Why You Need an Independent Contractor Agreement for your 1099 Staff

Why expend the effort to bind 1099 workers to a contract? Isn’t that something that you do with employees?

Smiling woman handing an independent contractor agreement to another woman.

As you explore ways to grow your healthcare practice, you might decide to bring an independent contractor (often informally called a “1099” worker) into your workforce. Both the practice and the independent contractor enjoy benefits from such arrangements. The healthcare provider has more flexibility and independence in how they render care. Meanwhile, the practice avoids the cost and liability of an additional employee. 

See our related video, “Is That Worker an Employee or an Independent Contractor? Why Classification Matters.”

An independent contractor relationship also allows the practice to largely “outsource” responsibilities that fall outside the scope of their day-to-day operations or expertise. Examples include non-provider functions such as information technology, bookkeeping, or janitorial services.

But while it might be easier to recruit, train, and compensate an independent contractor than an employee, this is largely because contractors aren’t hired, and they don’t work for the practice. Instead, think of independent contractors as individual businesses that provide a service to your practice.

Because it’s a business-to-business relationship, it is important that the parties agree to the terms of their relationship before the contractor begins work with the practice. An independent contractor agreement memorializes these crucial details.

Why enter into an independent contractor agreement?

Isn’t the whole point of working with an independent contractor the fact that they’re independent? So why incur legal fees and expend effort in binding them to a contract? Isn’t that something that you do with employees?

Yes, an independent contractor is indeed independent. A key reason to have an agreement in place is because they have a high level of discretion and control over the work they perform for you. If you try to exert too much control over an independent contractor, you could inadvertently convert them into an employee in the law’s (and Internal Revenue Service’s) eyes. 

If the classification as a contractor is challenged in court, the states often look at the holistic picture of how the worker was actually treated. Having language in a contract can be helpful to convey your intentions and help avoid “creep” beyond the boundaries of the predetermined arrangement. 

At the same time, independent contractors can still be bound by many of the expectations that you set for the other members of your workforce. This includes HIPAA compliance and adherence to your fraud, waste, and abuse policies.

What is in an independent contractor agreement?

An independent contractor agreement can help your contractor and you reach an understanding on important terms of your work together.

The Duration of the Relationship

How long do you anticipate working with the contractor? Until a predetermined date? Until a particular event happens? As long as required to accomplish one of the practice’s goals? You can state the duration in a termination clause. Your attorney can advise you about the benefits and downsides of including specific timeframes or terms about whether the contract can be renewed or canceled. 

The Independent Contractor’s Duties

It’s easy to treat your independent contractors like the rest of your employed team. Thus, the agreement can carefully spell out the contractor’s responsibilities. For example, do you expect them to attend staff meetings? (Maybe.) Are they responsible for their own license dues and continuing education? (Typically, yes.) Can you tell them what to wear, when to work, which patients to treat, or which modalities to offer? (Likely not.)

By addressing these issues at the onset of the relationship, the agreement can provide clarity to both parties. And if employees are disgruntled that someone else is operating under “special rules,” you can say that different people have different agreements — and leave it at that.

Patient Transfers of Care

The decisions of whether, where, and from whom to obtain treatment belong to the patient. However, some practice owners insist that the contract clinician first make reasonable efforts to reassign their patients to another provider within the practice. 

The agreement should describe how to handle transfers of care — whether to another practice clinician or to an outside practice — and whether the provider can solicit their existing patients to follow them to a new or separate practice. Keep in mind that some independent contractor providers treat patients at multiple practices. To patients, this can just appear to be different locations.

Confidentiality and Other Restrictive Covenants

An independent contractor agreement may include covenants (or promises) that restrict your independent contractor’s ability to share confidential information learned while working at the practice. This typically applies to trade secrets or business information.  Confidential patient information is already protected by various health laws and your practice’s appropriate workforce agreements. 

The contract might also include a prohibition on soliciting employees or patients once the independent contractor has left the practice (a “non-solicitation clause”). Or, it might prohibit the contractor from competing with your practice if they leave, either by opening a new practice or joining another one (a “non-competition clause”). 

However, non-competition and non-solicitation clauses are often unenforceable against independent contractors! Many states, such as California and Illinois, have even limited or prohibited their enforceability against employees. Your attorney can help to craft an agreement that protects your practice’s interests without imposing improper restrictions on your contractor’s future behavior.

Dispute Resolution 

How will the parties resolve disputes that arise out of the agreement? If your attorney suggests adding an arbitration clause to the contract, the parties must agree to settle disputes out-of-court with an arbitrator. It is intended to avoid costly litigation. Note, however, that many states’ laws limit the use of arbitration clauses in worker contracts because they can deter discrimination and similar lawsuits.

Other details that are likely to be addressed by an independent contractor agreement include:

  • insurance obligations
  • billing, payments, and assignment of rights under the contractor’s NPI number
  • assignment or allocation of patients
  • indemnification for contractor’s negligence

That’s not all! The above provisions don’t fully encompass everything you’ll find in a robust independent contractor agreement. An experienced healthcare attorney can help you consider your practice’s needs and create an agreement that best suits you.

The bottom line — you should use an independent contractor agreement to:

  • Clarify your independent contractor’s role in the business
  • Prevent your independent contractor from engaging in certain activities, such as breaching confidentiality or poaching employees
  • Protect your practice and limit the possibility of litigation 

A healthcare lawyer can help you develop independent contractor agreements,  employment contracts, staff policies, and employee handbooks appropriate for your practice. If you operate in a state where we have licensed attorneys, schedule a free consultation to learn more.

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader and should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

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