The 10 Most Important Provisions of Physician Employment Contracts

Yale medical diploma awarded Asaph Leavitt Bissell, Class of 1815, signed by school's four professors and Timothy Dwight IV

You have made it through bio-chemistry, organic chemistry, four grueling years of medical school, an insane intern year, several exhausting years of residency, and possibly a year or more of fellowship.  You are beyond ready for a return on your investment.  As diligent as you have been throughout your medical training, take some time to carefully review the terms of your employment agreement and contact an attorney who has experience with physician employment agreements because this contract will govern your professional life both during and after your employment.  Although not an exhaustive list, here are ten things to pay particular attention to before signing a physician employment contract.

  1. Compensation

One of the most important topics covered by a physician employment contract is how your compensation will be determined.  There are typically three types of compensation: (a) base compensation; (b) productivity or incentive compensation; and (c) other bonuses.  Base compensation is a guaranteed annual salary.  Productivity compensation is usually based upon a formula, typically determined by either net collections or Relative Value Units (“RVUs”).  Be sure that you completely understand any productivity compensation formula and ask your future employer for an illustrative example.  Other types of bonuses include signing bonuses and retention bonuses. 

  1. Benefits

Does the employment agreement address the following benefits: medical, dental, vision, licensing fees, a stipend for CME, book allowance, retirement, sick days, disability, vacation, holidays, maternity leave, paternity leave, moving expense allowance?  If not, it would be wise to discuss these with your employer and, if possible, include provisions on all or most of these benefits to the employment contract.

  1. Term

What is the length of the employment contract?  Many, although not all, physician employment contracts last for one (1) year and automatically renew for consecutive, one year terms unless they are terminated.  See number 10, below, for more about termination.

  1. Non-Compete

Many physician employment agreements prohibit a physician from providing specified medical services within a certain number of miles for a certain number of years after the physician separates from the employer.  Although the enforceability of non-compete agreements varies by jurisdiction, and they are disfavored in North Carolina, North Carolina courts will enforce non-compete agreements if they are: (a) in writing; (b) part of an employment contract; (c) supported by valuable consideration; (d) reasonable as to length of time and geographic scope; and (e) designed to protect a legitimate business interest (e.g., customer contacts, trade secrets, or confidential information).

  1. Malpractice Insurance

Check to see that your future employer will provide and pay for your malpractice insurance during your employment.  It is also important that a physician employment agreement specifies who will pay for tail coverage for (a) the employer and (b) the physician upon termination of employment.  It would be wise for the physician to negotiate that the employer pay for, at least, the employer’s tail coverage, if not also the physician’s tail coverage, upon termination of employment.

  1. Intellectual Property

Particularly at academic institutions, intellectual property is an important topic.  Most physician employment agreements provide that the intellectual property a physician generates while employed, including but not limited to patents, devices, and procedures, belongs to the employer.

  1. Related Professional Activities

Pay attention to the types of related professional activities that are required, encouraged or prohibited.  Does the employer require teaching, lecturing, researching, publishing, or presenting at conferences?  Moreover, how do these activities impact the physician’s compensation?  Conversely, does the contract prohibit moonlighting, consulting, or serving as an expert witness?  If you are considering any of these related professional activities, it would be prudent to include an express provision allowing them in the employment contract.

  1. Liquidated Damages and Attorneys’ Fees

Many physician employment contracts contain provisions for liquidated damages and attorneys’ fees.  Liquidated damages are a specific dollar amount of damages that the parties agree, at the formation of the contract, will be the compensation for the injured party upon a specific breach of the contract.  The enforceability of a liquidated damages clause depends upon the specific facts as well as the jurisdiction.  A liquidated damages clause is generally enforceable in North Carolina as long as it is not a penalty.  Additionally, many physician employment contracts provide for the recovery of attorneys’ fees by the prevailing party in the event that either party successfully seeks to enforce any of its rights under the contract.  Contractual provisions for the recovery of reasonable attorney’s fees are generally enforceable in North Carolina.

  1. Assignability

What happens if the employer is acquired by, or merges with, a different entity?  If the contract contains an assignment provision and is binding upon the successors or assigns of the employer, then the physician’s employment obligations continue under the terms of the contract.  On the other hand, if the employment contract is not assignable by the employer, then the physician is not obligated to work for the new entity, and must negotiate and execute a new contract with the new entity for future employment.

  1. Termination

Physician employment can terminate in one of several ways.  First, the employment contract may expire by its terms, although many automatically renew.  Second, employment may terminate without cause at the election of either the employer or the physician.  In either instance, the employment contract will likely indicate the amount of advance notice required.  Finally, the physician’s employment may be terminated for cause for any of the reasons enumerated in the employment contract, which usually include the following: failure to comply with the employer’s rules, regulations, policies and procedures; unprofessional, unethical or fraudulent conduct; and suspension or revocation of privileges or license.

Conclusion

All of the terms of a physician employment contract are important and some of them can be complex.  After dedicating years of your life to your professional training, you do not want to come up short when you are finally so close to the end zone.  Consider engaging an attorney experienced in physician employment contract negotiations to help you navigate the process and understand your rights and obligations before you sign the contract.

Image available for use as part of the Public Domain.

Topics

About the Author

Colleen Byers

Colleen L. Byers

Colleen Byers concentrates her practice in the areas of guardianship, trust, estate and fiduciary litigation, employment matters, and alternative dispute resolution.
Email Colleen

More Reading