A Primer on Employment Contracts
Defuse legal land mines by learning all you can about your employment contract. Here are five key areas to consider.
Fam Pract Manag. 2002 Nov-Dec;9(10):73-74.
Even if you can't significantly alter the terms of agreement in your employment contract, it's extremely important to understand what's in it before you sign. Unfortunately, the “legalese” in most contracts can make this difficult. While you should attempt to understand your agreement as a whole, focus your efforts on the following key areas.
Your employment contract will usually contain a generic description of your job duties. Most contracts are not much more specific than stating that you're expected to provide services on a full-time basis and act in accordance with the employer's policies and procedures. If you will not be working full time, it makes sense to ask that the minimum or maximum number of hours your employer expects you to work be added to the contract to prevent any misunderstanding.
It is also wise to make sure that call and coverage responsibilities are spelled out in advance and written into the contract. Many physicians are disappointed when their coverage obligations end up being more than what they agreed to during negotiations. In addition, if the employer requests that you follow its policies and procedures, you should request a copy so you can refer to them if necessary.
Termination provisions can radically alter the length of an employment agreement, so review them carefully. The length of an agreement usually depends on specific circumstances, but in my experience, most physician groups define the initial term as the period you'll be working for the practice prior to becoming eligible to buy in. While agreements with physician groups generally state that either party can terminate the agreement “without cause” by providing written notice (e.g., 30 to 180 days), agreements with hospitals or health systems often do not contain such language. Larger organizations may also require you to provide more notice (e.g., 180 days) prior to leaving so they can ensure sufficient coverage.
Many “for cause” termination provisions are not objectionable (e.g., termination for loss of medical license); however, some are drafted in such a broad or vague manner that they could leave you open to immediate termination without sufficient justification. If you can't negotiate the termination provisions in your contract, ask that the agreement define a specified period of time (known as a “cure” period) within which you'll be notified of the proposed termination and then have an opportunity to correct the reason for it.
Compensation and benefits
Compensation is obviously a key issue for both physicians and employers. Most physician employees are paid a base salary plus incentives based on performance. If an employer offers you this salary arrangement, you may want to consult with a qualified health care attorney to ensure that it does not run afoul of Stark II legislation, which limits physician referrals to health care entities with which they have a financial relationship. Also, be sure that the details of the compensation plan you were promised during negotiation are included in your employment contract before you sign it.
Benefits should also be included in your contract. Packages will vary, but often physician practices will offer fewer benefits than a hospital or health system. Your employment agreement should also spell out the number of days off you'll receive for illness, vacation and continuing medical education, and whether you'll be paid for them. Many employers (especially hospitals and health systems) are now rolling these days together and referring to them in the aggregate as “personal time.”
The biggest professional expense today is malpractice insurance, and its skyrocketing cost concerns most physicians and employers [see “Understanding the Physician Liability Crisis,” FPM, October 2002, page 47]. There are two basic types of malpractice insurance: occurrence (for a malpractice incident occurring during the year of coverage regardless of when a lawsuit is filed) and claims-made (for a malpractice claim made during the year of coverage). Physicians with claims-made coverage will often need “tail coverage” if they leave their position or are terminated. Tail insurance covers acts that took place during employment but that may not be litigated until after employment ends. In the past, employers were likely to bear the burden of this expense. However, since the cost of tail coverage has increased, more employers are seeking to shift all or part of that burden to the employee. This is a point of negotiation in most employment contracts today.
Restrictive covenants and non-solicitation clauses
Restrictive covenants and non-solicitation provisions are other hotly negotiated parts of employment agreements. While it is beyond the scope of this article to discuss this topic in depth, it's important to note that the enforceability of restrictive covenants varies depending on state laws [for more information, see “Limiting Restrictive Covenants,” FPM, April 2001, page 50]. More employers are also focusing on non-solicitation provisions, which may prohibit you from soliciting patients or employees from your former employer's practice. Again, the enforceability of non-solicitation clauses varies depending on the nature of the restriction and the state in which you practice [for more information, see “Understanding Confidentiality and Non-Solicitation Clauses,” FPM, July/Aug 2000, page 73].
As you can see, many issues are woven into the fabric of an employment contract. It is of utmost importance that you understand your agreement so that you are cognizant of your rights and the legal land mines that must be avoided to fully comply with it.
Michael R. Burke is a shareholder with the health care law firm of Kalogredis, Sansweet, Dearden and Burke, Ltd., in Wayne, Pa.
Conflicts of interest: none reported.
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Editor's note: A future Salaried FP article will define the legal terms commonly used in most employment contracts.
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