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Understanding Physician Employment Contracts

On Behalf of | Jun 1, 2020 | Articles, Blog, Employment Law, Healthcare Law, Publications

By Mathew J. Levy, Esq.

Unfortunately, yet understandably, most physicians are reluctant to read all of the provisions in their employment contracts in the belief that they face a “take it or leave it” quandary. However, physicians often do not realize that while there are provisions in such contracts that are standard in the industry, there are many issues which can be negotiated.   Those physicians who simply execute the document without an understanding of the issues contained therein (and their potential impact) often find themselves at odds with their employers, actually unemployed, or in increasing numbers – in a court of law.  This article is intended to help physicians avoid any such eventuality.

Compensation:  Most physicians do not realize that they can negotiate and increase their total compensation through a productivity incentive provision.  Employers can readily appreciate the inherent profitability of collecting three (3) times the amount of money paid to their employee and are, therefore, more than willing to share a percentage of the revenue “collected” for those services rendered by the employee, in excess of three times their salary.

Quality of Life Issues: To many, this aspect of the contract is more important than any compensation provision. Physicians should weigh heavily such elements as:

· What is the call policy of the practice? Often, physicians find themselves working far more hours than are set forth in their agreement. For example, an agreement may provide that the employee is responsible for “call”; however, does the agreement provide that “call” will be on an equal rotating basis, or state what will happen if one of the physicians leaves the practice?

· Does the practice have multiple locations?  Will you have to travel?  If there are multiple locations and traveling is required, physicians can often negotiate a monthly expense account (ex. $500.00 per month for auto expenses, insurance, gas, tolls, etc.).

· How long have the employees been at the practice?  What are the partners like? What are their billing procedures? Do the partners have any Office of Professional Medical Conduct or malpractice history?

Duties & Responsibility: Ask your potential employer to allow you to shadow a partner for a day.  This will give you an idea of what a typical day might be like and help you understand what will be expected of you.

Malpractice Insurance: Physicians should be aware that there are two types of malpractice insurance, “Occurrence” or “Claims Made”.  While Occurrence is the preferred form of coverage, it is also the most expensive in that it covers the physicians for services rendered during and after the term of The Employment Contract.

On the other hand, Claims Made insurance only provides coverage during the term of employment. The moment the agreement is terminated, no matter the reason for the termination, the physician is no longer covered for any of the professional services rendered during the term of the agreement. Therefore, the physician is obligated to purchase additional insurance known as “Tail Coverage”. Tail Coverage is expensive; however, the one-time fee can be paid over time and in most physician employment contracts, negotiations can result in the cost being shared equally with the employer.

Termination: There are normally two types of termination sections within an Employment Agreement – termination without cause and termination with cause.

Termination Without Cause: Pursuant to New York law, a termination without cause provision relegates a physician to “at will employee” status.  Unfortunately, an “at will physician-employee” can be terminated at any time for no reason at all. Such physicians have absolutely no recourse, unless the termination is predicated upon illegality (i.e., age, race or gender discrimination).

Termination With Cause: Every employed physician should be careful of this “catchall provision” that allows the employer to terminate the physician if, in the employer’s sole discretion, it is determined that the physician is detrimental to the practice. Such provisions are too subjective and the consequences are too great in that termination under this provision is immediate, and no notice period is required.  As a result, such provisions must be removed or an opportunity to cure must be added.

Restrictive Covenants: The restrictive covenant is one of the most litigated issues in the history of employment agreements.  The courts in New York, as in most states, do not like to prohibit physicians from offering medical services to patients simply because there is a written employment agreement containing a restriction on the employee’s ability to compete with his or her former employer.  New York courts will often be flexible and inventive in finding ways to find the restrictive covenants not binding. However, the courts have held that if the restrictive covenant is deemed to be reasonable, the non-compete provision will be enforced.

A restrictive covenant has two elements – Geographic area and time frame. When faced with a restrictive covenant, a physician must consider where they would seek to work, in the (likely) event that they will leave the practice.  If the location is within the restricted area, then the restricted area should be negotiated to a smaller region that does not include the future location.

In conclusion, a good contract should be reasonable for both sides.  Armed with a fair contract, both parties are on their way to a mutually rewarding and successful future.

About the Author:

Mathew J. Levy, Esq. is a Principal of Weiss Zarett Brofman Sonnenklar & Levy, PC. Mr. Levy is nationally recognized as having extensive experience representing healthcare clients in transactional and regulatory matters. Mr. Levy has particular expertise in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, criminal law, healthcare fraud & billing fraud, insurance carrier audits, litigation & arbitration, and asset protection-estate planning.  You can reach Mathew Levy at 516-627-7000 or [email protected].