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More physicians are opting for the security of employment rather than the adventure of entrepreneurship, in both large integrated organizations and small practices. One result has been to give added importance to employment agreements. The agreements spell out the details of the professional relationship, including mutual expectations, responsibilities, and financial arrangements.
Here are some tips on getting the most out of an employment agreement, offered by health care lawyers Vasilios J. Kalogredis and Michael R. Burke of Wayne, PA, and prepared for the American Academy of Family Physicians in Leawood, KS:
• Get it in writing. It sounds simple, but the first item of business is to always make sure you get the agreement in writing. "We are amazed at how often otherwise intelligent individuals enter into an arrangement based on just a handshake," notes Kalogredis. "Verbal agreements might be all right as long as everyone is happy, but a written contract becomes important when conflicts arise or when new owners or managers enter the picture."
• Term and termination. What are the terms for justifying termination? If there are provisions allowing termination for cause, are they reasonable and specifically defined?
Kalogredis and Burke say it is especially important in smaller practices to allow either party to terminate the relationship easily rather than have it come to a lengthy and contentious end. In turn, you could insert a clause providing for termination without cause that might read: "Notwithstanding the foregoing, either party may terminate this agreement at any time for any reason or no reason by providing ____ days written notice to the other in accordance with the terms of this agreement."
The standard notice of termination tends to range from 30 days all the way up to 180 days.
• Length. This should include how long the contract will run and when you will be able to negotiate salary increases and other changes in the agreement. Most agreements run one or two years, say these experts.
• Co-ownership. Many newly hired physicians may want to know about the possibility of co-ownership down he road. From the employed physician’s perspective, "co-ownership provisions may well be what distinguishes a decent employment opportunity from a great one," says Burke.
However, the reality is that "most employment agreements contain vague, non-legally-binding language as to the owner/employer’s intentions regarding co-ownership by the employed physician that would allow you and your employer to change your minds about the terms of your deal," he notes. In some instances, the co-ownership terms are even removed from the employment agreement and instead laid out in a separate non-legally-binding letter that the employer sends to the employee.
Burke suggests that "when co-ownership terms aren’t negotiated up front, the arrangements should be formalized and put in place within two to three years of the start of employment. The agreement should spell out the terms of purchase, including but not limited to the proposed purchase price and the period over which the purchase price will be paid. It must also establish the manner in which the physician will be compensated as a co-owner, including any income differential between junior and senior co-owners."
• Involvement in management. The contract also should address how much say the physician employee will have in the practice’s operations, both now and in the future. In many situations, the employee may have little say in practice decisions until he or she has become a full partner.
• Job description. The agreement should clearly delineate job responsibilities. Is the position a full-time or part-time position? Will the doctor be required to provide administrative or teaching duties on behalf of the practice? What about evening office hours? How will call schedules be handled?
Many smaller practices prefer not to include specific contract language describing job duties or the hours required for a full-time position or call coverage, because specific responsibilities and schedules are subject to change.
Sample language covering this option might read: "You will perform such orders, directions and policies as stated by the employer from time to time. The employer will specifically have the power to determine the duties to be assigned to you and the days and hours of your duties for the employer."
• Outside activities. The employment agreement should also cover whether the physician will be able to work outside of the practice. It should address activities such as teaching, writing, giving expert testimony or legal consultation, and moonlighting. These activities would need to be carved out of any restrictive covenant included in the agreement.
• Compensation. "When negotiating total compensation, be sure to look at all pieces of the compensation puzzle, not just the base salary, and be sure you’re comparing apples with apples," Kalogredis advises.
For instance, if opportunity A provides a guaranteed base annual salary of $100,000, and opportunity B provides a guaranteed base annual salary of $80,000, the first opportunity is not necessarily better than the second. Option A, for instance, might require the employee to pay expenses totaling $20,000 or more, or option B might include $20,000 or more in fringe benefits or business expense reimbursements.
And remember to consider the tax ramifications. A guaranteed salary of $100,000 with the practice paying no expenses does not leave as much in the physician’s pocket as a guaranteed salary of $80,000 with the practice paying expenses that total $20,000 per year.
(Editor’s note: Next month, we’ll provide suggestions for handling expenses, benefits, malpractice insurance, and restrictive covenants.)