What to Know About Termination and Severance Clauses In Physician Employment Contracts

When signing a physician employment contract, it is easy to focus on salary and benefits. However, there are other parts of the contract that can be equally important. Among the most critical provisions are the termination and severance clauses. Understanding termination and severance clauses is crucial. These provisions outline the circumstances under which either the physician or the employer can end the employment relationship, as well as the financial or legal protections available in the event of termination. This is what to watch out for when evaluating termination and severance clauses in the contract.

About Termination and Severance Clauses 

Termination provisions in physician employment contracts are designed to clearly define the circumstances under which either the employer or the physician can end the contractual relationship. These clauses outline the required notice periods, the specific grounds for termination, and any obligations that may continue after the employment ends, such as patient care responsibilities, confidentiality, or repayment of relocation expenses. Severance clauses typically accompany termination provisions to provide financial protection in the event of contract termination, including salary continuation, bonus payments, or continued benefits. 

Termination and severance clauses are important for all employees, but for physicians, these provisions carry heightened significance. Patient care, licensing rules, malpractice insurance, and non-compete restrictions are all affected by the terms of how a physician’s contract can end. If an agreement contains a poorly drafted termination clause, it can directly disrupt a physician’s livelihood. The physician may lose income, face gaps in malpractice “tail” coverage, or encounter barriers to practicing in the future. 

Common Types of Termination Clauses 

Physician employment agreements typically include termination provisions that address ending the contract with cause, without cause, or immediately under specific circumstances. Here is what these different types of clauses entail.

Termination with cause provisions allow termination with little or no notice under specified circumstances. Clearly defining “cause” is essential, as overly broad or subjective language can have serious professional and financial consequences for the physician. Objective examples, such as a felony conviction, help to reduce ambiguity. However, physicians should be cautious of subjective terms. Subjective terms should include a “cure” provision giving the physician a chance to remedy the issue.

Termination without cause provisions allow either party to end the relationship without reason, provided proper written notice is given. The timing for the notice is variable. Employers often want the right to terminate with shorter notice. However, this may not be advantageous for the physician. Physicians should ensure they also have a clear right to terminate without cause. Agreements lacking this provision can limit a physician’s flexibility and protection. 

Some physician employment agreements include a provision for immediate and automatic termination under specific, limited circumstances, which may also appear within the “for cause” section. These circumstances are generally severe and objective, such as the physician’s death, loss of medical licensure, ineligibility for professional liability insurance, exclusion from Medicare, or loss of hospital privileges.

Key Features of Severance Clauses

Severance clauses define the compensation and benefits a physician receives if the employment relationship ends under specific circumstances, providing a financial safety net during career transitions. These packages typically include continued salary for a set period, bonus or incentive payments tied to performance or patient volume, and ongoing health insurance coverage. Employers may also continue retirement or 401(k) contributions or accelerate vesting. Some agreements provide outplacement support or reimburse relocation expenses if the physician must leave unexpectedly.

Severance usually applies when an employer terminates a physician without cause, when a physician resigns due to a material breach, or in certain cases of retirement or disability. Physicians lose severance if they are terminated for cause, so understanding the definitions of “cause” and “material breach” is critical. Agreements often require physicians to comply with non-compete restrictions, seek alternative employment to reduce severance, or waive legal claims against the employer. 

Red Flags In Termination and Severance Clauses

Physicians should carefully review termination and severance clauses to avoid unfavorable terms. Sometimes, terms are too unfavorable, and one should walk away from a physician employment contract. These are some things to consider:

• Ambiguous definitions of “cause” or “material breach” can allow employers to terminate contracts arbitrarily, putting income and career stability at risk.
• Short notice periods for termination without cause may disrupt patient care and create sudden financial strain.
• Severance provisions tied to restrictive covenants can limit future employment opportunities, reducing the practical value of any payout.
• Some contracts automatically revoke benefits such as stock options, retirement contributions, or incentive payments upon termination, which can significantly impact long-term financial planning.

What Physicians Should Pursue In Termination and Severance Clauses

The first thing that a physician should do is seek legal counsel before signing any contract. An experienced attorney can identify potential risks and suggest modifications during the contract negotiation process.

There should be clearly defined termination triggers with narrow definitions of cause and material breach to reduce ambiguity and prevent employers from terminating contracts arbitrarily. This ensures physicians have protection against unfair dismissal and provides both parties with a clear understanding of the circumstances that could end the employment relationship.

There should also be explicit statements outlining the circumstances that qualify as cause or a material breach. Doing this helps both parties to understand the boundaries.

Contracts should also have fair severance provisions, including continued salary, benefits, and incentives for a reasonable period, to support financial stability. These provisions help physicians transition smoothly to new opportunities without facing sudden financial hardship.

There should be mutual termination rights that allow physicians to end the contract if significant changes occur in responsibilities or practice location. This ensures physicians can protect their professional interests and maintain control over their career path when circumstances change unexpectedly.

Contact an Experienced Physician Employment Contract Attorney

Termination and severance clauses are more than technical details in a physician’s employment contract. Before signing any employment agreement, physicians should carefully analyze termination and severance provisions, understand their implications, and seek counsel from a healthcare law firm experienced in physician contracts. The cost of proactive review is small compared to the potential financial and professional consequences of unfavorable terms. Contact us today.