This article was originally published in Law360 on November 14, 2022 and is republished with permission.
Companies whose business models are based entirely on remote provision of services face a number of unique employment law challenges.
Those challenges can be particularly vexing in the highly regulated telehealth industry. Much of the compliance focus for digital health providers appropriately hones in on the state where the patient is located — for example, ensuring that practitioners are appropriately licensed to treat patients in a particular state.
However, when it comes to employment law compliance, the analysis is the opposite — the law of the state where the practitioner is physically located while talking into the screen is going to apply in most circumstances. Employers in this space therefore need to be attuned to myriad state employment laws, as remote work-related employment lawsuits are becoming more common.1
For example, since August about 1,500 state and federal lawsuits have been filed alleging violations of California’s expense reimbursement laws, most related to remote work situations.
Following are a few areas of particular concern.
Many telehealth companies engage remote health professionals as independent contractors rather than W2 employees, relying on the fact that the practitioners themselves agree to such an arrangement. However, the law regarding independent contractor classification is complex and the worker’s consent is just the start of the analysis and not a guarantee that the arrangement will be deemed proper.
Depending on whether the IRS, the U.S. Department of Labor or a court analyzing a discrimination claim is looking at the relationship, a variety of different tests may apply. Changes to these various definitions of independent contractor are percolating throughout the different branches of government.
For example, the DOL’s new proposed rule announced Oct. 11, and issued Oct. 13, proposes a return to what the DOL describes as 40 years of precedence supporting a totality-of-the circumstances analysis under the economic reality test.2 These ongoing changes require employers to assess on an ongoing basis how individuals are classified.
Specifically, the what, how, when and where a person works — including factors such as control over scheduling, ability to compete, provision of equipment and application of policies, just to name a few — all affect the analysis of whether the individual is a company employee. Failure to properly classify employees can lead to significant risks for collective and class action under the Fair Labor Standards Act and equivalent state laws based on claims of minimum wage and overtime.
And the patchwork of state laws regarding classification makes compliance even more of a headache for telehealth employers. For example, California’s A.B. 5 law imposes the particularly stringent ABC test for independent contractor classification. However, that law specifically exempts physicians and psychologists, among other professions, from compliance with the ABC test. Those individuals are reviewed under a less onerous standard.
But providers such as nurse practitioners, physicians assistants and licensed clinical social workers are not exempt and are reviewed under the stricter ABC test. Geography and job title and duties are thus critical in determining whether or not remote health care workers can be engaged as independent contractors.
Another Hot Ongoing Compliance Issue: Expense Reimbursement
Once hired, remote employees are tasked with handling highly sensitive patient information and telehealth employers should ensure that the data is protected and secure. Often, this means that employees are provided or purchase themselves certain firewall protection, sophisticated hardware and other data protection measures. This raises complicated questions regarding how such measures are reimbursed, if at all, under state laws.
While federal law only requires that employers reimburse employees for expenses that bring an employee’s earnings below the federal minimum wage, state and local laws vary greatly in the treatment of worker expenses and reimbursement. California, Illinois, Iowa, Massachusetts, Montana, New York and the District of Columbia require that employers reimburse employees for various work-related expenses and, further, several of those states consider expense reimbursement wages subject to the same timing requirements as regular payroll.
Lawsuits regarding failure to properly reimburse employees for remote work-related expenses are coming down the pipelines fast and furious. These lawsuits call for reimbursement of typical work-related expenses such as telephone and internet fees and the cost of office supplies. Notably, however, several recent lawsuits out of California have also included the extra cost of energy to heat or cool a house and potential revenue employees might collect had they rented out their home office instead of using it for work.
Together, these fees can tally up to several hundred dollars a month per employee that, taken over several years, can add up to significant liability for employers.
As a best practice, employers should institute and enforce — emphasis on enforce — a clear written policy regarding expense reimbursement, particularly for remote workers. These can be written for each state where employees reside and work or can be drafted to incorporate the most generous requirements — arguably Illinois and California — into a generally applicable policy to permit uniform administration.
Speaking of confidential and valuable information worthy of protection, the core value of any telehealth company is both the intellectual property used to provide services and the patient relationships developed through those services. Employee noncompetes and nonsolicitation agreements are frequently used to protect these valuable assets.
But these types of agreements have become increasingly difficult to enforce, particularly as the current legal landscape has increasingly soured on them.
Indeed, California and Oklahoma outright prohibit noncompete agreements, Massachusetts and Rhode Island only allow for enforcement only in certain situations against employees that voluntary resign and against nonexempt employees, respectively. Texas has special considerations applicable physicians — for example, physicians must be given the right to buy out noncompetes.
But even where noncompetes are generally enforceable in the other states, a commonly required element of noncompetes — geographic restrictions — become harder to justify where employees can see patients anywhere.
Therefore, as a best practice, telehealth employers should consider avoiding traditional noncompetes and instead enter into strong confidentiality and trade secrets agreements and, where permissible, nonsolicit agreements. These types of provisions can help achieve similar goals of protecting the company’s interests when employees abscond with valuable information, but are more generally enforceable.
And when noncompetes are used, employers need to be strategic and creative in defining the geographic area of restriction. 20 miles from the office location is not a viable restriction when the office is potentially nationwide.
This Is Just the Tip of the Iceberg
This article reviews just a few of the significant employment law issues facing telehealth providers. However, there are myriad other considerations when engaging a widely dispersed remote workforce.
For example, tracking employees’ hours when they are not in a physical workspace requires strict and effective procedures to ensure all working time is captured. The lines between work and nonwork time — which can get blurry when one’s home is their workplace — need to be clearly delineated.
Similarly, the prospect of employees working with a variety of internet connections, in an environment where family members or passersby at the local coffee shop may be close by, raises important data security and protected health information challenges. The numerous and unique employment law challenges facing telehealth providers aren’t going away.
But with advance planning and knowledge of the legal requirements in states where practitioners are located, telehealth employers can avoid easy but costly mistakes that may lead to liability from the inception through the end of employment.