Give employment contracts a thorough going-over

A column examining the ins and outs of contract issues

By Steven M. Harrisis a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column. Posted Dec. 6, 2004.

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Whether you are joining a practice or becoming employed by a health care entity, you likely will receive a proposed employment agreement. Make sure you carefully review the proposed duties, compensation and benefits, term of employment, covenants not to compete and liability insurance provisions detailed in the agreement.

First, it is important that your future employer's expectations of your role and responsibilities be translated into a concise description of your duties. Your employment agreement might include a job description, which is attached as part of your contract. If a job description is referred to in your employment agreement, make sure you have a copy of it as you review your contract. If you are going to provide administrative and managerial services in addition to clinical services, it is imperative that these services be included in writing.

You also should consider how your work and call schedules are determined. Does your employer determine the work and call schedule in conjunction with a schedule set in advance and applied to all employees, or is the schedule mutually agreed upon by both parties? Also, look at how your employer assigns patients to your care.

If you are involved in outside professional activities such as lecturing and writing, make sure continuing such endeavors is not prohibited. If you want to moonlight for a former employer or facility, your contract might have to be modified to let you provide these outside services.

Carefully consider any restrictions on your professional independence and how these restrictions could impact your employment and future objectives.

Next, review your compensation and benefits. There are a variety of compensation formulas, and the first step is to determine what your base salary will be and if you are eligible for any bonus or incentive payments. Determine how and when bonus and incentive payments will be made by your employer.

You should look at whether production and collections are relevant in determining your compensation. Make sure to ask your employer about the patient population you will be treating and the related third-party payers to determine if you will be operating within a managed care or fee-for-service environment.

Also, take into account how uncollected amounts are factored into your compensation and what your role will be regarding the collection of any outstanding account receivables. Ensure that there is a provision in your contract that gives you the ability to review any documents used by your employer to calculate your salary, bonuses and incentives.

If your employer is providing you with benefits, such as health insurance, a retirement plan, and vacation and sick days, you should ensure that these benefits are listed in your contract.

Also, your employer might offer to reimburse you for certain expenses that were discussed during the negotiation of your employment agreement.

Consider including the following reimbursable expenses: professional association fees, hospital medical staff dues, continuing medical education, books and subscriptions, automobile, car phone and beeper, relocation fees, payer application fees, board certification, meetings and home computer.

Make sure you understand the tax consequences of the proposed compensation and benefit structure.

Determine the actual commencement date of the contract and whether an event such as receipt of medical staff privileges, state licensure or managed care plan participation triggers your start date. Look at the length of your employment to determine whether the contract naturally expires after a certain date, or if it renews for successive terms.

If your contract does not automatically renew, you should figure out if you have to provide notice to your employer to renew within a certain time period before expiration.

Also, determine how your contract can be terminated before expiration. Look at the termination notice provisions, including the time period required and how notice must be provided to the other party. A three-year contract that contains a 90-day without-cause termination provision is only a three-month commitment.

You also should consider what events trigger termination of the employment agreement for cause.

The enforcement of covenants not to compete, also known as restrictive covenants, depends on the applicable state regulations and case law.

Generally, reasonable covenants not to compete are enforceable both during employment and for a reasonable time after termination or expiration of your employment agreement.

You must seriously consider whether the proposed restrictions will unduly restrict your current and future practice opportunities. As you review the proposed covenants not to compete, ask yourself the following questions:

What types of activities are restricted? Can I solicit patients I have treated? Am I prohibited from soliciting patients I have brought to the practice? How long in duration is the restrictive covenant? What is the geographic scope of the restrictive covenant? Do I have to resign my medical staff privileges? Am I prohibited from hiring any of the practice's staff? Are there restrictions on the use and disclosure of confidential information? Is there a liquidated damages and/or injunctive relief provision for violation of the restrictive covenant?

In light of the rising cost of liability insurance, it is imperative that you know which party is responsible for the payment of insurance coverage during and after the term of your contract. Make sure you know the amount of coverage you are required to have to be employed by the practice, to be a member of a hospital's medical staff and a participating physician for various payers.

You should know whether the liability policy is occurrence-based or claims-made coverage. Determine who is responsible for maintaining tail coverage.

Also, when you review your contract, keep in mind that promises not appearing in the written contract are generally not enforceable. Amendments should be in writing, and employers are often willing to make reasonable revisions.

Steven M. Harris is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column.

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