A Physician's First Employment Contract

Imagine you're a physician in residency. You've received one or more job offers and are excited that your career will soon be launched. Shortly thereafter, you are presented with a written version of the offer, which may be a binding offer letter or a full-fledged written employment agreement.  It will probably include quite a bit of language that you're not familiar with. Perhaps they didn't tell you about this in medical school. What does it mean? What should you do? Can you negotiate? Should you?

 

With this post, we hope to at least partially de-mystify that first employment contract and offer a few pointers on how to proceed. Note, however, that this post does not provide legal advice and does not create an attorney-client relationship. If you desire legal advice for your specific situation, you should contact an attorney of your choice.

 

What Is an Employment Agreement?

 

An employment agreement is, or should be, a binding contract between an employer and employee. It's very easy to create a binding contract in the Anglo-American "common law" legal system. For most contracts, all that's needed is for one party to make an offer, and another party to accept it and either makes an offer back or take action based on the first offer. Most contracts don't even have to be in writing to be legally enforceable. (See note at end of this blog for exceptions.) For example, most employment arrangements are not put in writing, but if the employer extends an offer and the new employee shows up and works, then the employer must pay. The contract is "at will," though, meaning that the employer can usually fire the employee at any time, and the employee can quit at any time. 

 

However, most physician employment agreements are in writing and include many terms other than simply "I'll pay you if you work" and "Okay, I'll come to work."  

 

Also bear in mind that:

  1. The promises between the parties do not have to be equal. Most contracts are enforceable even if one party gets a lot more out of it than the other, so long as it includes no illegal provisions. The fact that one party benefits disproportionally from a contract does not make it unenforceable.

  2. Courts will rarely protect you from a bad contract. In most states, courts will enforce a contract as written, even if unfair to one party, so long as it's not for an illegal purpose. For example, if the contract states "Employer may terminate employee after 30 days of employment for any reason at all," then the employee typically cannot dispute a termination on day 31 even if the employee, say, moved across the country to take the job.

  3. But there are a few exceptions to point 2. For example, as we'll see below, the law tends to frown on excessive "non-compete" restrictions.

  4. Certain types of contract promises must be in writing to be enforceable, such as those that can't be performed within one year. See the note at the end of this post for more information on such contracts.

 

Some Basic Principles

 

Since you cannot depend on the courts to correct or improve a contract that you later decide is unfair or one-sided, how do you make sure the contract serves your needs?  Let's begin with a few basic principles.

 

  1. The contract should clearly state what is going on. Read it! Understand it! If you don't understand it, then that's a problem. Courts will assume you knew what was in the contract when you signed it, and usually won't save you from your inexperience.

  2. You are entitled to negotiate.  If the employer won't negotiate, then that may be a red flag. A TOUGH OR ONE-SIDED NEGOTIATION OFTEN INDICATES IT'LL BE A TOUGH OR ONE-SIDED EMPLOYMENT EXPERIENCE!

  3. Use your leverage!  If they've made on offer, THEY WANT YOU, which gives you leverage. Use it! More on this below.

  4. You are entitled to legal representation. The employer probably had a lawyer draft the contract you're looking at, and that lawyer's job was to protect the employer's interests, not yours.  In fact, if the employer is a hospital based health system, then it may have an entire team of people dedicated to drafting and negotiating contracts, including attorneys. These folks do this every day, while you're busy treating patients. You will be at a disadvantage if you rely only on your own wits and experience.

  5. Know what you want! You cannot negotiate effectively, and your attorney cannot advocate for you, unless you both know what your priorities are. More on this later, too.

  6. Know your walk away point!  At what point, if any, are you willing to say "no deal"? This is easier if you have more than one offer. But your leverage is much greater if you're actually willing to say "no, thanks" and correspondingly weaker if you're not. We are not big believers in bluffing, but the very act of negotiating may plant some concern in the employer's mind and make him/her more willing to make concessions.

 

Typical Key Terms and Traps to Look For

 

Every employment contract is different, so generalities, including these, should be taken with a grain of salt. But most physician employment contracts address the following subjects, as well as certain standard "boilerplate" provisions. Read carefully to be sure you're getting what you expected.

 

1.   Job Description: This may be described partly in the main body of the contract, with details in an exhibit. Read this job description.

  • Does it match what you want and expect? If not, ask for clarification. You should be accepting the job you wanted to get.

  • Does it allow your supervisor to unilaterally redefine your duties? If so, ask for this to be done by mutual agreement.

 

2.   Term: again, read carefully. What is the real term? A contract may state a term for “one year” or “three years.” But it may also have a clause saying the employer, or either party, may terminate with notice (perhaps 30, 60 or 90 days) for any reason. If so then it’s really just a 30, 60 or 90 day contract.

 

3.   Termination: obviously, closely related to term. Usually, contracts may be terminated "for cause" and "without cause."

  • "For cause" means a party is in breach of a contract requirement or, in the case of an employee, has violated employee policy. You should be sure the contract requires the employer to notify you of the "cause" for such termination and, except in extreme cases, give you a right to "cure" the breach. 

  • "Without cause" means either party may terminate by notifying the other, for any reason or no reason. This is effectively your real period of employment. We suggest seeking at least a one year "lock in," meaning there is no such "without cause" termination right for the first year.

  • Consider salary implications: right to terminate early means a right to re-negotiate salary.

  • Consider implications for post-employment restrictions: a one year "non-compete" restriction may make sense following three years of employment, but what about after just 6 months?

  • Consider immigration/legal residency implications if you are an international medical graduate. For example, J-1 visa Conrad 30 waivers are available only if an international medical graduate serves for at least 3 years, and this is written into the contract.

  • Partnership track: if your employer is a physician practice that offers ownership or equity opportunity, early termination may effectively cancel that opportunity.

 

4.   Compensation and benefits: straightforward, right? They promised you a nice round number, and there it is. Or is it? Let's take a closer look:

  • Is the salary number “real”? Again, if the employer can terminate with, say, 90 days notice "without cause," then the salary is "real" only for that 90 days.

  • What about future year salary adjustments and bonuses? If the employer can adjust payment based on the past year wRVUs or patient referral volume, you should ask to know what criteria will be applied, and when the bonus will be paid. And there may be risk in allowing second year salary to take into account wRVUs or referral volume in your first year, which may be your least productive. 

  • Sign on bonus and/or relocation costs: if you're relocating a long distance, this is a reasonable request for you to make, and it may even be worth taking a slight shave off of annual compensation.

  • Benefits: typically, the employer should provide health, disability, life insurance, retirement benefits and malpractice insurance, with "tail coverage." Tail coverage means that after you leave this employer, you will still have insurance protection if you're sued for services provided while you were working for that employer. Without this, you would have a coverage gap, since your new employer's insurance is unlikely to protect you against past claims.

 

5.   Post-Employment Restrictions: we'll have more to say on this in a later blog. But for now, know that there are 4 primary forms of post-employment restrictions on physicians:

  • Non-competes: language stating physician will not work for any other practice or health system within a certain geographic area. This is one area in which courts may take a "red pen" to a contract if the non-compete is too broad in time or geographic scope. For example, Connecticut law allows enforcement only for up to one year, for a distance of up to 15 miles of primary practice site, as “necessary to protect a legitimate business interest,” and only if the employment contract is in anticipation of a partnership/ownership agreement or employer terminates for cause. We also frequently recommend that such provisions be accompanied by some type of severance payment, at least if you're terminated without cause.

  • Non-solicitation: the contract may prohibit your “soliciting” the employer's patients and other employees if you leave to go to a new practice. The employer considers the patients as belonging to  the employer, not to the physician. Such a restriction should be reasonable in time and scope, so it doesn’t continue forever or apply if the patient or employee reaches out to the physician.

  • Non-interference: the contract may prohibit “interfering” in current employer patient or employment relationships. This may be a way to circumvent restrictions on the scope of non-competes (see first bullet). We usually have the same concerns here as with non-solicitation.

  • "Confidentiality" clauses: these are very standard, and their primary purpose is to protect the employer's proprietary information. But they may also serve as a restraint on your post-employment freedom, because such provisions may prohibit your use of information (such as patient or treatment information) learned from or while with the employer to promote your new practice or other endeavor.

 

6.   Intellectual property restrictions: these go even farther than confidentiality restrictions, and may require that you assign to the employer all ideas, inventions, processes, methods, etc. that you develop for use by the employer. Some may even go so far as to apply the assignment and ownership requirement to any such idea, invention, etc. that you develop during the period of employment, whether specifically for the employer or not. For most physicians, this may not be a problem. But what if you develop a new surgical or other treatment technique? Are you willing to grant full ownership of it to your current employer?

 

7.   Other standard terms may include:

  • Bill preparation: the employer will typically want you to accurately prepare billing invoices or provide information to be used in the invoices.

  • Assignment to your employer of all rights to fees: understandably, the employer often asks that you specifically assign to the employer all of your rights to collect fees.

  • Duty to maintain licensure, certification: if your license is suspended, the contract may typically be terminated.

  • Compliance with all applicable laws

  • Compliance with all standard workplace policies and procedures

  • HIPAA and general patient privacy compliance

  • If a religious based institution, adherence to its ethical standards

  • Maintaining Continuing Medical Education requirements (which should be at the employer's expense)

 

Know Your Leverage Points

 

Remember, they've made an offer, so they want you. That gives you some leverage. Use it wisely! That begins with knowing what's important to you, and what your leverage points are. These may include:

  • Class standing.

  • Specialty: different markets or health systems may have different needs.

  • Unique certifications, experience and training.

  • Willingness to choose an underserved market.

  • Willingness to relocate.

  • How you present yourself. The more presentable you are as a person, the more likely it is the employer will want you, increasing your leverage.

  • Your personality traits: e.g., do you listen well? If this comes across in an interview, you may be more desirable, and that again increases your leverage.

  • Your background. If you're from or familiar with the employer's community, then this may indicate you have potential patient connections, and a willingness to remain in the area.

  • Community involvement: may cut both ways, depending on employer. For example, a growth oriented physician practice may see your community involvement as an opportunity to build its patient referral base, especially if you're a primary care physician, pediatrician or OB/GYN.  But a hospital based health system may be concerned that your extra-curricular activities could interfere with generating those all important wRVUs. We suggest using the interview to try and get a sense of the employer's position.

 

Know what you want!

 

The whole point of using your leverage in negotiations is to try to get what's most important to you. That begins with knowing what that is and then prioritizing. Also, carefully consider the employer's contract or offer letter as it may raise issues which you may have not previously considered, such as intellectual property ownership. And if you hire an attorney, be sure you let him/her know what's important to you, or the attorney may make inaccurate assumptions about that. In our experience, we've found the following to frequently be high on clients' priority lists:

  • Money: perhaps meaning trade offs between base salary, bonus potential, relocation expenses, certainty (all as discussed above)

  • Location

  • Establishing residency in US

  • Ability to practice medicine in a specific manner

  • Equity/ownership interest in a practice

  • Service: for example, serving an underprivileged population, which may mean money is less important

  • Stability: locked in term

  • Freedom to move

  • Plans to start a family (e.g., maybe you're willing to trade off money for time)

Remember, negotiation is about trade-offs. You are unlikely to get everything you want. Sometimes you'll decide it's more important to use your leverage to negotiate out some terms (perhaps non-competition) than to negotiate in some terms (such as hours or extra pay). Ultimately, you'll need to determine what's most important to you.

 

A Final Word

 

Your first employment will dictate the beginning of your career and a large part of your every day life. Perhaps only marriage and starting a family will be more important decisions. Take it seriously: be prepared and consider engaging legal counsel to zealously protect your interests. No matter what path you take, we hope that you get to a contract that you and the employer both see as successful. 

 

That Note on Contracts That Must be in Writing:

 

Above, we mentioned that some contract terms must be in writing to be enforceable. In most states these are specified in a "Statute of Frauds." Typically, the contract promises that must be in writing to be enforceable in court are:

  • Contracts that cannot be performed within one year of the effective date (see note below). 

  • Contracts for sale or transfer of an interest in real estate, including mortgages and easements.

  • Contracts for loans in excess of a certain amount set by the applicable state "Statute of Fraud" ($50,000 in Connecticut)

  • Contracts by an executor or administrator of a will to personally pay a debt of the estate established under the will

  • Contracts in consideration of marriage, such as prenuptial agreements

  • "Guarantor" or "surety" contracts, in which one person promises to pay for the debt or obligation of another person.

The fact that an employment agreement is for a period of longer than one year doesn't necessarily make the first bullet applicable, because if the contract can be terminated before that year, then it can be "performed" in that year. But if you expect the employer to, say, extend a significant loan to ease relocation, or to pay off an outstanding loan, then that must be in writing to be enforceable.

 

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