Case Studies

Epstein Becker Green Convinces Plan Review Committee to Overturn Termination of Participating Physician Group Services Agreement

On April 29, 2013, Epstein Becker Green achieved a major victory when the Plan Review Committee of L.A. Care Health Plan ("L.A. Care") found that L.A. Care's termination of the Participating Physician Group Services Agreement ("Agreement") with Epstein Becker Green client Accountable Health Care ("AHC") was procedurally unfair.

L.A. Care terminated the Agreement under a "without cause" provision and did not contend that AHC was in breach of the Agreement. Under Potvin v. Metropolitan Life Ins. Co., 22 Cal.4th 1060 (2000), California provides a common law fair hearing right to health care providers even in the event of a "without cause" termination. Arbitrary decisions and the denial of fair procedure are prohibited by Potvin. Contractual provisions allowing termination "without cause" are unenforceable to the extent that they do not provide fair procedure. Under Potvin, the termination of a provider's agreement must be both substantively rational and procedurally fair.

Epstein Becker Green argued on behalf of AHC that L.A. Care acted contrary to its own Fair Hearing Procedure and the legal principles of Potvin by issuing a notice of termination of the Agreement prior to the fair hearing and a decision by the Plan Review Committee, even though, at the hearing, L.A. Care argued that its decision was based on a cease-and-desist order against AHC that was filed by the California Department of Managed Health Care. Although the Fair Hearing Procedure provides that the hearing process must precede any issuance of a notice of termination under a provider contract, the termination notice and related correspondence made clear that L.A. Care had already reached a decision to terminate the Agreement at the time that the notice was provided to AHC. In addition, the notice failed to include the specific reasons for the termination, a description of any policies and procedures, or any other criteria used in making the determination, as required by the Fair Hearing Procedure.

The Plan Review Committee voted unanimously in finding that the L.A. Care termination notice was procedurally unfair because it was inconsistent with the requirements of the Fair Hearing Procedure and had been issued prior to the completion of the fair hearing process.

The Epstein Becker Green team representing AHC included Los Angeles attorneys David Jacobs, Paul C. Burkholder, and J. Susan Graham.

Epstein Becker Green Persuades California Court of Appeal to Uphold the Right to Contractual Arbitration Against Wage Claims By Independent Contractor

Epstein Becker Green (“EBG”) achieved a significant victory in the California Court of Appeal for its clients Prime Time Shuttle, Inc., and Rideshare Airport Management, LLC, on a motion to compel arbitration. In this case, Khalatian v. Prime Time Shuttle, Inc. et al., 2015 Cal. App. LEXIS 498 (Cal. App. 2d Dist. May 15, 2015), the plaintiff, an owner-operator driver, alleged that the defendants misclassified him as an independent contractor and, thus, failed to pay him all wages due, among other alleged violations of California’s wage and hour laws and Unfair Competition Law.

When EBG took over the case from predecessor counsel, a motion was made to compel arbitration pursuant to the arbitration provision in the parties’ services contract. The trial court denied Prime Time and Rideshare’s motion. The trial court ruled that the plaintiff’s wage and hour claims were based on statute, the California Labor Code, and therefore were not arbitrable, and that the defendants waived arbitration.

In cases where plaintiffs alleged that they were misclassified as independent contractors and denied unpaid wages and other obligations owed to employees, California courts have held that Labor Code claims are based on statutory rights, not a contract between the parties. Courts have held that Labor Code claims are not subject an arbitration agreement because the claims do not “arise out of or relate to” the parties’ services contract. (See Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1206-1208, and Elijahjuan v. Superior Court (2012) 210 Cal.App.4th 15, 23-24.)

However, an exception to California’s rule against arbitration of statutory wage claims exists when the arbitration agreement is governed by the Federal Arbitration Act (“FAA”). The FAA preempts any contrary state rule restricting arbitration. EBG appealed the trial court’s ruling and successfully persuaded the Court of Appeal that the FAA applied to the plaintiff’s claims. Unlike the defendants in Hoover and Elijahjuan, Rideshare presented ample evidence that the parties’ contract affected interstate commerce, resulting in the FAA’s preemption of any contrary California rule preventing arbitration, and that the plaintiff’s claims did, in fact, arise out of or relate to in the parties’ services contract. EBG also successfully persuaded the Appellate Court that the defendants did not waive arbitration. On May 1, 2015, the Court of Appeal reversed the trial court’s ruling in full, and on June 9, 2015, the Court of Appeal granted EBG’s request to publish its Opinion.

This victory is important in upholding the defendants’ right to contractual arbitration. In addition, this published Opinion provides favorable precedent for alleged employers defending against wage and hour claims by independent contractors and provides guidance on drafting arbitration agreements with independent contractors.

The EBG team representing Prime Time and Rideshare included David Jacobs, William O. Stein, and Rhea G. Mariano.