McDonald v. HAMPTON TRAINING SCHOOL

Present: Carrico, C.J., Compton, Stephenson, Lacy, Hassell,
and Koontz, JJ., and Whiting, Senior Justice

JAMES J. MCDONALD

v.   Record No. 961831       OPINION BY JUSTICE ELIZABETH B. LACY
                                        June 6, 1997
HAMPTON TRAINING SCHOOL
FOR NURSES, d/b/a SENTARA
HAMPTON GENERAL HOSPITAL

         FROM THE CIRCUIT COURT OF THE CITY OF HAMPTON
                 William C. Andrews, III, Judge


     In this appeal in a medical malpractice case, we consider

whether the trial court properly held that, because a physician

exercised independent medical judgment in performing his

duties, he was an independent contractor as a matter of law.
     The plaintiff, James J. McDonald, sued Hampton Training

School for Nurses, d/b/a Sentara Hampton General Hospital (the

Hospital) alleging that Richard F. Clark, M.D., a pathologist

at the Hospital, negligently interpreted McDonald's pathology

specimens and failed to timely diagnose cancer.   McDonald did

not allege any independent acts of negligence by the Hospital,

but asserted the Hospital was liable solely through the

doctrine of respondeat superior.    The trial court entered an

order granting the Hospital's motion to strike McDonald's

evidence and dismissing the case finding that, as a matter of

law, Clark was an independent contractor rather than an

employee of the Hospital.    Because we conclude that the

evidence presented a jury question on the issue of Clark's

employment status, we will reverse the judgment of the trial

court and remand the case.

     The doctrine of respondeat superior imposes liability on
an employer for the negligent acts of its employees.    If,

however, the negligent acts were performed by an independent

contractor rather than an employee, no master-servant

relationship exists between the contractor and employer, and

the employer is not liable for the negligent acts.     Norfolk and

Western Ry. Co. v. Johnson, 207 Va. 980, 983, 154 S.E.2d 134,

137 (1967).    The factors which are to be considered when

determining whether an individual is an employee or an

independent contractor are well established:    (1) selection and

engagement; (2) payment of compensation; (3) power of

dismissal; and (4) power to control the work of the individual.

 The fourth factor, the power to control, is determinative.
Hadeed v. Medic-24, Ltd., 237 Va. 277, 288, 377 S.E.2d 589,

594-95 (1989).    This factor refers to control over the means

and method of performing the work.     Baker v. Nussman & Cox, 152

Va. 293, 304, 147 S.E. 246, 249 (1929).    It is immaterial

whether the employer exercises this control; the test is

whether the employer has the power to exercise such control.
Smith v. Grenadier, 203 Va. 740, 746, 127 S.E.2d 107, 111-12

(1962).

        The trial court's determination in this case turned upon

the Hospital's lack of control over Dr. Clark's exercise of his

professional judgment in carrying out his duties as a

pathologist at the Hospital. 1   The trial court found that there
    1     1
        The trial court also relied on its interpretation of
Messina v. Burden, 228 Va. 301, 321 S.E.2d 657 (1984), in
concluding that Dr. Clark was an independent contractor. The
trial court referred to the language in Messina stating that
the James doctors "were essentially independent contractors as
was "nothing contractually or factually" to suggest that the

Hospital controlled the way that Dr. Clark performed his duties

but that he used "his independent professional judgment, based

on his education and his training and his experience to do

that."    Thus, the trial court held, as a matter of law, that

Clark was an independent contractor, not an employee, of the

Hospital.

         The Hospital asserts that the trial court was correct in

relying on the Hospital's inability to control Dr. Clark's

exercise of his professional judgment as conclusive in the

determination of his independent contractor status.    We do not

agree.    The proposition adopted by the trial court and argued

by the Hospital here may have been a correct statement of the

law at one time; however, it is inconsistent with current case

law in this jurisdiction and with the methods of operation

currently utilized by health care providers.
         As early as 1920, this Court held in Virginia Iron, Coal

far as their relationship with their patients was concerned,"
id. at 312-13, 321 S.E.2d at 663, as the Messina court's
explanation that the doctors in James were denied sovereign
immunity because they were independent contractors. Noting the
similarity between Dr. Clark's situation and that of the
doctors in James, the trial court concluded that Dr. Clark must
also be an independent contractor. This is an incorrect
application of the language in Messina. Neither James nor
Messina involved the status of an individual for purposes of
respondeat superior. The issues in these sovereign immunity
cases were governed by the test for determining whether a
governmental employee is entitled to sovereign immunity. This
test involves four factors, one of which is the control
exercised by the governmental employer; however, all four
factors must be considered, and the control factor is not
determinative of the result. Compare James v. Jane, 221 Va. at
53, 282 S.E.2d at 869, with Hadeed, 237 Va. at 288, 377 S.E.2d
at 594-95.
& Coke Co. v. Odle's Administrator, 128 Va. 280, 105 S.E. 107

(1920), that, although a mining company could be liable for the

malpractice of a physician employed by it based on the

company's agreement to furnish medical services to the

employee, this liability could not be based upon the doctrine

of respondeat superior.    There could be no master-servant

relationship between the company and the physician, the Court

explained, because the doctor was employed "to render

professional services requiring special education and training,

and involving the exercise of skill and judgment, which could

not, in the nature of things, be controlled by the will and

direction of the company. . . . The position of the doctor was

rather that of an independent contractor."     Id. at 288-89, 105

S.E. at 109.   This was the prevailing rationale throughout the

country at that time.     See, e.g., Schloendorff v. Society of

New York Hospital, 105 N.E. 92 (N.Y. 1914); Runyan v. Goodrum,

228 S.W. 397 (Ark. 1921); Joel D. Cunningham, The Hospital-
Physician Relationship:    Hospital Responsibility for

Malpractice of Physicians, 50 Wash. L. Rev. 385, 388-90 (1975).

     Weston's Administratrix v. Hospital of St. Vincent of

Paul, 131 Va. 587, 107 S.E. 785 (1921), decided a year after

Virginia Iron, reconfirmed that view in Virginia.    In that

case, a patient sought to impose liability on a charitable

hospital based on the negligence of a nurse in its employ.

Justice Burks, writing for the Court, stated that hospitals

were not liable for the negligence of nurses and physicians

because there can be no master-servant relationship between a
hospital and a physician or nurse.   107 S.E. at 787. 2

     A physician's status as an independent contractor rather

than an employee of a hospital was again reiterated, albeit in

dicta, in Stuart Circle Hospital Corp. v. Curry, 173 Va. 136, 3

S.E.2d 153 (1939).   There, a hospital was held liable to a

patient for the negligent acts of an intern and a nurse based

on an implied contract between the hospital and the patient to

provide medical services.   In the course of its opinion, the

Court recited that it was "conceded" that a physician is an

independent contractor and "alone is responsible for the

exercise of professional skill and judgment, subject to no

control by the hospital in the execution thereof."    Id. at 149,

3 S.E.2d at 158.

     The proposition that a physician is an independent

contractor solely because the nature of his profession prevents

his employer from acquiring the requisite ability to control

his medical activities has not been explicitly overruled in

Virginia by case or statute.   Subsequent cases, however, have

reached directly contrary results.

     In Ritholz v. Commonwealth, 184 Va. 339, 35 S.E.2d 210
(1945), the Commonwealth sought a declaratory judgment and

injunction against Ritholz and others claiming that they were

practicing optometry without a license based on the doctrine of


     2
      This portion of the opinion does not appear in the
Virginia Reports; however, the version of the opinion which
includes this discussion is the version on file in our Clerk's
office and remains the official copy of the opinion.
respondeat superior. 3   Ritholz operated stores in which

licensed physicians examined each customer's eyes, wrote a

prescription for eyeglasses, and collected a $2 fee.    The

prescription was given to an employee in the store to be

filled.   Ritholz claimed that his business was the filling of

prescriptions by producing the prescribed eyeglasses.       He

argued that the physicians in his stores were independent

contractors because he neither exercised, nor attempted to

exercise, any supervision or control over the means and method

used by these physicians in eye examinations.    Id. at 355-57,

35 S.E.2d at 219.   The Court held that the physicians were

employees, not independent contractors, referring specifically

to the decisions of other jurisdictions holding that physicians

in identical circumstances were employees "notwithstanding the

fact that the defendants actually exercise no control over 'the

mode, manner or result of the examination of the eyes of the

customer and the doctor is left free to exercise his own will

(and) judgment and to use his own professional skill and

methods in making such examination.'"    Id. at 358-59, 35 S.E.2d

at 219 (citations omitted).

     Forty years later, this Court held that the Virginia Beach

S.P.C.A. was engaged in the illegal practice of veterinary

medicine because it operated a full-service veterinary clinic

through the services of its licensed veterinarian.     Virginia
     3
      In contrast, by statute, hospitals are deemed not to be
engaged in the unlicensed practice of medicine when they
provide medical services. Stuart Circle, 173 Va. at 146, 3
S.E.2d at 156.
Beach S.P.C.A., Inc. v. South Hampton Roads Veterinary Ass'n,

229 Va. 349, 353, 329 S.E.2d 10, 12 (1985).     The veterinarian

was an employee, not an independent contractor, the Court

concluded, because the employment contract showed that the

S.P.C.A. retained substantial control over the doctor's

performance. 4   Id.   Finally, in Hadeed v. Medic-24, Ltd., a

case involving the negligent acts of several physicians, we

concluded that the issue whether the doctors were independent

contractors or employees was a matter for the jury to

determine.   237 Va. at 288, 377 S.E.2d at 595.
     Clearly, these cases have undermined the applicability of

the principle set out in Virginia Iron, Weston's

Administratrix, and Stuart Circle. 5    This jurisprudential
     4
      The contract provided that the doctor receive an annual
salary, a percentage of the gross receipts, and a portion of
the charges for spaying and neutering. The contract also
provided that the doctor "accepted his employment 'subject to
the general supervision and pursuant to the orders, advice and
direction of' the S.P.C.A., and that he would perform his
duties 'to the reasonable satisfaction of' the S.P.C.A." Id.
at 351, 329 S.E.2d at 11.
     5
      Other cases, although not addressing the independent
contractor issue directly, are not consistent with the
principle as originally stated in Virginia Iron. For example,
in P.M. Palumbo, Jr., M.D., Inc. v. Bennett, 242 Va. 248, 251,
409 S.E.2d 152, 153 (1991), we held that physicians cannot be
independent contractors but must be employees or officers of
professional corporations providing health care services. In
Lohr v. Larsen, 246 Va. 81, 88, 431 S.E.2d 642, 646 (1993), a
case involving a physician working for the state, we noted that
"when a government employee is specially trained to make
discretionary decisions, the government's control must
necessarily be limited in order to make maximum use of the
employee's special training and subsequent experience."
Earlier this year, in Schwartz v. Brownlee, 253 Va. 159, 163-
64, 482 S.E.2d 827, 829 (1997), we held that a physician was an
agent of a corporate non-health care provider when providing
post-operative treatment to a patient.
evolution is consistent with changes adopted in other

jurisdictions.     See, e.g., Beeck v. Tuscon General Hosp., 500

P.2d 1153 (Ariz. App. 1972); Medi-Stat, Inc. v. Kusturin, 792

S.W.2d 869 (Ark. 1990); Rice v. California Lutheran Hosp., 163

P.2d 860 (Cal. 1945); Moeller v. Hauser, 54 N.W.2d 639 (Minn.

1952); Bing v. Thunig, 143 N.E.2d 3 (N.Y. 1957); John D.

Hodson, Annotation, Liability of Hospital or Sanitarium for

Negligence of Physician or Surgeon, 51 A.L.R. 4th 235, 281-85

§ 9[c] (1987). 6
     The federal courts also recognize that the exercise of

professional judgment in providing medical treatment alone

cannot be determinative of the employment relationship between

a physician and an employer for purposes of the Federal Tort

Claims Act, 28 U.S.C. §§ 1346(b), 2671-2680 (1994 & Supp.

1997).   Some circuits have treated the contract terms as

critical to the determination of the relationship, Robb v.

United States, 80 F.3d 884, 891 (4th Cir. 1996), while others

look to the intent of the parties, Lilly v. Fieldstone, 876
F.2d 857, 859 (10th Cir. 1989).

     Retention of the blanket rule articulated over 70 years

ago in Virginia also does not reflect the changing

circumstances surrounding the practice of medicine.    "The

     6
      Jurisdictions retaining the prohibition against the
existence of a master-servant relationship generally subscribe
to the view that if a such a relationship exists between a
hospital and a physician, the hospital would be illegally
practicing medicine without a license, a view rejected in this
jurisdiction. Stuart Circle Hospital Corp. v. Curry, 173 Va.
at 146, 3 S.E.2d at 156.
conception that the hospital . . . undertakes . . . simply to

procure [doctors] to act upon their own responsibility, no

longer reflects the fact."   Bing v. Thunig, 143 N.E.2d at 8.

In addition to the staff privileges granted physicians with

private practices, hospitals "regularly employ on a salary

basis a large staff of physicians, nurses and internes, . . .

and they charge patients for medical care and treatment."     Id.

"To an increasing extent" patients no longer select their

physicians; they are often supplied by the hospital or clinic.

"Hospital and other corporate institutions that provide

medical care have increased the number and the frequency of

salaried arrangements for physicians. . . . [C]ontracts with

hospital-based specialists have dramatically increased."

Arthur F. Southwick, The Law of Hospital and Health Care
Administration, 546 (2d ed. 1988).

     Finally, consistent application of the proposition

advanced by the Hospital here would require that virtually

every professional who is expected to exercise independent

judgment in the performance of the duties of the workplace

would have to be deemed an independent contractor, regardless

of the scope of his or her duties or the limitations on the

employment.

     Therefore, after reviewing our prior cases and considering

the current manner in which medical services are provided, we

conclude that, for purposes of determining employment status,

the exercise of professional judgment by a physician in the

performance of professional duties is a factor, but not the
only factor, to be considered in evaluating the employer's

power to control the means and method utilized to perform the

work.    Having resolved the nature of the test to be applied, we

now consider whether the record supports the trial court's

holding that Clark was an independent contractor as a matter of

law.

        Dr. Clark is the Director of Pathology at the Hospital.

He is a licensed and board certified physician and has worked

under a contract at the Hospital for thirty-three years.    As

Director of Pathology, Dr. Clark's general responsibilities

include interpreting various specimens, performing autopsies,

bone marrow aspirations and biopsies, and, to a lesser extent,

consulting with patients who have problems related to

hematology pathology, although he did not meet or consult with

McDonald, the patient in this case.
        The Hospital owns the pathology laboratory, and laboratory

personnel are employees of the Hospital. Dr. Clark’s contract

provides that he "shall provide all the administrative,

professional, supervisory, quality assurance and educational

services relating to the operation of the" laboratory, but he

has no authority to hire or discharge employees of the

laboratory.    Although Dr. Clark has no authority to purchase

supplies or equipment for the laboratory, he participates in

the Hospital's annual budget process.

        The Hospital pays Dr. Clark a set monthly fee for his

services and reimburses him for all of the costs of his

practice, including his business license tax, malpractice
insurance, and professional dues.     The Hospital does not

withhold federal, F.I.C.A., state or local income or

occupational taxes from his salary, and his income is reported

on a 1099 federal tax form, not a W-2 form.     The Hospital is

not responsible for his unemployment compensation, workers'

compensation contributions, vacation pay, sick leave, or

retirement benefits.

     Dr. Clark must interpret all slides that the Hospital

presents for review, and his salary is not related to the

number of slides he evaluates.     He may render services to other

entities and receive compensation for such work, but he must

obtain the Hospital's written authorization before working
             7
elsewhere.       His contract requires that he maintain board

certification, a requirement not otherwise necessary to perform

pathology services.

     The Hospital has no control over Dr. Clark's independent

medical judgment nor has it influence over his diagnostic

opinions about pathologic material.     His contract provides,

however, that he must satisfy the Hospital in the performance

of his duties and that he will "comply with the bylaws, rules

and regulations, policies and directives of the Hospital and
     7
      During his tenure with the Hospital, Dr. Clark has
performed services and has been compensated as a consultant at
Kecoughtan Veteran's Hospital and McDonald Army Hospital and
has served as Director of the Laboratory at Langley Air Force
Base and the Director of Pathology at Mary Immaculate Hospital.
 Dr. Clark currently performs services for the state medical
examiner's office. Although he has never been refused
permission to work for another entity, the Hospital did require
him to choose between working for it or Mary Immaculate
Hospital.
its medical staff."

     All laboratory reports are printed on Hospital letterhead

and are the property of the Hospital.   Additionally, the

Hospital sets the fees charged patients, bills patients, and

collects payments.    Dr. Clark is required to keep time records

for these billing purposes.   The Hospital's contract explicitly

refers to Dr. Clark as an independent contractor, but when

asked whether he thought he was an employee of the Hospital,

Dr. Clark responded "[w]ell, in some regards I think that might

be the case, although this [contract] states differently."
     Whether a person is an employee or an independent

contractor is generally a question of fact for the jury.

Hadeed, 237 Va. at 288, 377 S.E.2d at 594.    Where the evidence

admits of only one conclusion, the question is a matter of law.

 Stagg v. Taylor's Adm'r, 119 Va. 266, 270, 89 S.E. 237, 238

(1916).   Taking these facts and the inferences they raise in

the light most favorable to McDonald, as we must do when

reviewing a motion to strike, Hadeed, 237 Va. at 280-81, 377
S.E.2d at 590, the facts do not lead to a single conclusion,

and the issue should have been left to the jury for

determination.

     Accordingly, we will reverse the judgment of the trial

court and remand the case for further proceedings.

                                           Reversed and remanded.