So this blog is all about how cases that show HOW dentists could land in hot water when it comes to cords and the obligation to report incidents.
CORDS as TRIPPING HAZARDS and REPORTING TO AN OHSA INSPECTOR
If you’re using a laser (like a biolase) in your office and that machine has electrical power cords running to the wall, guess what – you might have a tripping hazard! In the case of R. v. Grey Bruce Health Services, 2003 CarswellOnt 10494, Mary Wilson, an experienced registered nurse (EMPLOYEE) tripped and fell in CAT scan room at a hospital in Owen Sound (EMPLOYER). The only people in the room when Ms. Wilson fell were the patient and a radiologist. This all happened back in 1999. Basically, Ms. Wilson Wilson had moved a portable blood pressure monitor to the other side of the patient at the request of the radiologist. The monitor was now in high traffic area. At some point, Ms. Wilson tripped (although it’s unclear why; she assumes it was because of the cord) and suffered a 3 part fracture to her arm. Ms. Wilson contacted the hospital’s employee health department, which reported the incident to the Ministry of Labour a week later.
After a few days at trial, the Justice of the Peace overseeing the case wasn’t convinced about the cause of Ms. Wilson’s fall. That said, the Justice found that the hospital was an employer had failed to ensure that a work surface was kept free of obstructions and hazards and was fined $15k for that. The Justice also fined the employer $5k for not immediately reporting the incident. On appeal, these convictions were upheld.
Things to remember:
So this blog is all about a dentist’s obligations under the Occupational Health and Safety Act (“OHSA“) when it comes to infection prevention and control. In a previous blog, I talked about how infection prevention and control has become more prevalent due a Burlington dentist being shut down for not properly cleaning instruments before use.
Now, Ljubica Durlovska from our office has previously written about a dentist’s obligations under OHSA HERE. Here, I’m going to dig deeper into the legal obligations on EMPLOYERS, SUPERVISORS, and WORKERS under OHSA. And then in the next blog, I’m going to talk about how dentists can get into trouble by not adhering to these laws.
So let’s start off with the penalties, shall we?
Section 66(1) of OHSA says that everyone who fails to comply with OHSA is guilty of an offence and on conviction is liable to a fine of up to $25k and / or 1 year of jail. If a CORPORATION is convicted, it could be fined up to $500k!
An employer is someone who employs one or more WORKERS. And a WORKER is a person who performs work or supplies services for monetary compensation.
If a dentist is an employer, then their obligations include the following (section 25 of the OHSA):
A SUPERVISOR is someone who has charge of a workplace or authority over a WORKER. Section 27 of OHSA says that a person who is a SUPERVISOR of a WORKER (think: principal, associate, hygienist, office manager, etc.) has the following obligations:
A WORKER is a person who performs work or supplies services for monetary compensation. Section 28 of OHSA says that a WORKER shall:
Additionally, no WORKER shall:
This is just me ranting and raving… I get pissed when good, hardworking folks who try to build that ‘Canadian dream’ of having their own small business get taken to the cleaners by some far-off government people for the purposes of having SOMEONE pay for their ill-founded projects (one of which is an infrastructure plan with apparently no spending limit and another of which was a behind-closed door multi-million dollar settlement to a convicted terrorist).
And so the Trudeau Government is holding a consultation period over the summer to basically find out how to tax small business owners who legally pay family members through the use of a corporation (among other things). In media articles, it looks like they’re going after professionals – like dentists and doctors. And it also looks like they’ll be targeting DIVIDENDS that are paid to family members. The government has said that children in the 18-24 years age bracket appear to be best suited (given that they avoid kiddie tax rules and given that they don’t have high incomes) for income splitting strategies involving their parents.
Here’s the thing about DIVIDENDS: you can ‘sprinkle’ them on other shareholders – presumably in lower income tax brackets – in order to arrive at a lower effective tax rate on the whole (as opposed to one person taking all of the money for themselves). For dentistry and medicine professional corporations, they are VERY restricted in terms of WHO can be a shareholder: a dentist, their spouse, their parents, their children, or the dentist or their spouse in trust for a minor child. And guess who else can’t get dividends from dentistry and medicine professional corporations – that’s right: other corporations (because other corporations can’t hold shares in those corporations). And those dividends could have been transferred essentially on a tax-free basis if they were capable of going to another Canadian corporation. By the way: lawyers and accountants cannot split income using dividends with their family members (or anyone else) through their professional corporations.
So why is the government so unhappy with these dividends that are sprinkled on family members? It’s because they can be earned AFTER TAXES have been paid by the corporation on active business income AND THEN PAID to the shareholder WITHOUT the shareholder having to contribute in any way possible to the corporation. That’s right: a shareholder can simply sit back and collect money. With a professional corporation, family members who are shareholders BUT who aren’t the dentist or the doctor don’t get a right to vote, so they have even less say on what happens with the corporation.
Well, apparently, the Trudeau Government doesn’t want dentists and doctors to continue to be able to sprinkle such dividends on non-professional family members without paying more taxes. But this is so wrong for so many reasons, as follows:
Do we actually need new legislation? I’m not convinced. Why?
First, we already have a ‘reasonableness’ test when it comes to salaries paid to family members and whether the expenses to the corporation (i.e. those salaries and benefits) are considered ‘reasonable’. If they’re not considered ‘reasonable’ in light of the family member’s contributions to the corporation, their skill-set and experience, their time spent on the job, etc., then the CRA can deny / reduce that expense and have the corporation pay more income tax.
Second, we already have rules called the Personal Services Business (discussed HERE and HERE). which basically means that if you’re nothing more than an incorporated employee, you’ll be denied the tax benefits of having a corporation. The IT industry, for example, has been targeted heavily by this provision and the CRA has gone after so called ‘independent contractor’ IT personnel who were nothing more than incorporated employees.
There’s my rant.
Now, let’s take a brief look at what the government is proposing, shall we? You can find their discussion paper and draft legislation, as well as submit comments up to October 2, 2017 here: http://www.fin.gc.ca/activty/consult/tppc-pfsp-eng.asp and here: http://www.fin.gc.ca/n17/17-066-eng.asp
With respect to what they’re proposing, here’s the idea… They want to EXPAND the application of an existing tax. That tax is called a “Tax On Split Income” (“TOSI“). TOSI was introduced in 1999 and it applied to income, such as dividends on unlisted shares from a business activity of a related individual, earned by minor children shareholders (those under 18 years old). In other words: TOSI was kind of a kiddie-tax that applied to minors who received dividends through their parent’s professional corporation. If TOSI applied, that dividend income was subject to a top flat-rate person income tax in the hands of the minor while personal tax credits (except dividend and foreign tax credits) would be denied for those amounts.
Well, the Trudeau government now wants to make TOSI apply to dividend income earned by ADULT children shareholders. And they want to add a “reasonableness test” to determine if the income amount received by the shareholder is commensurate with what would be expected in a similar arm’s length arrangement. Finally, they’re introducing the definition of ‘connected individual’ to determine if an adult’s income from a corporation should be treated as split income. A Canadian resident individual with a certain measure of influence over a corporation would be treated as connected with the corporation.
In the next few blogs, I’ll be digging deeper on what these changes could mean to dentists IF they become law…
Stay tuned and don’t forget, if you’re not happy with these changes, to GIVE ‘EM HELL by sending your comments HERE: http://www.fin.gc.ca/activty/consult/tppc-pfsp-eng.asp.
This is the fourth blog I’m writing about how dentists and DSOs (dental service organizations) have gotten into trouble in the U.S. In the first blog, I talked about some Colorado cases that came out in 2007 and which found business services arrangements between dental service organizations and dentists to be illegal and unenforceable. In the second blog, I took a look at Washington State. Interestingly, some new legislation came out in that state that helps make the business relationships between DSOs and dentists more balanced and transparent. In the third blog, I took a look at the State of Texas (historically, not in favour of DSOs); new legislation was passed to require dentists doing business with DSOs and DSOs themselves to register with the Secretary of State and disclose certain information. In other words: the State can keep a watchful eye on DSOs operating therein.
In this blog, I’m going to look at Georgia cases involving dentists and DSOs that actually ended well for the DSOs. You’ll see from the 2 cases below that, because the Courts were looking at Georgia State laws (different from other states and akin to Ontario, Canada) and the specific facts of the case, it came to a completely different conclusion about the legality of the business services arrangements – namely, they were enforceable!
Georgia (2004): Legal
In T. Barry Clower, D.M.D., P.C. and T. Barry Clower v. Orthalliance, Inc., 337 F. Supp. 2d 1322; 2004 U.S. Dist. LEXIS 20038 (decided September 24, 2004), a Georgia Court upheld as legal a business arrangement between a non-dentist management corporation, Orthalliance, Inc. (“Orthalliance”), and Dr. Barry Clower and his professional corporation. In that case, the business arrangement between the parties involved: (1) Orthalliance purchasing and merging with Dr. Clower’s professional corporation (note: Dr. Cower was paid in cash and stock in Orthalliance), (2) Dr. Clower creating a new professional corporation (the “New PC”), (3) Orthalliance leasing equipment and leasehold interests back to the New PC, (4) Orthalliance and the New PC entering into a Service Agreement whereby Orthalliance handled all financial and administrative affairs for the New PC for seventeen percent (17%) of the practice’s adjusted gross revenue as a service fee, while leaving the New PC to “retain control over all aspects of and decisions directly affecting the course of treatment of any patients”, and (5) Dr. Cower entering into a five (5) year employment agreement with the New PC. Dr. Clower, disappointed with the performance and value of Orthalliance’s stock and facing various personal difficulties, walked away from the business arrangement. Among other things, he claimed that that agreement with Orthalliance was illegal, as it allowed Orthalliance to practice dentistry, contrary to Georgia law.
The Court examined the jurisprudence and found the business arrangement legal and enforceable. George law prohibits the practice of dentistry without a license. Dr. Clower argued that Orthalliance’s control over the assets and personal of his practice was so extensive that Orthalliance was implicitly practicing dentistry through him and his professional corporation. Furthermore, Orthalliance’s control over the gross receipts of the practice allowed it to control both Dr. Clower and his professional corporation. The Court rejected these arguments. First, the Court noted that, while similar litigation involving Orthalliance and the business services agreement has been decided against Orthalliance in other states, “decisions are all highly dependent on the specific state laws in question”. For its part, Georgia law defines the practice of dentistry as performing operations on the human oral cavity or associated structures, tooth extractions, crown fillings, repairing appliances used on teeth, undertaking a physical examination of a patient. But Dr. Clower did not argue that Orthalliance actually performed any dental services. Furthermore, Georgia law prohibits corporations from employing dentists. But the Service Agreement made it very clear that Orthodontic did not intend, and in fact did not, employ Dr. Clower to carry out its own dental practice; rather, Dr. Clower’s professional corporation was given exclusive control of all dental care (including selecting equipment, employees and hygienists). The Court concluded: “Accordingly, Georgia case law counsels this court not to void this contract for illegality”.
Georgia (2007): Legal
In Re: OCA Inc. et al., v. Hector M. Bush et al., 78 B.R. 493; 2007 Bankr. LEXIS 3496 (October 9, 2007), the Bankruptcy Court for the District of Louisiana had to determine whether a BSA was illegal under Georgia law concerning the regulation of dentistry. Under the BSA, a non-dentist management company, OCA Inc. and its wholly owned subsidiaries (“OCA”) provided administrative support-type services to Dr. Bush. This includes, for example, leasing offices, equipment, furniture and improvements to Dr. Bush. OCA was also to provide, maintain and service computer systems as well as bookkeeping, billing, collections, bill payment and accounting services. OCA was to purchase and maintain inventory subject to Bush’s sole authority over and responsibility for all decisions concerning the inventory and supplies to be utilized by the practice. Dr. Bush was to retain control over all decisions relating to office personnel and hours of practice. The BSA was littered with language the clearly indicates that Dr. Bush is to retain control over all aspects.
The Court noted that the BSA is practically identical to the BSA in Clower v. Orthalliance, Inc., 337 F. Supp. 2d 1322 (N.D. Ga. 2004), where the Court found that the practice management company had not engaged in the unlicensed practice of dentistry as a result of the BSA with the dentist and his professional corporation.
Based on the evidence before it, the Court found that “Bush ran his own show”. He developed special protocols for his offices that were different from what OCA suggested. He disagreed with OCA policy promoting greater intervals between patient visits and resisted implementing that policy. He held a leadership position with OCA as a board member and doctor who helped OCA determined good methodologies for other doctors to follow. He impressed the court as a strong willed and successful orthodontist. The Court was not convinced by Dr. Bush’s arguments that OCA controlled his practices.
Next, Dr. Bush argued that the BSA was illegal because it contained language in a public filing that stated that OCA is an orthodontic practice. But this public filing turned out to be made in error and OCA tried to correct it (but could not because OCA was no longer publicly traded). The Court found the testimony of the chief accounting officer and interim chief financial officer credible, and the circumstances surrounding the erroneous filing understandable. The Court did not find that the erroneous statements were enough to show that OCA was engaged in the illegal practice of dentistry in Georgia.
Next, Dr. Bush argued that the BSA is illegal because partnership between an orthodontist and a corporation are prohibited, and the arrangement between Dr. Bush and OCA constituted a partnership. This argument is largely based on the language contained in old letter agreements between the parties, as well as public filings by OCA. But the Court rejected these arguments. The old letter agreements were superseded by the OCA (which clearly states that the relationship is not a partnership). And the Court previously dealt with the aberration that was erroneously filed. Furthermore, evidence was adduced to show that the parties did not share the risk: when opening certain offices, OCA bore 100% of the risk for the first two years of operation. If those officers were profitable, Bush was required to pay back some of the costs of construction. Expenses were not shared. Although OCA actually paid the bills, Bush was responsible for funding 100% of the operating expenses of his office. There was no joint control over the business. Although many decisions made with both parties’ input, Bush ultimately retained the control over final decisions. There was no joint ownership of capital. OCA owned the assets of the orthodontic offices and leased them to Dr. Bush, and Dr. Bush was required to purchase his practices from other orthodontists to pay some of the start-up costs of the new professional corporations if they were successful. The parties did not file partnership tax returns. And finally, at the relevant time, it was not the intention of the parties to be partners. As such, the relationship between the parties was not an illegal partnership between a corporation and an orthodontist in violation of Georgia law.
The Ontario Government confirmed the Royal Assent of Bill 87: Protecting Patients Act on May 30, 2017. This new law makes some important changes to the Regulated Health Professions Act which of course applies to Dentists. Read more
David Mayzel is your legal risk manager. He is a trained courtroom lawyer and has spent many years resolving disputes both in and out of court. He knows how to prepare documents and execute transactions in a way that avoids or mitigates legal risks. He can be reached at 416.528.5280. or email@example.com.
Michael Carabash is your business law adviser. He is an entrepreneur at heart who helps you see the big legal picture. He drafts clear and effective agreements that protect your rights while promoting your interests. He can be reached at 647.680.9530. or firstname.lastname@example.org.
Ljubica Durlovska is your transition lawyer. She helps you with staff and associates, maintaining your corporation, and other business matters. She can be reached at 416.443.9280, extension 206 or email@example.com.
Jonathan Borrelli is your employment lawyer. He helps you with staff and associates matters, including hirings, terminations, switching staff to written contracts and resolving disputes. He can be reached at 416.443.9280, extension 204 or firstname.lastname@example.org.
Benjamin Kong is an experienced business law clerk. He assists David and Michael with corporate matters and purchase / sale transactions. He can be reached at 416.443.9280, extension 207 or email@example.com.
Julie Whitehouse is an experienced business law clerk. She assists David and Michael with corporate matters and purchase / sale transactions. She can be reached at 416.443.9280, extension 203 or firstname.lastname@example.org.
David, Michael, Ljubica, Jonathan, Ben and Julie are a truly dynamic team. Their diverse knowledge, skills, and experiences will help you get the best deal possible while promoting your interests and protecting your rights. You can read dentist testimonials here.