C. ERIC STEVENS & SARAH LODGE TALLY

Tennessee Appellate Court Extends the “Loaned Servant” Doctrine to Whistleblower Cases

They are nearly everywhere in healthcare.

Technicians provided to support specialized testing equipment. Nurse assistants employed by multiple agencies. RNs and LPNs staffing a unit. They are employees of contractors — personnel used to provide specific, and often very specialized, services to a hospital, clinic, or physician’s practice. Often times, they blend in with other staff. And they provide valuable and necessary services.

But when something goes wrong, who is responsible? The employee claims to have been sexually harassed, or loses his or her position, or is responsible for harm to a patient or co-worker. A recent Tennessee Court of Appeals decision emphasizes the importance of how contractor employees are handled.

The case arose in the context of a “whistleblower” claim under state law. The plaintiff was a nurse practitioner employed by a company contracted to provide medical support services for the defendant hospital’s Emergency Room. Based on a number of issues with this particular plaintiff, the hospital asked the contractor to assign the plaintiff somewhere other than to its ED. When the contractor fired the plaintiff, she sued the hospital for whistleblower violations under both statutory and common law, claiming that she was a “loaned servant” of the hospital and, as such, should have the same whistleblower protections as an employee of the hospital.

The principle of “loaned servant” arises out of the situation in which an employer “loans” an employee to another, giving that entity sufficient control over the employee so as to be deemed the employer. The doctrine can arise in the contexts of worker’s compensation or claims of liability for damages caused by the “loaned servant.” 

While the Court acknowledged that the “loaned servant” doctrine had not, to this point, been applied to establish the required employment relationship necessary for a whistleblower claim, the Court saw no problem with expanding the doctrine, stating, “However, we are persuaded that certain circumstances may exist in which the loaned servant doctrine could be applied to give rise to an employer-employee relationship in such cases.” 

In determining whether the plaintiff was the “loaned servant” of the hospital, the Court looked to factors such as the degree of control exercised by the hospital over the means and manner by which the plaintiff performed the contracted services, whether a contract of employment existed, the contractual terms between the hospital and the company employing the plaintiff, and, most importantly, who had the right to terminate employment.

Fortunately for this defendant hospital, the Court found that the plaintiff could not establish that she was a “loaned servant” in this case. However, the Tennessee court’s extension of this doctrine to whistleblower claims should serve as a warning to healthcare providers utilizing the services of employees of contractors or joint venturers.

It is imperative that any situation in which the employees of a contractor or a joint venturer are providing services to a healthcare provider be documented, and the terms be clearly stated. In addition to specifically identifying which party is the employer (and which party is not the employer), the document should address such matters as responsibility for payment of compensation, withholding and reporting of taxes (if applicable), oversight of employees’ licensure (if applicable), background checks, and under what circumstances an employee might be removed from a staffing position.

If the non-employing party is given some authority to request that a contractor’s employee not return to a position, it is also important to state that only the employer has the right to actually terminate the employment relationship. A further protection would be to require that the party supplying the contract services have written employment contracts with its employees that also states the employee is not entering into an employment relationship with any entity contracting for their services.

Another consideration is the oversight of contract employees in the workplace. While exercising some control over a contractor’s employee is permitted, and indeed is appropriate in the healthcare context, that degree of control should be closely monitored. When performance issues arise, they should be dealt with through the supplying entity and not directly with the contract employee.

One further consideration is the manner in which contract employees are treated and are presented to patients and the general public. Healthcare providers should be careful not to blur the employment relationship by treating the contractor’s employee as just another staff member. Where possible, identification badges should contain some, even if subtle, distinction between employee and contract employee. Even nomenclature such as “employee handbooks” should be evaluated if policies may apply to non-employee contract providers.

Undoubtedly, there will be more claims against healthcare providers by individuals or groups claiming to be “loaned servant” following the Court of Appeals’ decision. Proactive assessment and documentation will be important in making sure the first successful claim is not against your organization.

Established in 1867, Miller & Martin PLLC (www.millermartin.com) today is a full-service regional law firm with offices in Atlanta, Chattanooga, and Nashville and almost 200 attorneys practicing in over 35 areas of law. 

C. Eric Stevens, Member, brings more than 25 years of experience in the practice of employment, labor relations and employment litigation, with particular focus on healthcare and financial institutions. estevens@millermartin.com

Sarah Lodge Talley, Associate, practices in the firm’s General Litigation and Healthcare departments and represents various clients in general civil practice, including commercial matters, healthcare litigation and employment litigation. stally@millermartin.com