Consider these important issues before signing
Todd A. Rodriguez, JD
Whether you are joining a group practice or entering an employment relationship with a hospital, you should consider several significant legal and financial issues when negotiating your employment agreement.
Before signing any agreement, you should review—with legal counsel as appropriate—and fully understand all the terms of the agreement. The following are among the most critical provisions to consider.
Scope of employment
The employment agreement should spell out, with as much specificity as possible, the scope of your employment and duties. Full-time employed physicians are generally expected to work the hours and provide the services required to ensure the prompt and necessary care of practice or hospital patients. Your employment agreement should include the general parameters of employment, including the type of services you will be required to render, work location, work hours, and on-call obligations.
Similarly, if the employer has multiple service sites, consider specifying a primary practice location so that you cannot be reassigned to other sites without your prior consent. The agreement should also specify when you will be required to work. If you will be expected to work office hours on the weekend, you should know this upfront.
Finally, if you will have on-call responsibilities, the agreement should specify your maximum on-call obligations or how call responsibilities are shared among physicians.
Compensation terms will vary by employer type, group size, geographic location, and philosophies. Regardless of the compensation model used by a particular employer, be sure that you fully understand how the formula works, its critical components, and how your compensation can be changed during the term of your employment.
As third-party payers explore payment methodologies that focus less on volume of services and more on quality and cost measures, employers are increasingly attempting to build compensation models that emphasize these performance measures. However, measuring quality and cost in health care can be very difficult. Therefore, if a portion of your compensation is based on performance measures, it is important those measures be objective and quantifiable. You should not agree to performance measures that are beyond your reasonable control.
For example, compensation based on patient satisfaction survey scores can be very risky depending on the survey methodology. It’s a good idea to request and review a copy of the survey to understand the types of questions patients will be asked before agreeing to this type of compensation formula.
Employers may also attempt to include compensation adjustment provisions in employment agreements. Such provisions may include a cap on compensation to ensure that it is consistent with fair market value or permit a downward adjustment in compensation if you fail to meet various performance benchmarks.
Be wary of any agreement that does not spell out objective, reasonable adjustment “triggers.” You do not want to agree to an employment position based on a particular compensation amount only to find it changed within 6 months or 1 year. Ideally, you would want to build in an acceptable floor below which your compensation cannot be reduced.
Finally, when interviewing for a position, you may want to find out how the compensation formula has worked in previous years. If you have the opportunity to speak with other employed physicians, ask them if they have historically earned incentive compensation under the formula and if they are generally satisfied with the compensation methodology. Remember, however, that historical performance is not necessarily a predictor of how well the formula will work for you.
Term and termination
The best compensation package in the world doesn’t mean much if your employment can be easily terminated at any time. Both the terms and the consequences of termination are critical in an employment agreement.
Most physician employment agreements include both “for cause” and “without cause” termination clauses. For-cause termination generally means that a party to the agreement can terminate the agreement—usually immediately—if the other party breaches the agreement in some way. Ideally, the employment agreement should list each of the causes for which employment can be terminated, and those causes should be objective and reasonably within your control. Common causes for termination include the following:
- loss or suspension of license or medical staff privileges
- failure to obtain or maintain board certification
- commission or conviction of a crime
- patient safety-related issues
Be wary, however, of discretionary for-cause termination provisions such as “conduct which, in the employer’s sole discretion, might injure the employer’s reputation.”
Physician employment agreements may also be terminated without cause, which means that either party can terminate the agreement at any time—usually with a certain notice period—without having to identify any specific reason for the termination. For example, an employment agreement might state that either party can terminate the agreement at any time upon 90 days’ notice. This, of course, means that the term of the employment agreement is effectively 90 days, because this is the longest period you can be assured of employment absent a for-cause termination.
Without-cause termination can be a scary proposition for many physicians, but it is not all bad. This provision can be a failsafe for both the employer and the employee if either party is unhappy with the arrangement. In the absence of a without-cause provision, each party is obligated to abide by the terms of the agreement for the entire term unless cause for termination can be found or one party is willing to breach the contract (and potentially be sued for breach). Many physicians are willing to accept the risk of a without-cause termination to avoid the possibility of having the employer watching over their shoulders for cause to terminate the agreement.
Physician employment agreements often include noncompetition provisions, also known as “restrictive covenants.” Under this contractual agreement, an employee agrees that he or she will not compete with the employer, usually during the term of employment and for some period of time following the date of employment termination. Although a handful of states have statutory prohibitions against restrictive covenants, many jurisdictions allow them and many courts will enforce them.
Generally, to be enforceable, a restrictive covenant must be narrowly tailored to protect the reasonable interests of the employer. This means that the scope of the restriction (type of services restricted, the length of the restriction period, and applicable geographic area) should be reasonably related to the employer’s specific practice. For example, the geographic area covered by the restrictive covenant should be limited to the area from which the employer draws the majority of its patients. The type of services restricted should be limited to those for which the employee has been hired. A specific reference to the specialty (eg, general orthopaedics or hand surgery) is preferable to a restriction on the “practice of medicine.”
Finally, most restrictive covenants are limited to 3 years following termination. These are only rules of thumb, however; if you’re considering an agreement that includes a restrictive covenant, work with legal counsel to understand the specifics of the covenant.
Signing an employment agreement is one of the most important professional decisions you can make. Although you can always leave a job and find another one if you are unhappy, the terms under which you can leave can be onerous, and changing employment multiple times throughout your career can hamper your ability to grow and maintain a practice. It is imperative, therefore, that you enter into an employment agreement fully cognizant of all of the potential risks and benefits of the arrangement. This means taking the time to review your own employment agreement, seeking the guidance of knowledgeable advisors—including lawyers and accountants as appropriate, and negotiating a mutually satisfactory agreement that will serve you and your employer for the long term.
Todd A. Rodriguez, JD, is a partner in the Exton, PA, office of Fox Rothschild LLP. He can be reached at firstname.lastname@example.org
Editor’s Note: The information contained in this article is intended for general information purposes and should not be considered legal advice. Individuals who need legal advice should contact a duly licensed professional.