What to Look for When Negotiating Physician Employment Agreements

Physicians employed by hospitals, group practices, or any other type of healthcare facility usually enter into the business relationship by signing a Physician Employment Agreement unless the physician is an independent contractor. At Jones Health Law, we instruct all of our physician clients to carefully review their Physician Employment Agreement prior to signing.

Many physicians believe that they can’t negotiate the contract. THIS IS NOT TRUE. Every section of the contract can be negotiated by your attorney. If you don’t approve of some of the terms contained therein you have to power to ask your prospective employer to change that provision so that it better suits you and your needs. Of course, the prospective employer may be unwilling to revise some of the terms of the contract, and at that point you have a very important decision to make. You have to decide whether these terms are deal breakers or not. Only you can decide whether you are going to take it or leave it.

There’s no secret that there’s a shortage of physicians and it’s even more difficult to find physicians adequately suited and licensed in certain specialties. Use that to your advantage when you enter the negotiation process. Younger physicians may have more difficulty with negotiating contracts but it is not impossible. You want to place yourself in the best situation possible even if it means walking away from a prospective employer.

Physicians must realize that while working for a specific healthcare facility may initially be a dream job it can turn into a nightmare later on. Terms of the contract can pose limitations on the physician for several years after their employment with that particular employer has concluded.

Some physicians don’t bother to read the contract thoroughly if the financial incentives are very appealing. Yes, making $175,000 is a great salary, but here are a few things to consider that might not make that salary look so good after all:

• Restrictive Period and Geographic Location: Physician Employment Agreements usually have a Covenant not to Compete clause that imposes limitations on certain actions that the physician can or cannot engage in. Many times the time and geographic restrictions are very lengthy and far-reaching. For example, a physician employment agreement may state that “You cannot solicit for current and past referral sources, or own, manage, operate, control or be employed by a medical practice or health care provider for a period of three (3) years within ten (10) miles of any of our office locations.” This becomes problematic if your employer has offices in every county in South Florida.

• Transparency of Care: Many practices require that you follow the Practice Guidelines and Company Policies but don’t specifically identify any actions that can be taken against you or the procedure that follows if any of those guidelines and policies are violated.

• Performance Evaluations: Negative performance evaluations may become a part of your employment record and may be used against you at subsequent PEER Review hearings, during litigation, or future contract negotiations. You want to determine who will be conducting the performance evaluations and whether that party will do so in a neutral and objective manner. This is very important because these evaluations can give rise to “for-cause” termination, which may negate your employer’s requirement to compensate you in accordance with the contract. Also, if you were to fail their performance evaluation you want to determine what its effect is and what recourse would be taken (i.e. mandatory education courses, termination, suspension, etc.)?

• Conflicts, Confidentiality, and Nondisclosure: These paragraphs are usually drafted very broadly and in many cases they are too broad. For example, language in this section may preclude you from engaging in any type of business activity that could potentially interfere with the business of your employer. The employer may require that you obtain express written consent from them prior to engaging in any other type of business activity. This means that if your wife wants to open a dance studio and you want to be a co-owner you would first have to seek approval from your employer. Failure to do so might result in a breach of contract. Typically, the employer grants herself a lot of authority in this section and it will remain that way unless you negotiate a change.

• Covenant not to Solicit Employees of Employer: For example, “You many not directly or indirectly orally or in writing solicit any Employee of Employer to work for another healthcare provider rendering the same or similar services to the services of the Employer.” This is one clause that causes a lot of physicians because they don’t realize that “stealing” an employee from a former employer may be actionable in court. Additionally, this clause as written is broad and means that you cannot place ads in any form of media while looking for employees of your practice if the employees of the employer could potentially see it. If you do so, and the employee is hired by your company you may have to pay the employer thousands of dollars for each violation. The reason for this is because an ad may be viewed as an indirect written solicitation even if the Employee wasn’t targeted specifically.

• Effects of Termination: This is arguably the most costly section of any Physician Employment Agreement. I’ve seen agreements that state if a physician terminates the employment agreement prior to its natural expiration the physician will be responsible for paying to the employer six months of your base salary. In other words, if you resign from your employment and you are earning $150,000 base salary you would have to pay a whopping $75,000 to your employer.

• Continuation of Contract: Many employers require advance notice that you don’t intend to extend the contact for another term period. Some employers require as much as six months written notice before the expiration of the agreement. Failure to do so may be actionable and they might seek damages. I advise my clients to reduce the requirement to three months notice at most because business opportunities may arise within that six month window.

• Employer May Assign Agreement: Businesses are bought and sold all of the time and medical practices are no different. Many agreements state that the employment agreement will belong to the new owner and you are bound by the terms of the agreement during the remaining term period. I tell my physicians to negotiate this clause so that they have the option to terminate this employment agreement without triggering the Effect of Termination clause should the employer choose to assign its interest to a successor.

These are just a few of the problematic clauses that I typically encounter in Physician Employment Agreements but this is by no means an exhaustive list. The terms in Employment Agreements vary from one employer to the next. I strongly advise you to contact Jones Health Law so that an experienced healthcare attorney can review the contract and negotiate it on your behalf.