Indemnification Clauses in Physician Employment Contracts
Whenever someone hands you a physician employment contract, it can feel like the culmination of a lengthy process of education, training, and work. Hence, you may be inclined to sign the agreement without scrutinizing what you are signing. This can be damaging to your financial stability and career trajectory, however, as specific clauses in the contract could commit you to unfavorable terms.
One clause that can have significant consequences for physicians is the indemnification clause. Therefore, physicians should thoroughly understand what this clause is.
About Indemnification Clauses
To “indemnify” means to compensate or protect someone from financial loss or legal responsibility. Essentially, it refers to one party agreeing to cover the costs, damages, or liabilities incurred by another party. These can be significant.
The threat of litigation is a persistent and significant concern for physicians, as the nature of their work involves a high degree of responsibility, decision-making, and potential risk. Physicians are regularly exposed to the possibility of lawsuits stemming from various factors, including malpractice claims, errors in diagnosis, treatment failures, patient dissatisfaction with outcomes, and even administrative or regulatory violations.
As such, the ability to shift liability away from oneself is a valuable safeguard. Indemnification clauses serve this purpose by transferring the financial and legal responsibility for certain claims to another party.
An indemnification clause is a contractual provision in which one party agrees to compensate another for specific losses, damages, or claims. Essentially, it outlines which party will assume financial responsibility for particular risks or liabilities.
The primary purpose of an indemnification clause is to allocate risk between the parties to the contract, thereby reducing potential financial exposure. By clearly defining who is liable for specific incidents or outcomes, these clauses help prevent costly legal disputes by setting expectations in advance. For healthcare professionals, indemnification clauses are especially critical, as they serve as a safeguard for both financial and reputational interests.
Indemnification Clauses in Employment Contracts
Indemnification clauses can be unilateral or bilateral. In a unilateral indemnification arrangement, only one party agrees to indemnify the other, without any reciprocal obligation on the part of the other party. In contrast, a bilateral (mutual) indemnification clause involves an agreement where both parties agree to indemnify one another for specific actions or outcomes.
In physician employment contracts, indemnification clauses can require physicians to indemnify their employers for losses or damages resulting from the physician’s actions during the course of their employment. For example, if a physician’s negligence leads to a malpractice lawsuit that names both the physician and the employing hospital, the indemnification clause may obligate the physician to cover the hospital’s legal costs, as well as any resulting settlements or damages. This provision places a significant financial responsibility on the physician. Such clauses can expose individual clinicians to considerable financial risk, particularly in the event of costly legal proceedings.
What to Look Out For With Indemnification Clauses in Employment Contracts
First, one needs to identify if there is an indemnification clause in the contract. Many contracts make it easy to identify these clauses by using specific language. Common terms found in indemnification clauses include “defend,” “hold harmless,” and “indemnify.” However, other less clear language might be used. The contract could feature broad language that shields the contracting entity from liability, all while appearing to be ambiguous. While there is a chance that a court might find the language too vague (and therefore unenforceable), indemnification clauses are often upheld. This is one reason why a review by a physician employment contract attorney is necessary.
Then, one must understand what one is agreeing to when signing the contract, which means understanding the content of the clause. It is imperative to consider the interest of the party drafting the contract. Typically, the party preparing the contract does so with their own interests in mind, often attempting to protect themselves from liability by including indemnification provisions that shift responsibility to the other party.
Thus, when reviewing a contract drafted by another party, it is essential to carefully examine the indemnification clauses, as these provisions play a significant role in determining the allocation of risk between the parties. It is important to assess whether the clause distributes risk in a fair and balanced manner or if it places undue responsibility on one party, particularly when it comes to liability for events beyond their control. One thing to note is that simply because the language “mutual” is used does not mean that risk is equally allocated. Bilateral indemnification clauses, therefore, should be scrutinized so that the physician adequately understands what they are agreeing to.
What Physicians Can Do Regarding Indemnification Clauses in Employment Contracts
Many physician contracts include indemnification clauses; however, not all do. They are often part of boilerplate agreements. A physician could negotiate and ask for its removal, and the other party may comply.
In the event that the other party insists on an indemnification clause, there are options. Indemnification clauses can be tailored to apply only in specific circumstances, such as when the physician engages in “willful malfeasance” or acts in “bad faith.” While these terms can be open to interpretation, narrowing the applicability of indemnification can help reduce the physician’s liability for actions related to patient care while still protecting the contracting entity in cases of intentional misconduct.
Physicians should also request mutual indemnification, meaning the hospital or group would also indemnify the physician for its own actions. While this does not eliminate risk, it ensures both parties share liability, creating a deterrent against enforcing indemnification.
Contact an Experienced Physician Employment Contract Attorney
Given the complexity of indemnification clauses and their potential to significantly affect the financial stability of a physician, it is highly advisable to seek the guidance of a physician employment contract attorney to review the contract before signing. An experienced physician employment contract attorney can provide valuable insight into the terms of the indemnification clause, explain its implications, and help ensure that the physician’s interests are adequately protected.