Published 7/1/2013
Jennifer B. Mehta, JD

Understanding Your Employment Contract

Knowing what to look for can help protect your future

After 5 years of residency plus 1 year of fellowship, you uproot your family and move across the country for a promising employment opportunity. Once there, you dive full force into your practice. You perform your duties as expected, generate income for the practice, and quickly build both a patient base and a formidable reputation.

One morning, without warning, you are called into a partner’s office and terminated. Blindsided, you wonder, “Can this happen?”

The answer, embedded in your employment contract, may be “Yes,” because the termination clause often allows for termination by either party without cause. To add insult to injury, if your termination occurs during your board collection period, you may have no choice but to figure out a way to follow your patients without the resources and support promised by your employer or to uproot again and start from scratch.

In the wake of the Patient Protection and Affordable Care Act, more physicians are becoming employees. The percentage of independent physicians has dropped from 57 percent in 2000 to 39 percent in 2012. This trend is expected to continue due to increasing business and regulatory expenses, decreasing reimbursements, and the uncertainty of the future of medical practice and medical finances. As more physicians begin to draw a paycheck, it is increasingly important that they review the employment contract and understand both its provisions and the consequences of certain language.

This article provides an overview of the most common provisions in physician employment contracts. Because employment contracts are usually drafted by the employer, potential physician employees must thoroughly review the agreement, negotiate terms, and understand the consequences of those terms that are “non-negotiable.”

Despite what an employer may say, it is not likely that you have “no choice but to accept the contract as is.” But it is also not likely that “everything is negotiable.” Often, “non-negotiable” provisions can be reworded and clarified to avoid problems and eliminate the element of surprise.

Having the contract terms reviewed and explained by an attorney before you sign an employment agreement with a hospital may be a good idea.
Courtesy of iStockphoto\Thinkstock

At the outset, the employment contract states the parties to the contract. Full and precise legal names should be used. The parties to the contract generally include the entity that issues the paycheck and you, the employee physician. In addition, any party that also provides services, such as a service organization or hospital, should be included. The roles of each party should be clearly described in the contract and all parties must sign the agreement.

Duties and restrictions
The contract specifically states the duties of each party. Job titles should be specific; for example, “orthopaedic surgeon” rather than a “medical doctor.” A job description may be incorporated by reference and, because job descriptions may evolve over time, you may want to have a provision specifying that any changes to the job description must be initialed by both parties.

This section of the contract also usually states that you, as the physician employee, must devote your full professional time to the employer. It is important to specify what is considered full time, including how many work days are required, how much time will be protected for administrative or academic time, and how much time you are required to be on call.

Because orthopaedic surgeons and other physicians often spend time outside of work on other endeavors—ranging from research and speaking engagements to consulting and publishing articles—the exclusive service provision must include specific exceptions for such outside work. Otherwise, the work product may belong to the employer and the fees or other income attributable to the professional service can belong to the employer as well.

Sometimes, employers will make outright exceptions for this type of work or specify that exceptions will be made for these types of endeavors if they are on “educational or vacation time” or “provided that the pursuit of such other business activities does not materially impair the performance by employee of his or her duties.”

It is also important to address the location where you will work. As hospitals and practices add satellite locations, your contract should state how much time you will spend at the main hospital or office. Otherwise, you may unexpectedly find yourself traveling to satellite offices 60 miles or more away.

The duties of the employer to provide such resources as equipment, space, office staff, and other things necessary for you to perform your duties should be specifically outlined in the contract. If you wish to maintain the right to interview nurses or other employees hired by the employer, make sure this is also specifically stated in the contract.

Term and termination
The term section of the contract refers to the start and duration of the contract and the termination section discusses the end of the contract. Standard employment contracts are generally “terminable at will” meaning either party can terminate at any time. However, physician employment contracts usually specify a fixed term subject to early termination or extension.

The term clause of the contract should include both an “effective date” and a “starting date” for employment. These two dates may differ due to obligations on both parties that must be performed before the start of employment. For example, credentialing and board certification may be required before the start date. The duration of the contract must also be specified. Usually, the duration is a period of 1 to 3 years.

Termination of the contract can be with or without cause. Termination with cause is generally limited to situations such as the loss of a medical license, conviction of a felony, exclusion from the Medicare program, or the employer’s inability to obtain malpractice insurance on behalf of the physician. Termination in the case of death or disability is also usually specified.

Termination without cause maintains both parties’ ability to end the employment at any time and usually provides for a notice period. If the contract does allow for termination without cause, be sure to understand the consequences and be sure that the notice period is the same for the employee as it is for the employer.

Compensation includes salary and benefits. The compensation clause should spell out the amount and frequency of payment. Although the salary formula may not be negotiable, base salary can often be negotiated, especially if it comes from several sources. For instance, a hospital employee’s salary can come from base pay, medical directorships, call pay, and incentive pay. If the contract does not include a preset formula for salary increases, the compensation section should provide for a salary review after a specified period of time.

Compensation also includes benefits such as health insurance, life insurance, disability insurance, and other benefits. Many employers have an employee benefit manual that applies to all employees or all physician employees. The contract should clearly state what these benefits include and incorporate any benefit manual by reference.

The contract should also specify who will pay for malpractice coverage, including tail coverage upon termination of the employment. Additionally, it should specify if the employer will pay for continuing medical education courses, dues for professional memberships, and board exams fees.

Most physician employment contracts include a covenant not to compete. Some states hold restrictive covenants to be invalid, but in many states, covenants not to compete will be upheld so long as they are reasonably limited in geographic area and time frame. You can ask to have this provision deleted and some employers will oblige, but you often have a better chance of clarifying the restrictive covenant to apply in limited circumstances or further limiting the scope.

Physician employment contracts will also usually have provisions prohibiting disclosure of employer’s lists, records, or other information and an agreement not to solicit any patients or employees.

Further provisions
Employment agreements with physician-owned practices usually include provisions for potential purchase of interest in the practice. These provisions may state that, after a fixed period of time and provided the employer corporation agrees, the employee has the option to purchase a percent interest in the corporation.

A good time to discuss whether you are likely to become an owner and learn about the buy-in agreement and your equity status is during the initial contract negotiations. When it comes to buy-ins and partnership agreements, the employment agreement intersects with other corporation documents so it is important to seek the advice of an attorney with experience in physician business transactions as well as medical practice agreements.

The last part of the contract usually contains a series of provisions that are sometimes referred to as standard or “boilerplate.” These provisions may address issues such as governing law, resolution of contract disputes, and other miscellaneous items. Although such clauses may be standard and non-negotiable, you should carefully review and understand them.

Ultimately, good contract review and negotiations will protect the interests of all parties and give you the peace of mind necessary to make a decision to accept employment. Subsequent articles will discuss specific contract provisions in more detail, as well as possibilities for language and the probable consequences for the employer and employee.

Jennifer B. Mehta, JD, is an attorney with the law firm of Donnelly Ritigstein (Haddonfield, N.J.). She can be reached at jmehta@donnellyritigstein.com

Editor’s note: This article is not intended as legal advice or to address specific employment contracts. If you are involved in an employment situation—whether as an employee or employer—you should retain an attorney because each case has specific requirements.

Additional Resources
“Clinical Transformation: New Business Models for a New Era in Healthcare,” Accenture