Make sure contract really says what you think it says

Often the meaning of sentences or entire paragraphs can be materially changed by inserting or deleting a single word or punctuation mark. Sometimes, however, provisions found in contracts require wholesale changes to adequately reflect the intentions of the parties.

I recently reviewed a contract that contained perhaps the single most egregious example of a party missing the mark while attempting to express a concept. A literal reading of the words was so far off target that I found myself hardly believing the practice could honestly expect the recruited associate physician to sign the contract. Here is the proposed language:

"7.1 Reimbursement of Expenses. If this Agreement is terminated for any reason, Employee shall reimburse and pay Employer any amounts paid by Employer to or on behalf of Employee pursuant to this Section 7, Section 5, and otherwise, including without limitation expenses for malpractice coverage, licensing, application and certification fees, in connection with the employment of Employee in the following amounts: (a) 100% of all such expenses if this Agreement is terminated for any reason within 180 days of the commencement of Employment; (b) 75% of all such expenses if this Agreement is terminated for any reason between 180 and 270 days after the commencement of Employment; and (c) 50% of all such expenses if this Agreement is terminated for any reason during the Employment Term after 270 days from the commencement of Employment. Employer shall have the right to deduct any such amounts due from Employee under this Section 7.1 from Employee's compensation under this Agreement."

It is important to appreciate this paragraph in the context of the entire contract. Specifically, the associate physician is to be compensated pursuant to a productivity formula whereby collections received by the practice in connection with the associate's productivity are reduced by expenses incurred by the practice due to the associate's retention. The "net" of collections over expenses is shared between the practice and the physician.

Simple enough. But that's not what that paragraph really says.

Under the compensation formula, all expenses paid by the employer "to or on behalf of Employee" will have already been calculated in determining the physician's compensation. This paragraph (perhaps benign to the untrained eye) allows the employer the right to force the physician to again reimburse the practice for all expenses associated with his employment. In effect, the practice will receive 200% of each expense paid on behalf of the associate. Talk about alternative sources of income!

The exposure to the employed physician is augmented by stating that this reimbursement scheme is applicable in the event the employee is terminated "for any reason." Moreover, don't be fooled by the reduction of reimbursements owed to the practice as the tenure of the associate moves from inception of the contract through the nine-month period of employment and beyond.

In subsection (c), the practice maintains the right to receive 50% of the expenses incurred if the contract "terminated for any reason" after the 270th day of employment. At some point the contract will end. All expenses associated with the employed physician will have been paid pursuant to the compensation formula: 50% reimbursement is actually 150%.

Could the practice have, in fact, meant what the contract stated so clearly? What I suspect might have been intended is the practice's expectation that if the recruited physician terminated employment after the practice incurred expenses directly resulting from the recruitment process (license fees, medical staff dues, first-quarter malpractice premiums, etc.) and prior to the physician's production of income, it expected to be made whole. Perhaps a reasonable request, depending upon why the physician left the practice.

After consultation with the physician and the practice, the section was modified:

"7.1 Reimbursement of Expenses. If this Agreement is terminated for any reason by the Employee, except due to his death or disability, the Employee shall reimburse and pay Employer any amounts paid by Employer to or on behalf of Employee pursuant to this Section 7, Section 5, and otherwise, including without limitation expenses for malpractice coverage, licensing, application and certification fees, in connection with the employment of Employee in the following amounts: (a) 100% of all such expenses if this Agreement is terminated prior to the commencement of work; (b) 75% of all such expenses if this Agreement is terminated within 30 days after starting work; and (c) 50% of all such expenses if this Agreement is terminated within 60 days after starting of work. Notwithstanding the foregoing, no such expenses shall be owed to Employer if calculated as part of compensation owed Employee hereunder."