Shaw v. Superior Court: California health facility workers may be entitled to jury trials

Health facilities take note: a recent California court decision could expose hospitals, health systems and other facilities to the risk of a jury trial if accused of retaliating against employees, healthcare workers or members of the medical staff for complaining about the quality of care provided.

In Shaw v. Superior Court, defendant Kindred Hospital in Los Angeles allegedly terminated plaintiff Deborah Shaw for complaining Kindred was employing unlicensed and uncertified healthcare professionals. Following her termination, Ms. Shaw sued Kindred, arguing she was protected from retaliation by California Health & Safety Code section 1278.5. Under that section, health facilities are prohibited from retaliating or discriminating against any patient, employee, member of the medial staff or any other healthcare worker because that person has engaged in a protected act, including complaining to the facility about the quality of care, services or conditions at the facility.

Pursuant to her section 1278.5 claim, Ms. Shaw sought compensatory, punitive and emotional distress damages, as well as her attorney’s fees and costs. She did not, however, seek reinstatement. In light of these remedies, Kindred argued that she was only seeking restitution and, to that end, was not entitled to a jury trial. Ms. Shaw disagreed, arguing that her claim was a legal one that, in turn, entitled her to a jury trial. The distinction was significant because, historically, there was no right to a jury trial for equitable claims, as that right was only reserved for legal claims.

The California Court of Appeal agreed with Ms. Shaw, holding the statutory language and legislative history of section 1278.5 reflected the state legislature’s intent to permit a jury trial. 

At first blush, the court’s decision may seem relatively inconsequential. Indeed, the tort of wrongful termination in violation of public policy – which health facilities routinely face – provides for the right to a jury trial. The significance of the Court’s ruling, however, lies far beyond just the end result.

While the opinion addresses the issue of whether health facility employees have the right to a jury trial, the court’s reasoning suggests that this right expands to include members of the medical staff and other healthcare workers as well. This is significant because a health facility's medical staff and healthcare workers often are not actual employees and therefore may not have a claim for wrongful termination. Under the Shaw decision, however, they now have a statutory vehicle by which to bring a claim and to even seek a jury trial.

Additionally, the decision will likely have a far-reaching impact because it covers a range of activity that falls short of termination. Although section 1278.5 was enacted in 1999, no case before Shaw addressed whether the right to a jury trial was included under its umbrella. Now, the Shaw decision makes clear that health facilities face liability and a jury trial if they retaliate, in any manner, against their employees, members of the medical staff and healthcare workers who complain about the quality of care they provide. Thus, health facilities need not actually terminate someone in order to incur liability.

Key takeaways for healthcare facilities
Based on Shaw, health facilities need to be careful not to retaliate – or appear to retaliate – against anyone. In addition to facing the threat of a lawsuit and jury trial, section 1278.5 allows patients, employees, medical staff or any other healthcare worker to administratively recover civil penalties of up to $25,000. Also, any person who willfully violates the section is guilty of a misdemeanor that is punishable by a fine of up to $20,000.

Thus, health facilities should be aware of what conduct could be viewed as retaliation in the eyes of the court and a jury. Among other things, the following conduct could qualify:

  • Underwriting the salary and/or practice expenses of a competing physician
  • Establishing a medical care foundation and supporting its physicians with hospital funds
  • Recruiting competing physicians to the community in the absence of a community deficit for that specialty
  • Establishing a medical practice administrative service company for selected physicians and charging below market rates so the physician keeps a higher percentage of the collections and gains a competitive advantage
  • Buying the medical building with the physician’s office and refusing to renew the physician’s lease
  • Inducing primary care physicians to refer patients to the hospital outpatient facility for tests, bypassing the specialist’s office-based testing (e.g., imaging and cardiac tests)
  • Providing special scheduling priorities for hospital facilities
  • Underwriting certain physicians and empowering them with control or influence over the peer review process
  • Developing investment partnerships with selected physicians (surgery center, MRI center) that provide lucrative annual returns on investment [e.g., 50 percent return on investment annually]; and
  • Providing special equipment leasing arrangements for selected physicians with above market ROI.

While many of these actions could be seen as legitimate business decisions, in light of the Shaw ruling, health facilities would be well advised to take into account the appearance of retaliatory impropriety. Otherwise, the facilities could be facing a lawsuit, civil and criminal penalties and the uncertainty and costs of a jury trial.

Vincent Loh is an attorney at the law firm of Michelman & Robinson LLP, and serves in the firm’s commercial and business litigation department. Michelman & Robinson has offices in Los Angeles, Orange County, San Francisco, Sacramento and New York City. Mr. Loh may be reached at (714) 557-7990 or by email at vloh@mrllp.com.

 

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