Clauses in physician employment agreements

Each of us wants to be able to predict the future personally and professionally—and to plan accordingly. Unfortunately, that is not always possible. However, while it may not be possible to predict the future, it is possible to take steps to protect your future professional opportunities through careful proactive planning when negotiating your current employment agreement and the clauses in physician employment agreements.

The more you can proactively anticipate and protect potential future opportunities, the better situated you will be when the unexpected or unlikely occurs.

Termination without cause

Most physician employment agreements provide an option for the employer and the employee to terminate the employment agreement without cause.

If the employment agreement provides that the employee may not elect to terminate the agreement during the initial term, be sure to understand how many years the initial term runs and whether being locked in for that period of time is acceptable. While there is no such thing as indentured servitude, there can be significant consequences (e.g., financial damages) if you opt to otherwise leave employment before your term is complete.

Similarly, a contract may not allow for termination without cause before the end of the then-current term (initial term or renewal term). Depending on the timing of when the initial term or renewal term ends, this may make it more difficult to secure new employment if there is a very narrow window in which the physician can seek new employment. Sometimes timing can be very important when looking for or accepting a new job.

Tip: Before signing the employment agreement, negotiate the ability to terminate the employment agreement without cause before the initial term or renewal term is complete.

An employment agreement that permits an employee to terminate without cause mid-term can be problematic if the timing essentially makes it very difficult to find and accept new employment. For instance, if the employer requires you to provide 180 days’ notice, this can make it difficult to secure new employment so far in the future. And when the notice is provided, there could be a very awkward six-month period of continuing to work for the employer.

An employer may also have disparate lengths of notice required to terminate employment without cause. If the employer suggests they wish to have the option to terminate the employee on 30 days’ notice, but requires the employee to provide 120 days’ notice to terminate the employment agreement, ask about the disparity and research the employer’s prior terminations of its physician employees.

Tip: Before signing the employment agreement, ensure the timing to terminate the employment agreement without cause is consistent with your short- and long-term goals, and are comparable for both you and the employer to exercise that option.

Professional liability insurance

If the employer is providing an occurrence-based professional liability policy, that is good coverage as there is no need for you to purchase so-called ‘tail’ insurance upon the ending of the employment relationship.

What happens if the employer decides to switch from an occurrence policy at some point during the employment term to a claims-made policy, which requires a tail upon the termination or expiration of the employment agreement? Who pays for the tail? How much will the tail cost? Can you afford to leave that employment and pay the cost for the tail?

If the employment agreement is silent with respect to professional liability coverage or states that a claims-made policy is provided, understand up front who pays for the tail and under what circumstances.

Tip: Before signing the employment agreement, make sure the type of professional liability coverage provided (e.g., occurrence or claims) is clearly delineated, as well as who pays for the tail insurance (if it is not an occurrence policy) and under what circumstances. The tail issue can be one of the most expensive and consequential in a physician’s employment agreement.

Bonus/incentive compensation

In addition to a base salary, an employment agreement may offer opportunities for you to earn additional income. If a bonus opportunity is possible, you should understand the metrics being used and the likelihood of satisfying those objectives.

If the bonus is based on collections, be sure the employment agreement clearly identifies what is credited toward collections. If the bonus is paid upon wRVUs, then understand, in advance, how realistic the wRVU threshold is to attain. The bonus thresholds—based upon collections or wRVUs—may be particularly relevant if you’re not working a 100% clinical schedule.

For instance, a physician whose time allocation is 60% clinical, 20% teaching, 10% research and 10% administrative should ensure the bonus threshold is based upon the 60% clinical activities. Though the teaching, research and administrative duties are each likely considered critical to you being viewed as successful, they may not be counted toward the bonus calculation. Or, they may be measured in a different manner.

What happens if you’re not employed for the entire contract year? Is the reason the agreement was terminated relevant? Is the bonus forfeited? Is the bonus pro-rated? If the bonus is pro-rated, does it include trailing collections for some period of time?

Tip: Before signing the employment agreement, understand the threshold, likelihood and timing of the potential bonus opportunity and have the relevant terms delineated in the employment agreement.

Advancement opportunities

Each professional wants to have a successful career. One way to measure success for a physician is a promotion.

For physicians in private practice, the opportunity to become a shareholder, partner or member (depending on the form of the practice entity) may be the optimal professional goal. For physicians in academic settings, becoming an assistant professor, associate professor or full professor may be the benchmark of success (and could be an important milestone to make a move to a different institution).

Understanding the expectations you’re expected to achieve to advance and the potential timing to do so are important elements that can be delineated in your employment agreement.

If an employer suggests your next advancement should occur in three years, it is fair and appropriate for you to know at least a few months before the three-year anniversary whether the advancement opportunity will be offered. If you’re offered the advancement and are in a private practice setting, you should be told at that time the proposed financial commitment that will be required to move forward.

An employee cannot force an employer to provide a professional advancement opportunity. However, you should also not have the goal posts moved mid-term regarding what it takes to advance or the timing in which an advancement is expected to occur. Being treated like a professional requires transparency and regular communication between the employer and the employee. A promotion should be earned and the benchmarks to be promoted should be clearly delineated.

Tip: Your employment agreement should explain whether there is a professional advancement opportunity and, if there is, the anticipated timing and goals that must be achieved to attain the objective.

There is no realistic way to predict or guarantee one’s professional future. Understanding the importance of some key terms in your physician employment agreement—termination without cause, professional liability insurance, bonus/incentive compensation and advancement opportunities—and ensuring that the contract language clearly reflects as many of your short- and long-term objectives as possible can help you protect yourself from an uncertain or unknown future.