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DSO Business Model Includes Violating State Labor Laws
Dr. Michael W. Davis maintains a general dental practice in Santa Fe, NM. He serves as chairperson for Santa Fe District Dental Society Peer-Review. Dr. Davis also provides a fair amount of dental expert legal work for attorneys. He may be contacted via email:MWDavisDDS@comcast.net.
David Sohn is the principal attorney at SOHN LEGAL GROUP, P.C., which prosecutes and defends employment and business disputes on behalf of individuals, small businesses, and non-profit organizations. Prior to starting his own law firm, David worked at several prominent national law firms in San Francisco. He received his bachelor’s degree in Economics from Stanford University and his law degree from Harvard Law School. Due to the successful results he has achieved for his clients, David has been recognized as a Northern California Super Lawyer by Super Lawyers Magazine. David can be reached at 415-421-1300 and firstname.lastname@example.org.
David Sohn is an attorney in San Francisco specializing in employment litigation matters. Last year, he represented a dentist in his wage and hour lawsuit against Western Dental Services, Inc. (“Western Dental”) for misclassifying him as an exempt employee and not paying him overtime wages and providing proper meal and rest breaks, among other things. Mr. Sohn tried this case in San Francisco Superior Court against an army of big law firm lawyers hired by Western Dental – and prevailed. As a result of his trial victory, the overwhelming majority of dentists in California are now misclassified. They should be receiving overtime wages, proper meal and rest breaks, and all of the benefits and protections of California’s employment laws.
The case is entitled Nanda v. Western Dental Services, Inc . (Case No. CGC-13-529601).
Dr. Davis: Mr. Sohn, I sincerely thank you for taking the time and effort to address matters of this case. I understand much of your legal work involves labor workplace rights. The public may not appreciate how even a licensed dentist may have their rights violated in the workplace. Could you give our readers an overview of the merits of this case and how your client was damaged?
Mr. Sohn: Thank you, Michael, for giving me an opportunity to discuss with you and your readers my trial victory against Western Dental. This is a very important, game-changing case that all dentists and to-be-dentists need to know about so that they understand what their workplace rights are.
When I decided to take on this case back in 2013, I didn’t know anything about the dental industry. I took it on because I saw a very interesting legal question. That question was: are dentists employed by Western Dental compensated in the form of a “salary?” Western Dental compensates its dentists by a fixed daily rate and/or a percentage of their production. They are not guaranteed in advance a minimum weekly or monthly amount of compensation.
This legal question is important because in order for dentists and other licensed professionals to be exempt from all of the benefits and protections of California’s employment laws – such as overtime wages and proper meal and rest breaks – they must be paid in the form of a “salary.” If they are not, they must be provided these benefits and protections.
California law does not provide a definition for the term “salary.” Instead, California courts look to federal regulations for the definition of “salary.” The pertinent federal regulation, 29 C.F.R. § 541.602(a), states that an employee is paid on a “salary basis” if he or she “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” This same federal regulation also explains that if an employee is ready, willing, and able to work, but he or she does not work due some reason occasioned by the employer, he or she is not being paid on a “salary basis.”
At the conclusion of trial, the judge held that the dentist I represented was not paid in the form of a “salary.” The dentist never received on a weekly, or less frequent basis, a predetermined amount of compensation which was not subject to reduction based upon variation in the quality of quantity of work performed. He was only paid for the days that he worked and on occasion received a percentage of the production he generated. On numerous occasions, even though he wanted to work, if he was not called into work, he was not paid. Given these circumstances, he was entitled to overtime wages and proper meal and rest breaks like other non-exempt staff employed by Western Dental.
As a result of the judgment issued in my case, all dentists – and for that matter any licensed dental healthcare professional (such as orthodontists, periodontists, etc.) – in California paid on any basis other than a salary basis are “non-exempt” employees who are entitled to overtime wages, and proper meal and rest breaks.
Dr. Davis: The defendant in this case, Western Dental, is the largest employer of dentists in the state of California. They also operate dental clinics in Nevada and Arizona. They are the largest provider of dental Medicaid services for California. As large of a dental industry operation as is represented by Western Dental, is it reasonable to speculate on the pervasiveness of dentist/employee workplace labor violations (both in Western Dental and the dental service organization (DSO) industry, as a whole)?
Mr. Sohn: During the course of my case against Western Dental, I discovered that Western Dental’s approach to how it compensates its dentists is not unique. I spoke to a number of dentists and specialists who worked for other practices large and small, including other DSOs and small private practices, and the impression I received was that the overwhelming majority of dentists and specialists in California – and in the country – are paid on a similar non-salary basis. That’s when I realized my case could have significant industry-wide consequences.
Dr. Davis: We’ve seen multiple examples of dentist/employee workplace abuses either openly stated or implied in federal Fifth Circuit ruling 07-30430 [http://www.ca5.uscourts.gov/opinions%5Cpub%5C07/07-30430-CV0.wpd.pdf], the December, 2014 settlement agreement between the Commonwealth of Massachusetts and Aspen Dental Management, Inc.
[http://www.mass.gov/ago/news-and-updates/press-releases/2014/2014-12-22-aspen-dental-aod.html], and the June, 18, 2015 settlement agreement between the State of New York and Aspen Dental Management, Inc.[http://www.ag.ny.gov/press-release/ag-schneiderman-announces-settlement-aspen-dental-management-bars-company-making]. The implication is very clear that pervasive workplace labor abuses against dentist/employees are a common problem. The readers would love to read your comments, as well as on how this may impact a doctor’s decision making and negatively affect patient care.Mr. Sohn: I’m not aware of these other cases – which shows you, by the way, how much more I need to learn about the dental industry – but it goes without saying if employers don’t treat their employees properly, how can employers expect employees to treat their clients properly?
During the course of my case against Western Dental, it became quickly apparent to me that the quality of patient care is directly related to how dentists are treated. If dentists are overworked without proper compensation and constantly threatened with termination (or deportation in some cases) if they cannot meet certain production goals, patient care inevitably suffers. Such pressures force dentists to focus on numbers rather than patients. Needless to say, when an employee is stretched too thin, the quality of their work will suffer.
It may surprise you and your readers to hear that Western Dental is owned by a private equity firm, New Mountain Capital. I don’t know how many dentists and/or patients are aware of this, but I find it concerning that patient care at Western Dental is ultimately being determined by individuals in suits whose focus is on maximizing profit.
I recall one particular conversation that I had with an orthodontist who worked at Western Dental who told me that in order to meet certain financial objectives she was instructed to put in a certain number of braces on patients on a particular day regardless of whether they were needed. That’s disturbing. I’ve also spoken with a number of dentists who told me that they have had to fix the mistakes made by Western Dental’s dentists more times than they can count.
Dr. Davis: I’m very troubled that organized dentistry seems to largely ignore these workplace labor violations against doctors. I have yet to read a single publication originating from organized dentistry, which commented on this landmark legal decision. One might assume that organized dentistry would be quite vocal in support of not only doctors, but also auxiliary staff including registered dental hygienists, who reportedly receive similar workplace abuses. Would you care to comment?
Mr. Sohn: You raise an interesting question. I think there are a number of possible explanations, but let me share with you an experience that I went through that may shed one perspective on this.
After winning my trial against Western Dental, I called the California Dental Association (CDA), the governing body here in California, to inform them of the result of my case. I spoke with the top legal officer at the CDA and told her that I had news of a game-changing judgment that I thought all of CDA’s members – both employees and employers – would be interested in learning about. I told her that I had just tried a case to judgment wherein the judge held that a dentist employed at Western Dental was “non-exempt” and entitled to all of the benefits and protections of the California Labor Code.
The CDA’s top legal officer, who previously practiced labor and employment law, was incredulous and could not believe what I was telling her. This reaction was not surprising given that no one, as far as I know, had ever challenged the pay practices in the dental industry. For decades, it has been taken for granted that all dentists and other specialists are “exempt” workers because they are licensed professionals. To help her understand the reasoning being the judgment, I asked her what her understanding was of how the majority of dentists in California are paid. She said that she understood most to be paid on the basis of production, i.e. a percentage of the fees generated by the dental procedures performed. I asked her if she considered that to be equivalent to being paid on a “salary basis.” She readily conceded it was not. After making that connection, she stated that she was very interested in learning more details about my case. I told her I would be happy to discuss it with her. I also asked her if I could write an article on the impact of my case for the next CDA publication and she said that she needed to check internally about my request.
Hearing no response for a couple weeks, I followed up. The CDA’s top legal officer informed me that the CDA would not grant my request because doing so would be taking an adverse position against many of their readers, who are employers. I responded by telling her that even if news of my case was unfavorable for a particular segment of CDA’s membership, it was in their interest to understand my case so that they could comply with California wage and hour law going forward. My response was apparently not persuasive enough given that Western Dental is one of CDA’s biggest financial sponsors.
Dr. Davis: I realize this case was adjudicated in California and each individual state has its own unique set of specific labor statutes. Are there possible workplace implications outside California, for employee dentists?
Mr. Sohn: It’s possible, but that will depend on the laws of each state. Whether one is exempt or non-exempt is a very technical issue that needs to be examined on a state-by-state basis. Unfortunately, I’m only knowledgeable about California law since this is the state I’m licensed to practice in. However, if anyone is interested in learning more about my case and its possible application in other states, please have them contact me. I’d be happy to discuss and help any way I can.
Dr. Davis: I’m troubled that the State of California, which retains Western Dental for Medicaid services, would continue a clinical and fiduciary relationship with this dental service organization (DSO), in light of these labor rights violations. Similarly, I’m troubled that any private dental insurance carrier, be they nonprofit like Delta Dental, or a for-profit entity, continue a contractual relationship with such a violator of labor protection statutes. The appearance of complicit involvement seems problematic, both legally and most certainly ethically. Mr. Sohn, we’d love to learn your perspectives.
Mr. Sohn: You raise a legitimate concern since any reduction in patient care directly impacts the welfare of those individuals who the State of California and private dental insurance carriers are insuring. The State of California and private dental insurance carriers have a responsibility to ensure their insured are taken care of.
In an efficient marketplace, Western Dental would be forced to do better or the State of California and private dental insurance carriers would avoid signing up Western Dental. However, from a legal perspective, I’m not sure there is much that can be done. I may be mistaken, but I’m not aware of any law that makes the State of California or private dental insurance carriers responsible for the unlawful wage and hour practices of the DSOs they work with. Perhaps there could be greater legislative or corporate oversight to ensure compliance with California’s employment laws.
Dr. Davis: Mr. Sohn, I want to thank you for an insightful discussion of this case as well as dentist/employee workplace rights generally. This is an issue which extends well beyond California, and into all 50 states. We fully realize the workplace abuses suffered by your doctor/client are a disturbing national problem, and not an isolated situation. We also realize the serious potentials for a negative impact on patient care and clinical outcomes. I’m certain numbers of our readers would like to contact you for additional consultation.
Mr. Sohn: Thank you again, Dr. Davis, for allowing me to discuss what I think is a game-changing development for all dentists and other licensed specialists in California. Very few attorneys have an opportunity to work on cases that have the potential to change an industry and ultimately succeed in doing so. With my trial victory against Western Dental, I believe the foundation has been set to bring about industry-wide changes in how dentists and specialists are paid and treated in the workplace.
I encourage any dentists who are interested in learning about their workplace rights to contact me. I have helped a number of other dentists employed by Western Dental obtain the compensation they deserve. Keep in mind that the judgment issued in my case applies to any licensed dental healthcare professional in California regardless of who they work for. In order to be exempt from the benefits and protections of the California Labor Code, a dentist must be paid on a “salary basis.” From what I understand, only a very small minority of dentists are compensated on such a basis.
Notwithstanding the judgment issued in my case, Western Dental has not changed its pay practices for its dentists to be in compliance with California law. Reason being, Western Dental requires all of its dentists to sign arbitration agreements as a condition of their employment. As a result, their dentists are prevented from bringing a class action lawsuit on behalf of others who are similarly situated. By preventing dentists from bringing such a class action lawsuit that could force them to implement proper pay practices company-wide, Western Dental has no financial incentive to do the right thing. This is where the private equity ownership of Western Dental is hurting dentists employed by Western Dental and their patients. Western Dental’s decision not to implement proper pay practices for all of its dentists is a strictly financial one: it’s much less costly to fight dentists on an individual basis than doing the right thing for all of its dentists.
Moody’s downgrades Premier Dental’s (parent of Western Dental) CFR to Caa1 from B3; outlook negative
Global Credit Research – 08 May 2015
Approximately $325 million of rated credit facilities affected
New York, May 08, 2015 — Moody’s Investors Service downgraded Premier Dental Services, Inc.’s (“PDS”) Corporate Family Rating to Caa1 from B3, its Probability of Default Rating to Caa1-PD from B3-PD, and its senior secured bank credit facility rating to Caa1 from B3. The rating outlook is negative.
The rating action reflects the company’s weak operating performance and deterioration of credit metrics beyond Moody’s prior expectations. The declining operating margins are due primarily to the restoration and expansion of certain benefits for adult DentiCal coverage by the state of California in mid-2014. This has resulted in a significant payor mix shift due to the higher proportion of lower-margin patients covered by DentiCal. In addition, the higher frequency of DentiCal patient visits is also expected to continue to displace higher-paying out-of-pocket or commercial insurance customers, resulting in a lower average reimbursement rate for the company’s services. The downgrade also reflects Moody’s concerns related to the minimal cushion under the company’s financial maintenance covenants over the next few quarters, due to recent earnings volatility and approaching step-downs. While Moody’s anticipates that the sponsor will provide an equity cure over the approaching financial covenant testing periods, the downgrade reflects Moody’s expectation that a waiver or an amendment may be required, if the sponsor faces any restrictions in providing additional equity infusions in order to resolve a covenant violation (equity cure) over the next 12 to 18 months.
Following is a summary of Moody’s rating actions.
Premier Dental Services, Inc.:
Corporate Family Rating to Caa1 from B3
Probability of Default Rating to Caa1-PD from B3-PD
Senior secured revolving credit facility to Caa1 (LGD 4) from B3 (LGD 4)
Senior secured first lien term loan to Caa1 (LGD 4) from B3 (LGD 4)
The rating outlook is negative.
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