Healthcare attorneys often work with physician clients to negotiate their employment agreements before entering a new arrangement, and to understand their rights and mitigate risk upon departure. A well-negotiated agreement is not just a legal document—it is a roadmap for a sustainable and mutually beneficial professional relationship. The right agreement can protect your career and your peace of mind.
ASSESSING THE PROVISIONS
Whether reviewing the agreement at the front end or the back end of a relationship, the first step is often to determine whether the provisions are compliant and enforceable. As we all know, healthcare is extremely regulated, and the enforcement environment is punitive. Any competent healthcare attorney should be able to quickly determine whether there are any concerns regarding the proposed employment agreement from a state and federal regulatory perspective. Think about the federal Stark law, the federal Anti-kickback law, federal tax requirements, HIPAA and numerous parallel state provisions. Although attorneys are generally not qualified to opine on fair market value, they often have compensation survey data at their fingertips that can assist a physician in determining whether compensation is within the range of fair market value (as defined by the federal health care programs). Attorneys can also help to understand whether the proposed provisions are enforceable and whether the provisions are market or overreaching.
Physicians need to ensure that their employment agreement includes the terms that are most important from a business perspective. Promises made during recruiting discussions are generally not enforceable unless they are set forth in the written agreement. It is important for an employment agreement to reflect a mutual understanding of employer expectations, compensation and benefits. Given increasing reimbursement challenges, financial constraints, private equity involvement and staffing shortages, employers are increasingly focused on productivity and the bottom line. Physicians need to advocate for themselves and ensure that the employment agreements provide sufficient protection regarding the location where they will work, the number of hours they are expected to provide clinical and administrative duties, paid time off for holidays and the amount of call coverage required. In the event that specifics regarding call coverage are not stated, it’s important to at least include language that there be an equitable rotation of call coverage obligations among those in the same practice area.
Employment agreements often restrict physicians from engaging in outside activities unless the employer agrees after full disclosure on a case-by-case basis. If a physician plans to moonlight, engage in professional speaking or writing, pursue independent research, engage in volunteer activities, it is best to explicitly agree that the physician can engage in these activities at the front end of the relationship. Typically, physicians have the most leverage when they are entering the employment relationship and it’s easier to address these issues before the agreement is entered then after the relationship has commenced.
Employment agreements should also provide sufficient security, and sufficient flexibility, to the physician employee so that reliance is reasonable. If the agreement provides for a five-year term but either party can terminate upon thirty days’ notice without cause, consider whether the agreement really only provides thirty days of job security. Does this make sense if the employee is relocating across the country? In my experience, most employment agreements require thirty to one hundred eighty days of notice before either party can terminate without cause. The physician should understand whether the employer has an obligation to permit the physician to work during the entire notice period or whether the employer can then terminate the physician immediately once the physician provides notice. Also, if a physician is locked into the agreement without the ability to terminate the agreement for convenience, the physician should have the ability to terminate the agreement during the term for good reason. These circumstances may include a financial decline or insolvency of the employer, lack of support in terms of staffing or equipment, past due payments of compensation, material change in location, compensation, schedule job duties or call coverage. The termination for cause provisions should be tight and the standards should be objective, so they do not create loopholes. To the extent that a termination is based upon a violation of an employer policy or procedure or a breach of the employment agreement, there should be an opportunity to cure.
GOING SEPARATE WAYS
Before entering an employment agreement, physicians also need to understand the impact of a termination of the agreement. Do relocation allowances or bonuses need to be paid back, and, if so, is there a tax consequence? Are bonuses prorated and payable for partial periods if the agreement terminates during a measurement period? This is especially important to consider if the bonus is a material part of the compensation package and the physician is relying upon it. Will the employer pay for tail coverage if the professional liability insurance is on a claim made basis? Sometimes the employer will only agree to pay for tail coverage if the physician has been there for a period of time. I would argue that the physician should not be required to pay for tail if she has been there for at least a year.
Most employment agreements will include basic restrictive covenants that apply during and after the term of employment. No physician should sign an agreement with these restrictions unless he/she is willing to live with them. Generally, in most states, these restrictions are enforceable. These include prohibitions on outside activities, competing with the employer, disparaging the employer and its other physicians, soliciting patients and workforce members, interfering with the business of the employer and sharing confidential information. In order to make them more tolerable, consider clarifying that general advertising of an employment opportunity does not constitute impermissible solicitation of employees. Similarly, general advertising and promotion of one’s practice on websites, social media and elsewhere should not constitute impermissible competition. Some states, such as Ohio, have detailed regulations requiring that healthcare employers provide notice to patients of a physician’s departure, including information regarding where the physician will provide professional medical services post termination. For those states that do not, incorporating a form of patient notice into the employment agreement to be used upon termination of the relationship may be a good idea. Also consider whether the duration or geographic area of the noncompete. What is a reasonable geographic area in rural Michigan is different from a reasonable geographic area in Manhattan. Also, consider including certain exceptions to the noncompete (e.g., working for certain non-competitive employers that serve a different patient population, working at a location to the extent required to maintain medical staff privileges, providing hospital-based services, providing services as an ambulatory surgery center, etc.)
When employment agreements are thoughtfully reviewed and negotiated before being entered, the parties can simultaneously be excited about the future but also assured that there is a clear plan for an unwind if that becomes necessary. Having a strong document to serve as the basis for the employment relationship can avoid unnecessary adverse career consequences, emotional stress and legal fees in the future.
Kathryn (Kate) Hickner, Esq. is a Partner at Taft Stettinius & Hollister LLP, which has been ranked as one of the top 100 largest law firms in the U.S. Additional information regarding Kate’s background and experience can be found at https://www.taftlaw.com/people/katehickner/. She can be reached at khickner@taftlaw.com.