Your guide to your employment contract

Keep these key considerations in mind when you’re evaluating a contract

By Roderick J. Holloman | Fall 2014 | Legal Matters

 

When you’re considering an employment opportunity, look at the whole package; do not focus exclusively on compensation. Factors such as the practice’s reputation, benefits offered, malpractice coverage, your day-to-day duties, and shareholder eligibility should be considered as well.

Ambiguous or vaguely worded provisions can create problems down the road. Pay particular attention to provisions such as “in the employer’s sole discretion” or “in the employer’s sole judgment.” Remember, “the devil is in the details.” If the contract refers to another document, such as corporate bylaws, practice policy or a retirement plan, obtain a copy and be sure it is dated.

Compensation

Base salary. If there is a base salary, it needs to be stated clearly, including the frequency with which disbursements will be made (e.g. monthly or biweekly). To avoid any misunderstanding, it should be clear that unless employment ends, the base salary is guaranteed and is not subject to any reduction and only specified deduction (e.g. ordinary payroll deductions, such as federal and state wage tax).

Productivity-based salary. These arrangements are not recommended for young physicians. This is because the level of proficiency required to generate reimbursements at levels necessary to make this model financially rewarding is rarely acquired fresh out of fellowship or residency. Further, if you are employed to establish a new practice or staff a new satellite office, your compensation may suffer as the practice’s patient volume is established.

Productivity bonus. Be crystal clear on how your productivity bonus will be calculated. Eligibility for a productivity bonus usually begins when you have generated between two and three times the value of your base salary. This allows the employer to cover your salary, expenses, share of overhead, and realize a degree of profit from your practice before sharing surplus profits with you.

Pre-employment compensation. Pre-employment compensation, such as sign-on bonuses, payment of immigration and associated fees, and relocation expense reimbursements are common, particularly with sub-specialists. Beware that an increasing trend is to structure these payments as forgivable loans, such that if your employment ends before a specified date (for example, the second anniversary of your employment), the sums paid to you or on your behalf are reimbursable to the employer.

Post-termination compensation. The contract should specify whether you are entitled to a bonus based on services rendered while employed but the reimbursements for which are recovered after termination.

Restrictive covenants

Covenants-not-to-compete are generally enforceable, except in states that commonly prohibit their enforcement (e.g. Alabama, California, Colorado, Delaware, Montana, Nebraska, North Dakota and Oklahoma) if the restriction is reasonable as to the geographical area, duration and the restricted activity.

The governing standard used by most courts in validating or invalidating restrictive covenants is “reasonableness,” which varies greatly between metropolitan and rural areas, and is determined on a case-by-case basis.

Practical advice: If your employer terminates your employment “without cause,” the effect should not be the same as if terminated “with cause.” As such, you should negotiate matters such as the applicability of the non-compete and post employment reimbursement obligations from this premise.

Physician duties/responsibilities:

Your contract should describe your duties, your professional schedule, and if applicable, any additional practice locations. If the success of your practice is contingent upon ancillary support and/or equipment, your contract should specify that the employer will provide such support in the form of, for example, personnel and equipment.

Professional liability insurance

It is standard practice for the employer to decide upon the type of coverage. The contract should specify the type of coverage and your policy limits. Generally, there are two types of malpractice insurance available: occurrence and claims made.

Termination

Termination may be “for cause” (i.e. based upon a reason or justification related to job qualification or performance by either party) or it may be “without cause” (no reason needed). It may not be for “bad cause” (race, gender or retaliatory, for example).

Make sure the conditions precedent of “for cause” termination are spelled out in detail and do not contain vague descriptions like “unprofessional conduct.”

Keep in mind that equally as important as the actual wording of the contract language is the intent behind such wording. Indeed, deciphering intent is a skill acquired over time and with experience garnered through the negotiation of similar contracts. Understand that contract negotiation is an art, a delicate dance of give and take between you and the employer.

Ultimately, you both want to secure your employment, albeit on different terms (as you of course seek the most favorable terms to protect your interests, and the employer seeks the terms most favorable to its interest).

If you are inexperienced in negotiating employment terms, you would be wise to enlist the assistance of a skilled attorney to review your contract, or advise you on how to structure your arguments (i.e. reasons in support of the employer accepting the revisions you propose).

Roderick J. Holloman (rjholloman@hollomanlawgroup.com) is the principal of The Holloman Law Group, PLLC, a health care law firm with clients throughout the country.

 

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