The Potential Pitfalls of Signing Your Physician Employment Agreement without Legal Review

Picture this: You are a physician having just completed your residency or fellowship and are looking for your first full-time job as a practicing physician. Alternatively, you are a physician with years of experience practicing medicine for one employer but are now looking for a change of scenery. In either scenario, you took the proper steps to move forward in your career, conducted interviews with multiple healthcare providers, and received an employment offer from your workplace (e.g., a hospital system, private practice, or other healthcare employer). Everything is going perfectly to plan. You are thinking about signing on the dotted line, no questions asked. STOP RIGHT THERE!

The most critical step you can take at this point is to immediately engage an experienced healthcare attorney to review your offer letter and employment agreement. Having qualified and competent legal counsel review your contract can substantially impact your terms of employment both initially and years down the road. This simple step could eliminate some of the major stressors of beginning a new job and help you succeed in your new career. Below are some helpful tips to navigate the exciting and sometimes stressful topic of employment agreements.

Offer Letter versus Employment Agreement

The employment offer process typically begins with an offer letter or letter of intent (“LOI”). This is your first opportunity to negotiate the employment offer, and you should immediately engage an attorney at this stage. Once you sign the LOI, you will generally receive an employment agreement. This includes the provisions that will be legally binding during your employment with the healthcare provider. If you failed to engage legal counsel before signing an LOI, it’s not too late! An attorney can still assist you in negotiating provisions within the employment agreement. Thus, before moving forward in any stage of your employment process, you should ask legal counsel for assistance.

Benefits to Legal Review

There are many benefits to having your employment contract reviewed by legal counsel with expertise in the area. An experienced healthcare attorney will be able to identify potential red flags and know how to closely review provisions that could cause significant issues for you during your term of employment and beyond. An attorney may (i) help clarify terms and conditions within your contract that are difficult to understand, (ii) negotiate specific contract language to put you in a better position to succeed, and (iii) generally advocate on your behalf if an employer includes provisions that only benefit the employer. Finally, hiring legal counsel makes economic sense, too! An experienced attorney can better judge whether you are leaving potential additional earnings regarding base salary or incentive compensation.

Healthcare Attorney versus Non-Healthcare Attorney

Due to complex regulations in healthcare, physician employment agreements must comply with legal requirements that agreements in other fields do not have to address. Specific terms and provisions commonly appearing in physician contracts may likely be unfamiliar to attorneys in different fields. Thus, attorneys with experience in healthcare transactional work, such as family law attorneys, may have the expertise to review your physician employment contract. In contrast, an experienced healthcare attorney may know the local healthcare market and have previously reviewed employment contracts offered by the specific healthcare provider. A healthcare attorney may know which provisions may be negotiable in your contract and what reputation your healthcare employer has in the community and with its employees. Thus, a qualified healthcare attorney is your best option to help guide you through this process.

Previous Oral or Email Communications

You may have agreed to specific terms and conditions in email or oral communications with the employer before receiving your physician employment agreement (e.g., incentive payments, locations serviced, or on-call coverage requirements). A qualified healthcare attorney can assist in reviewing the employment agreement to help clarify and insert language concerning your oral or emailed communications. Remember, the written agreement controls, so if the language does not appear in your written employment agreement, the employer is not necessarily bound.

Below is a brief explanation of some of the potential clauses that an attorney should review and may help negotiate on your behalf:

1. Base Salary – Although the base salary is often based on national and regional standards for physicians in similar fields, this may be an area for negotiation depending on the other terms within the employment contract. In practice, your attorney should review the entire employment contract to determine whether requesting a higher base salary may be appropriate.
2. Bonuses and Incentive-Based Compensation – With entities cutting costs, some employers are lowering base salaries in specific fields and increasing incentive-based compensation. These terms are highly variable and can include incentives based on Relative Value Units (“RVUs”), for example, which are a set of standard values determining the cost of services provided. If these terms are not clearly defined within the employment agreement, the amount of potential earnings may be unknown and perhaps lower than you originally anticipated. Sign-on bonuses can range in value and add substantial monetary amounts to the employment contract. You and your attorney should discuss your options to obtain incentives or bonus payments to supplement your base salary.
3. Repayment Obligations –Repayment obligation clauses in physician contracts are also becoming more common. When terminating the employment contract before a specific date, these clauses require employees to often pay back significant sums of money based on sign-on bonuses or relocation expenses. For example, a physician could sign a contract with a $20,000 sign-on bonus and up to $10,000 in reimbursement for moving expenses. However, a repayment clause may indicate that the physician must repay the employer all $30,000 if the physician leaves before two years of employment. You and your attorney should discuss the potential ramifications of these clauses if they appear in your contract and determine whether they may be negotiated entirely out of the contract.
4. Location – With the expanded opportunities for remote or hybrid work and healthcare providers that continue to develop their service locations, this provision concerning your work location is becoming more impactful. Certain healthcare employers may wish for you to provide services at multiple locations, requiring significant travel. Alternatively, you may desire to work out of a singular location only. You will want your attorney to review this provision to determine precisely where you are expected to provide services. Additionally, these provisions often interplay with the restrictive covenants described in point #7 below.
5. Malpractice Insurance Coverage – This provision is often included in employment agreements. Still, your attorney needs to review the language closely because there are substantial ramifications if it is drafted only for the employer’s benefit. If possible, you will want language clearly stating that the employer provides malpractice insurance at the employer’s expense and that the coverage limits are commercially reasonable for your area of practice (e.g., $1,000,000/$3,000,000 in the aggregate). Suppose the malpractice insurance is a claims-based policy. In that case, ideally, you will want language in the contract indicating that the employer is responsible for “tail insurance” costs, which cover claims made after your employment has been terminated. However, please note that you will not need tail insurance if your malpractice insurance is an occurrence policy. An experienced healthcare attorney can help clarify this clause for you.
6. Term and Termination – Your employment contract will almost certainly include a term clause, which sets forth the length of your agreement, and a termination clause, which outlines how either party may terminate the contract. Your attorney should review the termination clause to determine if any language allows the employer to terminate for vague and subjective reasons or if the employer may terminate the agreement with only a short notice period. Additionally, there are benefits to different term lengths depending on your preferences. For example, suppose you wish to negotiate pay raises sooner or do not anticipate working for the employer for an extended period. In that case, a short-term contract may be to your benefit. If you are more comfortable with long-term security, you may want to sign a contract with a longer term. Regardless, you do not want to be locked into an agreement without pay raises or the ability for a promotion. Thus, outline your preferences with your attorney before moving forward.
7. Restrictive Covenants (e.g., non-competition and non-solicitation clauses) are contractual agreements between the physician and the employer that restrict the physician’s ability to compete after the employment agreement between the parties has been terminated. Restrictive covenants often appear as non-competition and non-solicitation clauses, which generally restrict physicians from working for competing employers or poaching employees and patients. These clauses must be narrowly tailored in duration and geographic scope to protect a legitimate business interest (e.g., patient relationships). Notably, federal and state laws play a role in determining the legality and enforcement of restrictive covenants. It would be best if you discussed the language of these provisions with your attorney to determine how these may affect you and your ability to practice upon termination of the employment agreement. Highly restrictive covenants could affect your ability to work years after terminating your employment contract, so it is essential to understand the ramifications of these provisions.
8. Services and Duties – The employment agreement should provide a detailed description of the duties and responsibilities of the physician, including how these duties are determined and assigned and what types of non-patient care duties are required during the term of employment. Physician employment agreements may provide general terms, but you may be able to negotiate more specific language into the contract with the help of your attorney.
9. On-Call Coverage Requirements – Many physicians may be required to provide weekend or evening call coverage during their employment. You and your attorney may negotiate specific limitations concerning your on-call duties and responsibilities and the pay rate for on-call coverage.
10. Outside Activities – Generally, employers do not want outside activities to interfere with your ability to perform services during your employment. Thus, if you desire to perform healthcare services outside your job, often known as “moonlighting,” this provision can limit or restrict your ability. You will want to discuss your options with your attorney before agreeing to this provision in your contract. For example, suppose you currently provide telehealth services part-time during the evenings or weekends or are an adjunct professor at a local university. In that case, you will want language reflecting this in your employment agreement before you sign to prevent a potential breach of contract.
11. Liquidated Damages Clauses – This provision may be less standard than the above provisions. Still, some employment agreements may include a clause concerning liquidated damages, which specifies the amount the physician may pay for failure to perform under the contract. Liquidated damages clauses appear when actual damage may be hard to prove. For example, suppose you are found to be providing sub-par care or damaging the reputation of the healthcare employer. In that case, the provision can set forth a specific amount of damages (e.g., $10,000) for which you are liable. If this provision is included within the contract, you will want to discuss your options with your attorney.

Although the abovementioned clauses could impact your employment, many additional provisions may also be addressed during your physician contract review and negotiation. An experienced and qualified attorney who can identify potential pitfalls and vulnerabilities is invaluable during this process. It can help put you in the best position to advance your career.

Remember: The best time to engage legal counsel is before you sign any employment contract or offer letter!

If you require assistance during this process, our firm has multiple attorneys with decades of experience in the healthcare and employment fields of law.