6 Mistakes You’re About to Make on Your Employment Contract

Put the pen down, and step away from the contract! Before you sign, make sure you're not making any of these classic mistakes.

By Debbie Swanson | Fall 2017 | Feature Articles

 

After years of preparing for and envisioning your future employment, it’s thrilling to be within reach of a job opportunity that seems like the perfect match. Though it’s tempting to eagerly pack up your job-search paperwork and focus on settling into your new place, slow down—one of the most important steps lies ahead. Carefully reading and reviewing your new employment contract—before you sign the dotted line—can make a difference not only in your new job, but also on your career path.

Here are six mistakes that it’s especially important for new physicians to avoid.

Mistake #1: Aside from your spouse, no one else has looked at your contract

Physician employment contracts don’t make for breezy reading. Most are lengthy and filled with cryptic terminology and specific details that are often hard to discern. And you need to understand not only what’s written, but also what’s missing. For these reasons, most physicians—especially those early in their careers—turn to people more experienced for help.

“The employment contract was filled with legal jargon,” recalls Harry Salinas, M.D., a plastic surgery chief resident at Harvard University. “Even though I’m used to reading difficult material, this was just another language.”

Salinas turned to a lawyer to review his contract, who negotiated changes on his behalf. “She helped in a lot of ways, from translating the legal terminology, to changing some of the language and negotiating some of the restrictions,” he says.

“Having someone on your side to do these negotiations is incredibly helpful when you are still busy in your last year of residency,” adds ophthalmologist John Prenshaw, M.D., who benefited from consulting with an attorney regarding his future contract while he finished residency.

You can’t go wrong by getting input before you sign, whether you’re looking for negotiating help or just a second opinion. So where should you turn?

  • A lawyer who is experienced with physicians or employment law. Ask colleagues or your alumni association for referrals.
  • Your medical school, which may have resources available to students. Inquire at your career services or placement office.
  • Prior employees of the hospital or practice to which you are going.
  • Experienced colleagues whom you know well, such as a professor, mentor or coworker.

Remember to use discretion. Share the actual contract or personal details only with highly trusted individuals or those with whom you’ve entered into a professional agreement, such as a lawyer.

Before you sign: Seek input from a trusted and knowledgeable resource.

Mistake #2: You haven’t identified what’s important to you

When you began job hunting, you probably prioritized your goals and preferences. Now that you’re about to seal the deal, a quick review of these items is in order. The stipulations you’re about to sign onto can steer you toward—or away—from your intentions.

“Many times residents or fellows are so excited [about employment that] they don’t think of their long-term personal goals,” says attorney Philip Sprinkle, senior partner with Akerman LLP in Washington, D.C. Sprinkle volunteers to review employment contracts of recent graduates through the University of Virginia’s Medical Alumni Association.

“It sounds elementary, but I start each and every meeting with questions about the doctor,” he says. Responses help him to identify areas of focus. For example, if either the physician or the spouse has deep ties to a region, he’ll put the spotlight on the noncompete agreement.

Some areas to consider: long-term career goals, outside revenue (such as public speaking or writing), family obligations, amount of debt, scheduling issues and more. And don’t assume your professional needs will be satisfied.

“I’ve had docs hired under the lure of being interventional radiologists when, in reality, the group just wants them to read film,” Sprinkle recalls. “In one case, we made the equipment and the commitment a contractual requirement, which gave the doc an easy out when the group did not get it. In another case, the radiologist himself had to terminate without contractual protections, and it cost him pay and severance costs.”

Before you sign: Review and prioritize your goals, both personal and professional, and consider if the contract limits or supports them.

Harry Salinas, M.D.

Before solidifying his contract, Harry Salinas, M.D., consulted with other physicians in his network to develop language specific to his future goals.

Mistake #3: You haven’t looked closely at insurance coverage

Professional liability insurance, better known as malpractice insurance, may be one of the most important elements in a contract. Without solid coverage, your career, home, assets and property could be at risk.

There are two main types of insurance. “Occurrence-based insurance covers you for claims even after you leave the company. Claims-based, which is cheaper for the employer, covers you only if a claim is made during your employment. Get occurrence-based insurance, if they’ll agree to it,” says Sprinkle.

If you’re offered a claims-based policy, be sure an extended reporting endorsement is included—commonly called an ERE or “tail” insurance. This extends your insurance coverage to include claims that are filed after you’ve left an employer, but arise from work you performed while you were employed. Tail coverage is quite expensive—calculated at 50 to 250 percent of your overall insurance premium, according to the American Academy of Medical Management.

“Ideally, have the employer pay for the tail if they will agree,” recommends Sprinkle. Negotiating a 50-50 arrangement is another option.

If you are responsible for all or a portion of the payment, be sure you understand the terms. Usually the employer will collect it at the end of your employment period by withholding enough of your final paychecks to cover the cost. To physicians early in their careers, this loss of income can yield a significant financial blow.

When negotiating a new position at the end of his residency at the University of Virginia, Prenshaw ran into some concerns with the tail coverage.

“The original wording in the employment contract was that I was responsible for tail coverage, no matter what the circumstance,” says Prenshaw. This meant that if he was terminated early in his employment—with only a few paychecks under his belt—paying for the expensive coverage would be a financial struggle.

With the help of Sprinkle, they came up with more agreeable terms. “We negotiated that I wouldn’t be responsible for the tail if, during the first 18 months of employment, I was terminated without cause, died or became disabled,” Prenshaw says. “[Without this clause], it is unlikely I would have been able to afford the tail coverage [had an early termination occurred].”

Before you sign: Study the details of your professional liability insurance. Be sure you’ll have—and can afford—coverage for claims raised post-termination.

Mistake #4: You haven’t thought about the noncompete clause in your contract

Standard to most employment contracts is a restrictive covenant, which prevents you from terminating your employment and immediately going to work for a group or hospital that is deemed a competitor. More commonly known as a noncompete clause, these can severely limit your future options.

“Many people have the wrong idea that covenants aren’t enforceable,” says Nanette O’Donnell, partner with Duane Morris LLP in Miami. “It varies by state, but states do enforce them.”

Typically, the clause defines a mile radius, as well as a length of time, that restricts you from working for a competitor—for example, within a 10-mile radius of your former employer for a period of two years.

“It’s best to work with someone to negotiate the language and to soften the restrictions,” O’Donnell suggests. Reducing either distance or time (or both) is preferable.

Also make sure you are fully aware of the scope of the restriction. “If you’re working for a large entity with multiple offices, the location restriction may apply to every office of your employer, greatly expanding the geography within which you are restricted from practicing,” O’Donnell adds.

When evaluating a noncompete agreement, an important factor to consider is your ties to the region. If family obligations, a spouse’s employment or education options require you to remain local, a strict restrictive clause could cause your prospects for new employment to dwindle. If you and your loved ones are open to relocating, you may be less affected by the clause.

Before you sign: Consider your life over the next three, six or 10 years. Where might you be seeking employment?

Hilary Fairbrother, M.D.

Hilary Fairbrother, M.D., turned down an offer with a large group in favor of a smaller practice after reading through the group’s proposed employment contract.

Mistake #5: Assuming the job is so perfect, you’ll never think about leaving

You hit the jackpot with your potential new job: ideal location, growth opportunities, impressive salary and benefits. But curb your enthusiasm briefly enough to consider that someday you’re likely to change jobs. When that day comes, you’ll thank yourself for taking the time now to hash out any post-termination details.

One factor is the amount of notice required when announcing your termination. Typically, word of impending job termination is delivered to the employee or employer a set number of days before the targeted departure date. Thirty or 90 days is common.

“I’ve seen notification requirements be as long as 18 months,” says Heather Fork, M.D., dermatologist and founder of Doctor’s Crossing in Austin, Texas. “That’s really too long. Even six months is difficult, as most hiring companies want you to be available sooner.”

Fork says a notice of 90 days seems ideal. “That’s enough time to get your things in order and work with recruiters.”

Though less common, some contracts don’t specify a time requirement. “If there’s nothing stated in the contract, it leaves you free to go. It’s really up to the individual. That could be OK for some people, as long as you don’t mind potentially being given short notice,” says Fork.

Reason for termination is another key point; employees are either terminated “for cause” (often for issues with performance) or “without cause” (usually for reasons unrelated to the employee). Specifics vary among employers, so be sure you understand these definitions and their related details. For example, before you are terminated for cause, will you be given an opportunity to correct the problem?

Finally, if you will be relocating for the job, you may want some additional protection, adds O’Donnell.

“You don’t want to move for a job and then get terminated a month later,” she says. “Ask for a longer termination notice, (include) the ability of both parties to terminate only for cause, or negotiate to have your relocation expenses reimbursed.”

Before you sign: Consider what you need for a smooth termination of employment.

Mistake #6: You didn’t look closely at the salary and compensation structure

By the time the employment contract is drawn up, your salary is usually already established. It’s still prudent, however, to confirm that it appears as you expected, and that the compensation structure aligns with your personality, lifestyle and work ethic.

Physicians are commonly paid in one of two types of payment structures: salary-based or productivity-based. Productivity-based structures can be either relative value unit (RVU) based or collections-based.

“Some personalities prefer the flat salary model, which tends to be one where your earning potential is less, but so are the hours,” says Salinas. “In a productivity-based system, your guarantee is usually lower, but the ceiling is higher, as long as you put in the work.”

The structure that works for you is a highly personal choice. “I know that I will be much happier and busier in a system that rewards productivity,” says Salinas.

Also consider any unique situations. One thing important to Salinas was including language in the contract that covered the two types of patients he anticipates serving.

“[At my new position], I’ll primarily be doing reconstructive surgery for cancer patients,” says Salinas. “But I also do cosmetic surgery, and many times, this is the same population. I needed to plan pre-emptively how to incorporate any out-of-pocket [cosmetic surgery] patients into my RVU-based contract with the cancer center.”

Before solidifying his contract, he asked around within his network and at similar hospitals to develop the language to address this situation.

Before you sign: Be sure the salary structure supports your work style, goals and interests.

Time to negotiate

You’ve scoured your employment contract and found a few areas that leave you questioning. Now what? It’s common to have a round of discussions before the contract is finalized. Here are some tips for success:

Prioritize: Weigh the importance of each area in question, identifying those that have the greatest impact on you. “A mentor gave me this advice early on,” recalls Salinas. “I made a list of what things were deal breakers, and what I could live with.”

Do your research: Gather information on each area you’ll be discussing. Feeling knowledgeable will enable you to present your case more confidently.

Be flexible: Present a trade-off in exchange for something you want. “Offer something you’ll do, such as offering to work an evening shift in exchange for being able leave early on other days,” suggests Fork.

Above all, remain calm. One of the most universal rules of any negotiation is to keep your emotions in check and maintain a professional demeanor. Even if it becomes obvious the negotiations aren’t successful and you may pass on the job, always leave behind a good impression.

When it’s best to walk away

If the final offer still has you raising an eyebrow, step back and determine if this job is really the best fit for you. Though you may be eager to land a job, don’t agree to one with which you feel uncomfortable.

Emergency medicine physician Hilary Fairbrother, M.D., vice chairperson of the Medical Society of the State of New York’s Young Physicians Section, was entertaining an offer from a large group right out of residency. After reviewing their lengthy employment contract and consulting with an attorney, she was left with some concerns.

“One issue was that I could be fired at any time, with or without cause,” she recalls.

Fairbrother knew that an unexpected termination so early in her career could present financial difficulty.

“Also, I was supposed to provide notice if I were to terminate, but the employer did not have to. That seemed very lopsided,” she adds.

Further unsettling was a vast restrictive covenant, which could make remaining in the New York area difficult in the future.

Though she brought her concerns back to the group, hoping to negotiate, she reached an impasse and eventually decided it was best to decline.

“I (soon) joined a smaller group where I didn’t have as many restraints,” she says. “It was the right decision for me.”

Poring over an employment contract and hashing out details can seem like an unwelcome hurdle when you are so close to your dream of working as a physician. But it’s time well-spent. Whether you go it alone or pair up with a trusted colleague or professional, you’ll thank yourself later for careful decisions made today.

 

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