District Hospitals and Closed Sessions
Q: The CEO and the COO for a District Hospital are provided to the Hospital by the management company that contracted with the district. The CEO and COO are being paid by the management company not by the Hospital or District. The CEO and COO are also the president and vice president of the management company. The District is about to have a closed session to evaluate the CEO and COO as public employees. Are they public employees or employees of the management company? Should not the district evaluate the management company in open session and not the CEO and COO as they are the management company?
A: You appear to already be aware that Cal. Gov. Code Sec. 54957 contains a “personnel exemption” which allows the District to hold closed sessions for a variety of reasons, including “to consider the appointment, employment, evaluation of performance, discipline, or dismissal of a public employee…” Sec. 54957(b)(1). The purpose of this exemption has been interpreted to be to allow consideration of personnel matters while avoiding undue publicity and embarrassment to the affected employee. See, e.g., 63 Op. Atty. Gen. Cal. 215 (1980) (decision in which a hospital administrator is treated as an “employee” under sec. 54957.) Gov. Code Sec. 54957(b)(4) states that the term “employee” is meant to include an officer, or an independent contractor “who functions as an officer or an employee.” It does not, however, include any “elected official, member of a legislative body or other independent contractors.”
The issue in this case, therefore, is whether the CEO and COO of the Palo Verde Hospital, while not direct employees of the District, would be considered independent contractors who “function as” employees.
The answer is not entirely clear, and would depend on the actual relationship between and among the CEO and COO, AHM, and the District. But on balance, it would seem possible that the individuals would be considered public employees under the personnel exemption of Sec. 54597.
In the Attorney General opinion noted above, the AG treated a hospital administrator as an “employee” under sec. 54957. 63 Op. Atty. Gen. Cal. 215 (1980). And in Letsch v. Northern San Diego County Hosp. Dist., 246 Cal. App. 2d 673 (1966), the court applied the personnel exemption to action taken by the District with respect to a hospital radiologist, who was not technically an “employee” of the District, but who had had a longstanding relationship with the hospital. Id. at 675 and 678.
By contrast, in Rowan v. Santa Clara Unified School Dist., 121 Cal. App. 3d 231 (1981), the court held that certain “real estate specialists” who might be hired to help the district dispose of “surplus real property” were not to be treated as employees, but rather as true independent contractors, because they were to be engaged to “perform ‘special services’ … and not subject to control as to the details of its accomplishment.” Id. at 235. The court noted that “employees” were different because, among other things, their “relationship to the public agency is of a continuing nature” and they “work under close supervision.” Id.
Here, but for the fact that the District has chosen to hire a management company to manage the Hospital, the CEO and COO of the Hospital would almost certainly be considered public employees. Given the language of the Act that requires a person to be considered a public employee even if they are an independent contractor “acting like an employee,” it may be that the CEO and COO of the Hospital would be considered “employees” for purposes of Sec. 54957, even though they are directly employed by a private management company. It is, of course, possible that the particular relationship here between the District and the management company requires a different result (for example, it is possible that the individuals could be considered neither employees nor independent contractors of the District, but rather simply employees of the management company hired by the district), but such a determination would necessarily be based on a more detailed analysis of the actual relationship between the District and the management company.