Entering a new employment agreement? Here's why and how you need to plan your exit strategy as soon as possible.
Physicians entering new employment agreements tend to focus on the "big ticket items," such as compensation, hours to be worked, partnership opportunity and signing bonus. My advice, is that physicians also need to immediately focus on their exit strategy. Here are some things to consider.
How can the agreement be terminated?
Most physician contracts can be terminated without cause on 90-120 days' notice. I typically object to contracts that require less (without cause) notice as it can take a significant amount of time for a physician to interview, become credentialed, and potentially apply for a license in another state. Physicians should consider their geography, specialty and how long they can afford to live without income in evaluating a notice provision.
Many contracts also lock physicians in for a certain amount of time, sometimes two or three years. This may be because the physician was difficult to recruit and will take years to replace, or the commitment is linked to earning forgiveness related to a signing bonus or other amounts.
Physicians are often attracted to such contracts for job security and financial benefits offered, but do not think through the termination issues. Leaving a job where you have become unhappy, are poorly treated, or due to a change in family situation may become impossible under such provisions. Physicians who do leave will be in breach of the agreement and potentially liable for repayment of significant amounts. These types of long term commitments should be carefully considered.
Evaluate Your Compensation
When evaluating compensation, it is important to focus on termination provisions. A contract where a physician is paid purely on productivity should contain a "run-out" provision where the physician continues to be paid for some period of time following termination. Where a physician receives a base salary with a bonus based on productivity, RVUs or some other incentive formula, physicians must watch the termination language for requirements to be present on a certain date to earn such bonus. When a physician's bonus/incentive compensation represents a large portion of their compensation package, such language can be problematic.
I like to insist the bonus be pro-rated through the date of termination regardless of the reason for termination. At a minimum, the bonus should not be lost unless the physician has been terminated for cause by the employer. Physicians should also pay close attention to language that allows an employer to prevent a physician from working during a notice period. The language of the employment agreement should address how productivity and/or bonus compensation will be computed under such circumstances.
Finally, physicians should at all times be aware of whether they owe a deficit to the employer. Upon termination, this can come as an unpleasant surprise. Taking a lower draw/salary can be an effective strategy to avoid a deficit in the event a physician is planning his or her departure.
Look for Non-Competition Provisions
Non-competition provisions are a significant provision impacting a physician’s exit strategy. Ideally, a non-compete will only apply in the event a physician’s employment has terminated due to the physician’s breach or the physician has elected to voluntarily terminate. A physician must understand how termination will impact enforcement of his or her non-compete and new employment options.
Other Factors to Consider:
Many physicians will also be responsible for the cost of a tail policy upon termination. Similar to the non-competition provision, physicians are often responsible only if terminated for cause or if they elect to walk away from the employer. Sometimes they are responsible under all circumstances. When a physician is responsible for tail cost, finding a new employer willing to absorb the tail cost or to pay a bonus to cover the tail is ideal. At the time the physician’s employment agreement is initially negotiated, it is ideal to limit the circumstances under which tail will be the physician’s responsibility and to propose reasonable alternatives to tail coverage.
Upon termination of employment, physician may face repayment of a relocation allowance, signing bonus, and other amounts. Physicians should be aware of the circumstances under which they will be required to make repayments. It is ideal to have these amount prorated on a monthly basis during the forgiveness period and to fight any obligation to repay unless the physician is terminated for cause/leaves by choice. Repayment in the event of death or total disability should also be avoided.
Medical record access following termination can be an issue for many physicians as it relates to Boards. Make sure language is included in the agreement requiring cooperation by the employer related to collected cases and other documentation required by the physician to obtain Board certification.
Every physician needs to negotiate their exit strategy before a new employment agreement is even signed. Planning ahead avoids unpleasant surprises and can assure a smoother transition upon termination of the employment relationship.