As specified in the California Business and Professional Code, the following people may be the shareholders, officers, directors, or professional employees of a medical corporation:

• Licensed doctors of podiatric medicine;
• Licensed psychologists;
• Registered nurses;
• Licensed optometrists;
• Licensed marriage and family therapists;
• Licensed clinical social workers;
• Licensed physician assistants;
• Licensed chiropractors;
• Licensed acupuncturists;
• Naturopathic doctors.

The California Medical Board and California Codes state that an unlicensed person cannot own any shares of a medical corporation. At least 51% of the shares must be owned by a licensed physician and surgeon. The remaining 49% can be owned by the individuals specified above.

What is a Medical Practice?

Since no corporation but a Medical or Professional Corporation can run a medical practice, it is important to understand the definition and scope of that under the law.  According to the California Business and Professional Code, section 2051, the practice of medicine is defined as the:

“use of drugs or devices in or upon human beings and to sever or penetrate the tissues of human beings and to use any and all methods in the treatment of diseases, injuries, deformities, and other physical and mental conditions.”

This is further supplemented by the various sections of the Business and Professions Code, and other California Laws, which delineate the scope of practice for each of the licensees listed above.

Are there any Federal Restrictions?  What is the Stark Law?

What is often called the Stark law is comprised of three separate provisions that regulate physician self-referral to Medicare and Medicaid patients because of the possible conflict of interest. This often limits physicians’ ownership of health care companies, because they cannot refer from their own medical practice.

For example, Physicians may not refer patients to any medical facilities in which they have financial interest including ownership, investment, and a structured compensation arrangement. A physician’s self-referral could possibly encourage over-utilization of services which would increase health care costs. Self-referral could also cause a captive referral system which would limit competition from other providers.

Physicians are also banned from referring patients to immediate family members who include spouses, parents, grandparents, children, grandchildren, brothers, sisters, mothers-in-law, fathers-in-law, brothers-in-law, sisters-in-law, daughters-in-law, sons-in-law, and also adopted and step members of their families. Referring to an immediate family member would also be another conflict of interest. There is no stated regulation in the Stark law against referring to more distant relatives. The physician referring to the distant relative however, still may not have any financial interest or gain from the referral.

What is the History of the Stark Law?

• Stark I- Congress included provisions in the Omnibus Budget Act of 1989 (OBRA 1989) which barred self-referrals for clinical laboratory services under the Medicare program effective January 1, 1992. This provision also included a series of exceptions to the ban in order to accommodate legitimate business arrangements.
• Stark II- (OBRA 1993) expanded restriction to a range of additional health services and applied it to Medicare and Medicaid. This provision also contained some clarifications and modifications to the original law. The Social Security Amendments of 1994 also contained minor technical corrections to these provisions.
• Phase III- The final rule was published on September 5, 2007 and it became effective December 4, 2007. This contains two major changes which are the repeal of the prohibitions based on compensation arrangements and the reduction in the list of services subject to the ban.

There are certain requirements that a company must meet in order to qualify for exemption from registration. First sales of the company’s securities cannot be made to more than 35 persons, including persons not in this state. These purchasers of the securities must also have a preexisting personal or business relationship with an officer, partner, director, manager, or controlling person of your company. If the purchaser does not have a preexisting relationship then they must be reasonably assumed to have the capacity to protect their own interests with the transaction. Second your company cannot advertise or solicit their securities to the public and when bought a individual must be purchasing the security for themselves or a trust as they cannot resell it.

In California, Corporations Code 21502 (n) also offers corporations exemption from registering transactions, however to qualify under this section the corporation must only sell its securities within California. If your company does this then it must meet the same requirements for exemption as seen as in Code 25102 (f) above to be considered for exemption within this code as well.

Security registration requirements are extremely complex, and any company seeking to raise money from investors is urged to seek the advice of qualified legal counsel.

Although there is no fixed format, most employee handbooks generally include similar company policies such as employment, standards of conduct, wage and salary, benefits and services, and federal acts. Welcoming statements, oriental procedures, disclaimers, forms of acknowledgment, and definitions are also incorporated into the handbooks as well.

Common employment policies outlined in employee handbooks are:
o Non-discrimination/ Non-disclosure/confidentiality
o Office hours/lunch/break periods
o Personnel files/data changes
o Performance review
o Employment termination (This includes the “at-will” provision, in which the employer has the right to terminate an employee at any time, and an employee has the right to quit at any time)
o Safety/health related issues/employees requiring medical attention
o Supplies; Expenditures; Obligating the company
o Expense reimbursement
o Visitors in the Workplace
o Immigration Law Compliance

Standards of conduct policies detailed in handbooks generally include:
o Attendance
o Absence without notice
o Harassment, including sexual harassment
o Use of company property—telephone, email, internet etc
o Substance abuse
o Smoking/tobacco products

Wage and salary policies:
o Promotions
o Timekeeping
o Overtime
o Payday

Benefits and Services:
o Insurance
o COBRA
o Social Security/Medicare
o Vacation/Holidays
o Jury Duty/Military Leave
o Family/Maternity/Sick leave
o Training and Professional development

Note that these policies are just general suggestions, and that each company has the freedom to draft its own handbook according to its own unique policies and procedures.

A well-drafted employee handbook is able to explain these policies concisely and clearly, as length is not always an indication of quality. The purpose of the employee handbook is to inform employers and employees of the company’s expectations, therefore the manual should be comprehensible.

Because it details expectations from the company to its workers, as well as outlines what the employee can expect from the company, the employee handbook is a necessity in the workplace. The handbook provides all information that employers are legally required to provide, and also compiles important policies in one easily accessible place.

As a tangible document with a written set of rules and expectations, the employee handbook ensures fairness by creating a uniform policy that all workers must adhere to and by standardizing the enforcement of these policies. In addition to securing consistency by applying the same procedures for all workers, the handbook serves to communicate common expectations between the company and its employees. For example, expectations regarding sick days and vacation holidays are addressed in the manual to prevent misunderstandings.

Misunderstandings between an employee and his or her employer can lead to lawsuits which are costly for both parties. A well-drafted employee handbook greatly reduces such confusion and minimizes risk of litigation. Even in times of a lawsuit, the manual can serve to limit a company’s liability and work as a defense—some courts have considered these handbooks to be a contractual obligation, as an employee signs an acknowledgment form recognizing and agreeing to company policy. Furthermore, the employee handbook functions as documentation that a company is committed to compliance with federal and state laws and regulations. The inclusion of acts such as the “Family and Medical Leave Act” can demonstrate a company’s intent to adhere to employment laws and provide a fair working environment.

Aside from providing legal information, the employee handbook creates a positive company image by laying out benefits and company spirit. Having a tangible document that clearly addresses company policies and benefits reinforces employee morale and solidifying company ethics.

Although not legally obligated, many companies choose to adopt an employee handbook for a variety of reasons. Having a well-written employee handbook accessible reduces the chance of miscommunication and save time in answering repeated questions.

The theme for this year’s conference is “Changing the Way We Do Business: Successfully Identifying, Competing for and Capitalizing on International Business, Funding and Job Creation Opportunities”

More information is available at www.ibaglobal.org or www.buyusa.gov.

The control test looks at who has primary control over the work being done.  For instance, should a worker be responsible for shaping how majority of any particular piece of work is done then they would be considered an independent contractor.  Likewise, if a worker is not be responsible for majority of their work then they would be considered an employee of the company.

Key elements of the control test were addressed in a case entitled S.G. Borello & Sons v. Dept. of Industrial Relations. The “Borello test”, as it has come to be known, relied on eight factors,which are as follows:

1. whether the one performing services is engaged in a distinct occupation or business;
2. the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
3. the skill required in the particular occupation;
4. whether the principal or worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
5. the length of time for which the services are to be performed;
6. the method of payment, whether by the time or by the job;
7. whether or not the work is a part of a regular business of the principal;
8. whether or not the parties believe they are creating the relationship of employer-employee.

Typically the Borello test is used for cases involving wage and hour laws, state discrimination, and harassment in California state courts.  However, for a case in federal court the “economic realities test” is used instead.  Similar to the Borello test, this test has six factors, which are:

1. the degree of the alleged employer’s right to control the manner in which the work is to be performed;
2. the alleged employee’s opportunity for profit or loss depending upon his or her managerial skills;
3. the alleged employee’s  investment in equipment or materials required for his or her task, or his or her employment of helpers;
4. whether the service rendered requires a special skill;
5. the degree of permanence of the working relationship;
6. whether the service rendered is an integral part of the alleged employer’s business.

In both tests, each of the factors are weighed on a case by case basis, so it can be difficult to determine close cases.  Regardless, these tests give employers a basic guideline for judging the type of worker relationship they have.  As one can see, control is the strongest theme throughout the Court’s tests and thus the most important for an employer to identify.  Successfully identifying who is controlling the means of any project given to a worker is essential in classifying them as an independent contractor or employee.

The information presented in this article is intended for general information, and is not legal advice.  If you have a question about how to properly classify a worker, you should consult with an attorney qualified in your jurisdiction.

For example, simply because a worker wishes to be treated as an independent contractor does not make them one.  Nor is a written contract classifying the worker as an independent contractor enough.  The language used can still be influential in court, however words such as “worker”, “client” and “service provider” are usually associated with an independent contractor while words like “hire” show and employee-employer relationship.  But it is still important to remember this type of language in a contract does not provide security against mislabeling a worker.

This confusion can create numerous issues involving liability and violation of California wage and hour laws.  Furthermore, Government agencies such as the IRS, Division of Labor Standards Enforcement (DLSE), and the California Employment Development Department (EDD) may also prosecute a company for misclassifying a worker.  These penalties include stop orders, which prevent an employer to from using employee labor until compliance with Labor Code § 3700.  Additionally tax liability and penalties are likely to be brought against an employer for failing to properly pay an employee.  Worst of all, criminal charges could even be brought on the company under Labor Code § 3700.5.  This means large fines could be levied against the employer and jail time of up to one year could be given.

Since the severity of the possible punishments is great, it is extremely important to establish the correct worker/employer relations.  In part two of this article ways to distinguish the two will be covered.