Before you sign on the dotted line, review your employment contract carefully.
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Published 8/1/2015
Kathleen L. DeBruhl, JD

Understanding Your Employment Contract

An eight-item checklist can help ensure nothing is overlooked

By definition, contracts are agreements between two or more parties that describe, in writing, the agreement of certain business terms. When physicians negotiate employment contracts, they usually focus on certain items like compensation, bonuses, or on-call arrangements. But even when verbal agreements have been reached on these issues, a physician may be surprised when these terms—and multiple others never discussed—appear in the written contract.

Using a checklist can help physicians better understand the elements of the contract, in particular what can be changed or asked for, and enable them to negotiate terms most effectively. And, with compensation arrangements that are potentially worth millions of dollars, it makes good business sense to have a contract.

Note: If a physician is employed by a medical practice or healthcare institution (hospital), there is no actual requirement that employment arrangements be in writing. “Stark” laws require that the aggregate compensation meets fair market value criteria and not take into account the value or volume of referrals. Services personally performed by the physician are not included in “the value or volume of referrals,” which is why production-based compensation—whether determined by some formula that includes “net” compensation or a work relative value unit (wRVU) scale—is legal.

The employment contract checklist
At a minimum, every employment contract should address the following eight elements:

Parties to the agreement—It is critical that physicians understand who the employer is—this will help define how decisions are made. Is the employer a hospital or a nonprofit foundation? Is it a professional medical corporation or association (with shareholders) or a limited liability company? Is there a board of directors or a management committee? To whom does the physician report?

Duties—The employment agreement must document the number of days and times the physician is expected to work as well as the locations where he or she will be required to provide services. In addition, the physician’s administrative duties and expected time commitment for these duties should be identified.

If the physician teaches, does legal work, moonlights, or wants to do any work outside of the employment agreement, that also needs to be described. Finally, there should be a clear understanding of a physician’s on-call duties and expectations.

Physician requirements—All physicians are required to have current licenses, U.S. Drug Enforcement Administration registrations, board certification/eligibility, and possibly tail malpractice coverage from a previous employer. Employment agreements often include very general terms, such as requirements to abide by “all policies, procedures, and bylaws ...” of the employer. Physicians should not agree to these types of general statements unless they are provided actual copies of the policies, procedures, and bylaws to review prior to signing the agreement.

Employer obligations—Employment contracts usually place very few obligations on the employer. A vague statement to provide “adequate space, equipment, and personnel” is insufficient. Physicians should ensure that their specific needs, such as a dedicated physician’s assistant or medical assistant; electronic health record, compliance, or ICD-10 training; specific equipment; and block time in the operating room are addressed.

Compensation—Many compensation methodologies exist. The physician should be able to understand the compensation package and know it is fair. The employer must ensure that it is adequate and provide the physician with access to the books and records to review.

In orthopaedic agreements, compensation can be a fixed salary or production- or wRVU-based (and adjusted). It may also contain built-in quality indicators. Actual compensation can include sign-on bonuses, resident/fellow stipends, school loan repayment, severance or deferred compensation (eg, accounts receivable) upon termination, benefits, disability, and malpractice. Overhead and/or other practice expenses may be allocated among physicians in the practice, and the physician must understand how these are calculated.

Term and termination—Contracts often include an effective date—the date the contract is signed—and a commencement date—the date the physician begins work. The two dates may be many months apart, giving the physician time to complete fellowship training, transition, or move. It also gives the practice the time it needs to credential the physician to ensure billing and collections can begin when the physician starts working.

Many employment contracts automatically renew for additional terms. If they do not, then the physician should look for adequate notice, in writing, of the nonrenewal of the agreement. For example, termination may be immediate if the physician loses his or her license. Termination may be with cause for behavior or breaches of the terms of the employment agreement. This is usually accompanied by a written notice and an opportunity to cure the breach within a certain period.

Finally, many contracts have mutual “without cause” terms. These enable either party to provide written notice to the other to terminate, for no reason, usually within 60 to 90 days. For a physician who has just moved his or her family to a new area, this could have a devastating effect. If this provision cannot be removed, the physician should insist on the right to stay in the community and receive a buy-out. This provision should never allow a hospital employer to immediately remove a physician from its medical staff without due process rights.

Restrictive covenants—Due to the high cost of recruiting and employing a physician, many physician groups and hospitals insist on including various types of restrictive covenants such as noncompete and nonsolicitation provisions in an employment contract. These restrictive covenants are governed by state law and are designed to do what they say: stop a physician from practicing in a certain geographic area and prevent the solicitation of patients and employees.

Physicians are encouraged to discuss the ability to buy out their terms, narrowly define the geographic area, and/or define exactly what solicitation entails. Otherwise, these provisions are true restraints of trade and should be excluded if at all possible.

Miscellaneous—The following terms may or should be included in an employment agreement:

  • discussion of patient notices upon termination
  • access to medical records
  • dispute resolution (eg, arbitration, medication)
  • partnership participation or buy-in of ancillary revenue

Don’t do it alone
Although this checklist provides insight to the material terms that should be addressed in an employment agreement, physicians should think twice before deciding to attempt contract negotiations on their own. The assistance of a trained healthcare attorney can be invaluable when navigating an employment agreement.

Kathleen L. DeBruhl, JD, is with Kathleen L. DeBruhl & Associates, LLC, a law firm specializing in healthcare regulatory matters involving physician ownership and financial relationships, reimbursement, fraud and abuse, and compliance.