castle expressly stated that he was an independent contractor, a factor courts “have found significant.”

The Ninth Circuit acknowledged that evidence of Henry’s skill, along with Castle’s provision of assistance and imposition of professional standards, might ordinarily weigh in the opposite direction. As it observed, “In certain lines of work, these facts might be persuasive.” But the Court, citing decisions from the Fourth, Eighth Circuit, and Tenth Circuits, held that for physicians working in hospitals, these factors “are not indicative of employee status because all hospital medical staff are skilled and must work inside the hospital using its equipment,” and all hospitals must impose standards of professional conduct. And while prior decisions from the Ninth and Second Circuits had allowed physicians’ employment claims to avoid dismissal, these cases involved either different compensation structures or a greater degree of micromanagement of the physician’s work. Here, the Court concluded, “[o]n balance, the undisputed facts clearly show that Henry was Castle’s independent contractor.” 

The Court affirmed the dismissal of a suit brought under the Employee Retirement Income Security Act that sought to recover attorney’s fees incurred in an administrative appeal of a benefits determination.

Panel: Judges Paez, Bade, and Zouhary (N.D. Ohio), with Judge Bade writing the opinion.

Key Highlight: “This appeal requires us to decide whether” 29 U.S.C. § 1132(a)(3) “authorizes an award of attorney’s fees incurred during the administrative phase of the ERISA claims process. We hold that § 1132(a)(3) does not authorize an award of such fees.”

Background: Juan Castillo was a participant in an employee benefit group welfare plan administered by MetLife. After becoming disabled, he retired, began collecting long-term disability benefits under the plan, and rolled his pension benefits into an individual retirement account. Several years later, to account for the pension rollover, MetLife reduced Castillo’s disability benefits and sought to recover benefits already paid. Castillo retained counsel and successfully appealed MetLife’s decision administratively. He then brought suit in district court under ERISA Section 1132(a)(3)—which, as relevant here, authorizes ERISA plan beneficiaries to bring an action seeking “other appropriate equitable relief” for a plan administrator’s breach of fiduciary duty. Castillo alleged that MetLife breached its fiduciary duties of prudence and loyalty by belatedly reducing his benefits, and he sought to recover the attorney’s fees he incurred in the administrative appeal. The district court granted MetLife’s motion to dismiss, concluding that the attorney’s fees Castillo sought were not “appropriate equitable relief” under Section 1132(a)(3).

Result: The Ninth Circuit affirmed. The Court first acknowledged several “valid premises” underlying Castillo’s position. The Court determined that “surcharge,” or monetary compensation for a loss caused by a trustee’s breach of duty, is an available remedy under Section 1132(a)(3). It also recognized that courts have discretion to award attorney’s fees to a prevailing beneficiary as part of the surcharge remedy. And the Court rejected MetLife’s argument that Castillo could not proceed under Section 1132(a)(3) because other ERISA remedies would provide adequate relief. Specifically, it concluded that a denial-of-benefits claim under Section 1132(a)(1)(B) would not enable Castillo to obtain the attorney’s fees he sought in the present lawsuit.

Nonetheless, the Court ultimately disagreed with Castillo’s position based on “two factors that counsel against an award of attorney’s fees.” First, in an earlier precedent, the Ninth Circuit had held that attorney’s fees incurred in administrative proceedings are not recoverable under Section 1132(g), ERISA’s express fee-shifting provision. The Court observed that Castillo’s proposed rule would allow claimants to circumvent that precedent and accomplish under Section 1132(a)(3) what they could not under Section 1132(g) by recharacterizing a denial-of-benefits claim as a breach-of-fiduciary-duty claim. Moreover, the Court’s earlier precedent had reasoned that awarding administrative-proceeding attorney’s fees under Section 1132(g) would undermine ERISA’s purpose of promoting plan stability, since it could incentivize plans to pay questionable claims in order to avoid liability for attorney’s fees. The Court here explained that this same “reasoning extends, at least to some extent,” to Section 1132(a)(3).

Second, the Court noted that Section 1132(g) expressly addresses the subject of attorney’s fees and affirmatively authorizes an award of fees incurred in civil actions, but makes no mention of fees incurred during ERISA’s mandatory administrative proceedings. The Court concluded that, under the canon of expressio unius est exclusio alterius, this supported the inference that Congress in Section 1132(a)(3) did not authorize an award of fees incurred in administrative proceedings.