Four Employment Contract Considerations for Physicians

April 24, 2013

It is extremely important to carefully examine an employment contract and get expert advice before signing it.

At the recent Harris County Medical Society Spring Expo in Houston, attorney Mike Kreager presented "To Be or Not to Be Employed."  A significant portion of his presentation addressed physician employment contracts.  Here are four highlights:

1. Remember who wrote the contract. Since the employer's attorney probably prepared the contract, it is only prudent to assume that the proffered contract favors the employer.  There is no substitute for the physician's careful review of the contract, as well as professional advice from an attorney and/or accountant. Even if there is little opportunity to negotiate the terms, it is imperative the physician is fully aware of her rights and obligations under the contract, because surprises are not unusual.

2. Professional liability insurance. Most current policies are "claims made," meaning there is coverage if an incident occurs and the claim is made while the policy is in effect.  "Nose" coverage may be needed, for a physician entering employment, to cover injuries that occurred before employment.  Similarly, a "tail" policy may be needed for coverage for incidents that occurred during employment for which the claim is made after employment has ended.  Nose and tail coverage are typically, but not necessarily, the financial responsibility of the physician.

Being employed does not remove the physician's personal liability for injuries to a patient resulting from negligent acts or omissions.  Although the employer should provide professional liability insurance for the physician, the physician should make sure that the insurance is in place and adequate.  If the employer has chosen to self-insure, it is particularly important to make sure the plan is adequately funded.

3. Termination. Termination can be the result of death or disability.  Disability is your inability to perform the essential functions of your job for a particular period of time.  The ideal situation is for the physician's salary to continue during the disability-qualifying period, and for the physician's personal disability coverage to begin when the salary stops.  Statistically, disability is more likely than death.

Termination for cause means that one of the parties has a reason to terminate the contract, and the reasons are usually enumerated in the contract.  If possible, limit the list to serious issues and eliminate any subjective or vague causes.  Try to include a "cure" provision.  That is, for causes that can be cured, the employer must notify the physician of the fault and allow a reasonable period of time to correct it before proceeding with termination.

Termination without cause allows either party to end the contract at will.  It should require a notice period, of the same length for both the employer and the physician.  I have personal knowledge of a physician whose contract was terminated without cause and without notice.

4. Non-compete provisions. These come into play after termination. Covenants not to compete are enforceable, as long as they meet applicable common law and state requirements.  The employer must have a legitimate interest that requires the protection, and any restrictions must be reasonable in geographic scope, duration and restricted activity.  States may impose other requirements, such as the physician's right to buy-out the covenant for a reasonable amount of money.

Geographic limitations are typically described as a radius from a location, not driving distance.  The more specialized the practice, the larger the radius, although a radius of more than five miles in a large metropolitan area may be excessive.
One to two years seems to be a reasonable period of time for the covenant to remain in force, and a one-year limit is common.  The restricted activity should be specifically defined and appropriately narrow.  It is also reasonable to ask for limited exceptions, such as working at a medical school, locum tenens, or the Department of Veterans Affairs.

A non-compete covenant can have major and long-term effects on a physician's career.  The best advice is to seek counsel from a competent attorney before agreeing to limitations.

In conclusion, employment contracts are a big deal.  They are long and complicated, and can have long-term financial and professional consequences.  This article raises only a few of many elements.  It is extremely important to carefully examine an employment contract and get expert advice before signing it.

Do any readers have stories to tell or advice to offer?