STATE OF MICHIGAN CIRCUIT COURT FOR THE 31st JUDICIAL CIRCUIT

ST. CLAIR COUNTY

EMMANUEL CANTO, M.D., Claimant-Appellant,

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v Case No. 01-003382-AE

McLAREN REGIONAL MEDICAL CENTER, Ron. Peter E. Deegan · Employer-Appellee,

and

STATE OF MICHIGAN, DF..PARTMENT OF CONSU?vfER AND INDUSTRY SERVICES, UNEMPLOYMENT AGENCY,

Appellee.

ORD"'ER A14'li'IRMING DECISION OF THE BOARD OF REVIEW

At n session held in Port Humn, Michigan, on July~ 2002.

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PRESENT: HON. PETER E. DEEGAN

Appellant-Claimant having filed a claim of appeal from u November 16. 200 I, order denying rehearing and a September 28, 2001, decision of the Board of Review, briefs having been filed and arguments heard. therefore;

. ··-IT lS ORDERED that the November 16. 2001, Order denying rehearing and the

September 28, 2001 , decision of the Board of Review which held that the claimant's actions conducted during his participation in nn accredited medical residency program are excluded from theMES Act definition of "employmcnr" pursuant to Section 43(o(5) and 43(q)(2) of the M.ES Act are AFFIRMED for the reasonr; l\talecl on the record and this appeal is DISMISSED. ·

This resolves the last pending claim and doses this case

Circuit Judge

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STATE OF MICHIGAN EMPLOYMENT SECURITY BOARD OF REVIEW

In the Matter of the Claim of

EM11ANUEL CANTO, M.D., Appeal Docket No.: L 1999 00047-2736

Claimant

MCLAREN REGIONAL :MEDICAL CENTER,

Employer

DECISION OF BOARD OF REVIEW

This case is before the Board ofReview as a result of the cl.aimant's September 30, 1999, appeal from an August 31, 1999, Referee decision. The decision reversed an April 16, 1999, Michigan Unemployment Agency [MUA] redetermination and found the services performed by the claimant were excluded from the definition of employment under Section 43 of the Michigan Employment Security Act and that the remuneration received by the claimant was excluded from the definition of wages under Section 44. Oral argument was held in this case June 19, 2000. After reviewing the record, we find the Referee's decision must be affirmed. We incorporate the Referee's decision and add the following.

The claimant completed the employer's three-year family practice residency. In order to enroll in the residency program, an individual has to be a medical school graduate. In Michigan, medi.cal school graduates must have a minimum of two years post-graduate training to become fully licensed. Residency is required in order to become Board certified. The residency program's training activities are a combination of didactic work, classroom work, lectures and supervised clinical experience with the supervised clinical experience making up the bulk of the training. Notably, the treatment provided by the residents during their residency is conducted under the supervision of an attending physician. The claimant agrees the primary purpose of the residency program was to train physicians and acknowledges there is a substantial academic component.

McClaren Regional Medical Center's primary medical association is with the Michigan State University College of Human Medicine. According to the Director of Medical Education at McClaren, the residency program was established to develop the resident's clinical skills and not to meet the hospital's staffihg needs. He pointed out that the residency is accredited and if the educational aspect became superseded by a service function, the program would lose its accreditations. Also, while the hospital's primary mission is the delivery of medical services, McClaren indicates residents are not an integral part of that mission as services would be provided with or without the residents. Notably, the facility has approximately 200 physicians and 72 residents.

Residents cannot bill for the patient care they provide. Instead, the hospital is compensated separately by Medicare and Medicaid for 1 00% of the cost associated with their graduate medical education/residency program. The stipend/wages paid to the residents are fully reimbursed by federal sources and in addition, the facility receives approximately another $70,000 per resident to cover staff

L 1999 00047-2736 Page 2

costs, faculty costs and benefits. Throughout the residency, the residents work under a graduate training physician agreement which is signed before they begin the program and renewed annually . The contract contains twenty standard clauses. There is no expectation of employment after c;:ompletion of the contract/residency program.

While acknowledging the residents are employees, McLaren Regional Medical Center nevertheless maintains the claimant is not entitled to receive unemployment benefits. This is because McLaren Regional Medical Center asserts that its residency program is a training program paid for by the federal government and therefore Dr. Canto was "excluded from coverage" pursuant to Section 43(o)(S) ofthe MES Act. Section 43(o)(S) excludes from employment those individuals who are part of a work training program that is assisted or financed in whole or in part by a federal agency. We agree.

McLaren Regional Medical Center's residency training program meets the standards established by the Accreditation Counsel for Graduate Medical Education. The primary emphasis of the program is training. McLaren Regional Medical Center's training costs are I 00% reimbursed by the federal government via Medicare and Medicaid funding. The claimant was a participant in that program.

Again, Section 43(o)(S) of the MES Act excludes from employment those individuals who are participants in a work-training program that is assisted or financed in whole or iri part by a federal agency. Residency programs are "work-training" programs as they impart clinical skills to physicians, which allow them to properly perform their work. Moreover, these programs are funded by the federal government via Medicare and Medicaid reimbursement. Hence, the services rendered by the claimant are excluded under Section 43(o)(S).

While we agree with the employer and find the claimant is excluded from coverage by operation of Section 4 3 ( o )( 5) of the .MES Act, we find he may also be $=Xcluded by operation of Section 4 3 ( q)(2). Section 43(q)(2) of the .MES Act excludes from the definition of employment, "service performed by a college student of any age, but only when the student's employment is a formal and accredited part of the regular curriculum of the school." The word school is not defined for purposes of the :MES Act. When words are not given specific meaning by an Act, they take their ordinary meaning. It is commonly u~derstood that a school is an institution for instruction. In the instant matter, the program the claimant was involved in was part of an accredited program of instruction. Therefore, we find the services provided by the claimant cannot be considered employment for purposes of the Act. In reaching our conclusion in this matter, we have taken into account the fact McLaren Regional Medical Center is precluded by law from billing for the services rendered by the claimant, that McLaren Regional Medical Center does not primarily meet its staffing needs by the use of residents, and the monies paid the claimant bore no relation to the number of hours he worked.

The Board first found medical resident student status excluded them from employment in Alan J. Castell. M.D., L97-00026-2679. The Board' s conclusion in Castell is supported by Minnesota v Apfel, U.S. Court of Appeals Eighth Circuit, No. 97-3141 July 6, 1998. In Apfel. the federal district court found that if an individual's "main purpose" is pursuing a course of study rather than earning a livelihood, the person is a "student" and the work is not considered "employment." Accordingly,

L 1999 00047-2736 Page 3

the court concluded the medical residents involved in that case were students and not employees. In reaching its conclusion, the court made a number of observations. First, the residents were not entrusted with sole responsibility for patients but were given significant supervision and were evaluated on their performance; they were provided educational instruction on their daily rounds and through lectures and formal courses of study; and also like regular students, they could be dismissed if they performed poorly. On July 6, 1998, the decision was affirmed by the Eighth Circuit Court of Appeals.

The Board's conclusion in Castell is also supported by Claim of Gruber, 652 N. Y.S.2d 589 (Ct. App. 1996). Gruber had been a medical resident at St. Luke' s Hospital. After leaving the program, Gruber filed a claim for unemployment insurance benefits. Gruber's claim was unsuccessful as his employment 'with St. Luke's was deemed to be "student services" and, therefore, excluded from the definition of covered employment. Consequently, Gruber's "last employment' was not in covered employment as required by New York law. See David Gruber. Respondent v New York City Dep't ofPersonnel, App, John E. Sweeney, Comm'r ofLabor, Respondent. 652 N.Y.S.2d 589 (1996) at 591.

Notably, the U.S. Department of the Treasury's Internal Revenue Service has issued a guide entitled, "Circular E Employer's Tax Guide." The guide addresses special classes of employment and special types of payments and their treatment under various employment taxes. On page 29 of that guide, the treatment of various classes ofhospital employees is addressed. Among the employees listed are interns. Interns are now referred to as residents. The guide specifically indicates that while income tax and social security taxes are to be withheld from interns' paychecks, that no federal unemployment contributions are to be made by the employer. The basis for that Internal Revenue Service position lies within the Federal Unemployment Tax Act, U.S. Code: Title 26, Section 3306(c)(l3). Title 26, Section 3306 addresses excluded employment. Subsection 3306(c)(13) of Title 26 provides that, "service performed as an intern io the employ of a hospital by an individual who has completed a four-year course in a medical school chartered or approved pursuant to state law," is in excluded employment. Accordingly, such individuals are ineligible for unemployment benefits and their employers are not subject to FUT A withholdings.

We recognize that medical residents have been found to be employees for purposes of collective bargaining by both the state of Michigan and the National Labor Relations Board. See Regents of the University ofMichigan v Michigan Employment Relations Commission, 389 Mich 96 (February 20, 1973) and Boston Medical Center Corp. v House Officers Association/Committee oflnterns and Residents, Case 1-RC-20574 (November 26, 1999). However, the case before us is not a collective bargaining matter and we are not bound by those decisions. We also recognize there are no supreme court or reported appellate court decisions in the State ofMichigan on this issue. There is, however, substantial precedent elsewhere for our ruling. See Claim of Gruber, 652 N.Y.S.2d 589 (Ct. App. 1996) and Minnesota v Apfel, U.S. Court of Appeals Eighth Circuit, No. 97-3141 July 6, 1998 both discussed above.

We acknowledge in passing, that in an earlier decision, Yffv Detroit Medical Center Corp. , L 97-00001-2658 (October 24, 1997), affd by Emmett Cty Cir Ct No 97-4502-AE (June 18, 1998), the

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Board found a medical resident was an employee within the meaning of the l'vfES Act. However, the issue before us is not whether the claimant, as a medical resident, was an "employee" under other laws but whether her medical residency was excluded from "employment" as defined by the Michigan Employment Security Act. This case differs from Yff in that McLaren Regional Medical Center in the instant case specifically introduced evidence which established that they were precluded by law from billing for the claimant's services, and that the residency program was part of an accredited program. Moreover, McLaren Regional Medical Center elicited a specific acknowledgment from the claimant that his residency was primarily an educational endeavor. Clearly, McLaren Regional Medical Center introduced material and substantial evidence that establishes the claimant falls within the exclusionary provision of Section 43(q)(2) as well as Section 43 (o)(S).

The Act provides in relevant part:

Section 43 . Except as otherwise provided in section 42(6), the term "employment" shall not include

• • • • •

(o) For purposes of section 42(8),(9), and (10)1, the term "employment does not apply to

services performed in any of the following situations:

• • • • •

1 Section 42 of the Act defines .. employment" and includes:

(8)(a) Service performed before January 1, 1978, by an individual in the classified civil service of this state and service performed by an individual for a school district, a community college district, a school or educational facility owned or operated by the state other than an institution of higher education, or a political subdivision of the sate, except a political subdivision which has a local unemployment compensation system as provided in section 13j, is employment subject to this act.

(b) Service performed after December 31, 1977, in the employ of a governmental entity as defined in section SOa is employment subject to this act

(9) "Employment" includes service performed after December 31, 1971, by an individual in the employ of this state or any of its instrumentalities for a state hospital or state institution of higher education, or in the employ of this state and 1 or more other states or their instrumentalities for a hospital or institution of higher education located in this state. Coverage of services performed for these hospitals and institutions of higher education after December 31, 1977, shall be determined pursuant to section 42(8)(b).

( 1 0) .. Employment" includes service performed ·after December 31, 1971, by an individual in the employ of a religious, charitable, educational, or other organization which is excluded from the term "employment" as defined in the federal. unemployment tax act solely by reason of section 3306(c)(8) of the unemployment tax act.

L 1999 00047-2736 Page 5

(5) As part of an unemployment work-relief or work-training program assisted or financed in whole or in part by a federal agency or an agency of a state or political subdivision of a state by an individual receiving the work relief or work training.

* * * * *

( q) Service performed for an employing unit other than a governmental entity or nonprofit organization and which is any of the following:

* * * * *

(2) Service performed by a college student of any age, but only when the student's employment is a formal and accredited part of the regular curriculum of the schooL

In reaching our conclusion in this matter, we have taken note of U.S. Department of Labor Unemployment Insurance Program Letter 30-96. However, we wish to point out that the letter is advisory in nature and that there is no specific federal regulation or law that indicates an individual pursuing work training must be economically disadvantaged. Rather, the clear premise of the underlying authority is whether or not the program improves the individual's employability. Certainly, that would be true with the medical residency program. Thus, the residency program fulfills that purpose.

For the reasons stated above, the Referee's decision is affirmed.

For the reasons stated above, the services tendered by the claimant are exempt from coverage pursuant to Sections 43(o)(5) and Section 43(q)(2) of theMES Act.

, This matter is referred to the MUA for action consistent with our decision.

~f.,q_~ Kathleen Markman, Chair

L 1999 00047-2736 Page 6

JULlE ANN PETRIK CMEivffiER). DISSENTING AS FOLLOWS:

This case is before the Board on appeal of a Referee decision that the claimant is excluded from employment under Section 43 of the Act.

Section 42 of the Act defines employment as follows:

'Employment' means service, including service in interstate commerce, performed for remuneration or under any contract of hire, written or oral, express or implied.

The multi-factor economic reality test set forth in McKissic v Bordine, 42 Mich App 203 ( 1972) is applied to determine if an employment relationship exists within the meaning of Section 42 .

McLaren Regional Medical Center concedes that the claimant is an employee within the meaning of Section 42. Indeed, the record evidence amply supports that the claimant was in an employment relationship with the hospital.

The claimant, Dr. Emmanuel Canto, was a family practice resident at the hospital. He testified that he worked from 40 to 60 hours per week at the hospital. The hospital established the hours he was to be at the hospital. He was not permitted to leave until his patients were in stable condition. He was further required to ensure that all his patients were updated and passed onto the next resident. Patients were assigned to the residents by the hospital in the family practice center. Emergency room patients who didn't have a physician would also be assigned to him. Dr. Canto further testified that except for his own stethoscope, he used hospital facilities and equipment in his work.

Hospital witness, Dr. Romanelli, testified that residents were assigned "primary responsibility" for the patient. He specified that the resident would condu~ a patient history, physical exam and then diagnose the patient based on his or her findings. These findings are then discussed with the senior resident and the supervising attending physician. He further testified that residents perform minor procedures and deliver babies. The hospital bills for services provided by residents when the attending physician or obstetrician is present during the performance of service.

The contract entered into by the hospital and Dr. Canto required that the claimant maintain regular or limited license to practice medicine in Michigan and a controlled substance registration. The registration permits the administration and prescription of medications.

The hospital paid the claimant's salary of$32,822 for the year. Taxes were withheld from his salary. He was also entitled to three weeks of vacation, hospitalization, medical, dental and optical care for himself and dependents. Under the contract, the claimant was precluded from participating or engaging in any outside remunerative work with Cf!rtain exceptions set forth in the contract.

The claimant testified he relied upon the money he earned from the hospital to pay his living expenses.

L 1999 00047-.2736 Page 7

As noted above, there is no dispute that the claimant was in an employment relationship with the hospital within the meaning of Section 42 of the Act.

Nonetheless, the hospital objects to the payment ofbenefits to the claimant asserting the claimant is exempt from coverage by the Michigan Employment Security [lv(ES] Act under Section 43(o)(v).

Numerous cases recognize that the Employment Security Act is remedial legislation intended to relieve the distress of economic insecurity due to unemployment. As such, the Act must be construed liberally to achieve its purpose. O'Brien v Michigan Unemployment Compensation Commission, 309 Mich 18 ( 1944 ), Fifth District Republican Committee v Michigan Employment Security Commission, 19 Mich 449 ( 1969) and Salenius v Michigan Employment Security Commission, 3 3 Mich App 228 (1971 ). Consistent with the purpose of the Act, any exemptions from coverage must be narrowly construed. An employer who claims an exemption bears the burden of proving that the exemption was intended to apply. Republican Committee, supra and Salenius, supra.

Section 43(o)(v) of the Act provides that:

(o) For purposes of section 42(8), (9), and (10), "employment" does not apply to service performed in any of the following situations.

(v) As part of an unemployment work-relief or work-training program assisted or financed in whole or in part by a federal agency or an agency of a state or political subdivision of a state by an individual receiving the work relief or work training.

Emphasis added.

The critical language of the section is "an unemployment work-relief or work training program." McLaren Regional Medical Center maintains Dr. Canto was involved in a work-training program and thus an exempt employee. It maintains that the phrase "work training program" is not modified by the word "unemployment" and thus any employment that includes a work training program financed as set forth in that section is exempt from coverage.

Such a reading is far too broad and is contrary to the plain meaning of the Act.

Indeed, this Board has already rejected this approach in a similar case, in DMC v Yff, L97-00001-2658 (July 31, 1997). There, the dissenting member would have applied the Section 43 (o)(v) exemption, however, the majority affirmed the Referee decision that the claimant medical resident was in covered employment. The Board stated, "Even though one of the purposes ofthe residency was to provide claimant with additional education. and training, the claimant's situation was akin to that of any skilled worker who receives on-the-job training while involved in productive work on the employer's behalf"

L 1999 00047-2736 Page 8

The Emmet County Circuit Court affinned the Board's decision. In doing so, it specifically rejected the application of the Section 43(o)(v) exemption:

In the phrase in question, the adjective "unemployment" modifies both "work-relier and "work-training." Clearly, the meaning of the above exemption, from the language used, indicates that it applies only if the individual is involved in either an unemployment work relief program or unemployment work-training program, which is assisted or financed by the state or federal government. The plain language and wording of the statute supports this construction.

DMC v Yff, June 18, 1998 (No. 97-4502-AE) lv den, unpublished per curiam of the Court of Appeals, December 30, 1998 (No. 213 896).

The employer has not argued that the residency program is an "unemployment" work-training program. And it is clear it is not.

The U.S. Department ofLabor's Unemployment Insurance program Letter 30-96, ("UIPL 30-96") defined the meaning of federal legislation, which is virtually identical to Section 43(o)(5). Failure to be in compliance with the requirements of federal law creates confonnance problems for the Unemployment Agency and could have the effect of making Michigan employers ineligible for FUT A tax credits. UIPL 30-96 makes it clear that unemployment work relief and unemployment work training programs are two separate exclusions, that work relief programs were primarily intended to relieve the disadvantaged by providing employment, and that a work training program included no requirement that the individual in the program be economically disadvantaged.

However, both work relief and work training programs had to have the characteristics that the services provided by program participants were secondary to providing financial assistance, training or work experience to individuals . . . to relieve them of their unemployment or poverty or reduce their dependence upon various measures of relief . .. . " (emphasis added). UIPL 30-96. The record establishes that the primary purpose of the employer is to provide medical services, ·not conduct a medical residency program. Most importantly, the program was not to provide medical training to relieve medical residents of their unemployment or poverty or to reduce their dependence on relief programs. Further, there was no record evidence that Dr. Canto was in poverty or dependent upon public relief prior to entering the residency program.

Consequently, I conclude McLaren Regional Medical Center has not demonstrated it is entitled to this exemption. ·

The next question to be resolved is whether the employer is entitled to the Section 43( q) exemption. Section 43(q) provides:

43(q) Service perfonned for an employing unit other than a governmental entity or nonprofit organization and which is any ofthe following:

L 1999 00047-2736 Page 9

(i) Service performed by a college student of any age, but only when the student's employment is a formal and accredited part of the regular curriculum of the school.

Emphasis added.

The starting point in the Section 43( q) analysis is the employing entity. The exemption is provided only for employing units "other than a government entity or non-profit organization." The employer is a non-profit organization and therefore is not entitled to the exemption.

Finally, I find it highly anomalous that the claimants would not be considered employees under the .tvfES Act when they are considered employees for almost every other purpose. It has long been established that medical residents are employees for purposes of Michigan's Public Employment Relations Act under which Michigan's public employ~es have the right to engage in collective bargaining. Regents of the University ofMichigan v Michigan Employment Relations Commission, 3 8 9 Mich 96 ( 1973). Similarly, medical residents are considered employees under theN ational Labor Relations Act and therefore entitled to the right to engage in collective bargaining. Boston Medical Center Corp and House Officers Association/Committee ofinterns and Residents, Case 1-RC-20574 (November 26, 1999). In reaching that conclusion, the National Labor Relations Board noted that state and federal taxes were withheld from residents' pay, residents were covered under a worker's compensation policy, by the Family & Medical Leave Act and the Americans with Disabilities Act, as well as other state and federal laws that prohibit various forms of discrimination in employment.

Additionally, I note that in Rockswold v United States, 620 F2d 166 (8th Circuit, 1980), the court concluded that stipends paid to residents at the University of Minnesota's teaching hospitals constituted payment for services provided and therefore the stipends were not excludable from the resident's gross income for income tax purposes.

Finally, I must note that the majority's reliance upon Minnesota v Apfel, U.S. Court of Appeals, Eighth Circuit, No. 97-3141, July 6, 1998, and Claim of Gruber, 652 NYS 2d 589 (Ct App 1996), is misplaced. Neither establishes that the employer is entitled to the exemptions at issue before the Board. Apfel involved whether residents were entitled to a "student" exclusion from paying social security taxes under an agreement between the State of Minnesota and the Social Security Commissioner. That issue is not presented under either the Section 43(o)(v) or the Section 43 (q)(2) exemption. Claim of Gruber involved whether an employer was entitled to an exemption from New York's unemployment insurance act for "student services." Section 43(o)(5) is not even remotely similar to the New York exemption. While Section 43(q) does exempt "Service performed by a college student" the service must be performed for a unit other than a nonprofit organization. As noted above, the employer in this case does not qualify due to its nonprofit status. To say that the employer is entitled to either exemption is a distortion of the statutory construct and in violation of the principle that exemptions from coverage of the Act must be narrowly construed.

L 1999 00047-2736 Page 10

The claimant is in covered employment within the meaning of Section 42. The hospital has failed to show that it is entitled to either of the asserted exemptions. Therefore, I would reverse the Referee's decision. As the Board majority has chosen to do otherwise, I must respectfully dissent.

MAILED AT LANSING, MICIDGAN ·sEP 2 a zoot

This decision will become final unless a written request for rehearing or appeal to the appropriate

circuit court is RECEIVED on or before ·ocr 2 9 zoor

TO PROTECT YOUR RIGHTS, YOU MUST BE ON TIME.