How to Successfully Negotiate an Employment Contract

Not only is an employment contract an invaluable asset, but it may also be a physician’s only asset, explained Melinda Malecki, JD, MS, Founder and Partner, Malecki & Brooks Law Group, Chicago, IL, during the ACR Convergence 2020 conference. For this reason, she said, it is critical for physicians—particularly those just starting out—to contract with a “specialized” healthcare law attorney before entering into any employment agreement.

Ms Malecki said that marketing oneself as a brand is important to contract negotiations, particularly for younger physicians. “I tell all of my clients to think of themselves as a brand, just like Nike, Coke, or Pepsi,” she noted. “They may not have the confidence level that they want during contract negotiations, but I tell them they have a very marketable commodity in the specialty they’re in. I work with a variety of different specialties, but [rheumatology] does have some negotiation power.”

Although younger physicians may not know how to conduct a contract negotiation, they can still arm themselves with the necessary tools to navigate it wisely, she added.

Understanding Your Worth

First and foremost, physicians must know their worth before entering the negotiation process. When scanning a contract, they should look for compensation guarantees versus productivity models, Ms Malecki advised. This is important for determining the minimum compensation guarantee per year.

“Typically, what you’ll see in a contract is some form of a guarantee over a certain period of time,” she said. “It could be for a year or two, and then it usually flips into either productivity pay or a combination of productivity pay and a guarantee.”

Physicians should not accept verbal offers or contracts, as these are difficult to enforce. “A written contract is the standard in the industry, and it is the trigger of when the employer is serious about hiring you,” Ms Malecki said. “They’re either going to give you an employment agreement or an offer letter, and both of those are important.”

Term and Termination Provisions

Ms Malecki went on to discuss the importance of understanding the term and termination provisions of an agreement. Typically, the contract will dictate a term that starts and ends on specific dates (eg, “The term of this agreement shall begin on October 22, 2020 and shall end on October 22, 2021”). If neither party terminates, the agreement will automatically renew until one party does. If the contract is written in this way, it is referred to as an “evergreen” contract.

“But most of the time, regardless of what is said about the term in physician contracts, you will see what I call an early termination provision,” she said. This type of provision dictates that either party may terminate the agreement after a prespecified notice period. “That termination could be for no reason or for any reason. And this is in virtually every physician contract,” she added.

This is important because the notice period becomes the length of the contract. If the employer can terminate the contract with a 30-day notice, the length of the contract is technically only 30 days, Ms Malecki explained. She noted that there is no legal requirement regarding the length of notice periods, but they typically range from 30 days on the low end to 120 days on the high end.

“So, what this constitutes is a business decision for you about how long you want that notice provision to be,” she said. “A longer notice period provides more time to find other employment and an income during that time.”

Malpractice Insurance and Tail Coverage

According to Ms Malecki, although employers will likely provide malpractice insurance for physicians they employ, they do not always provide tail insurance coverage.

“This needs to be looked at closely, because tail insurance is expensive,” she said. “It’s typically 200% of your annual premium. So, if your employer is paying $50,000 a year for your malpractice insurance and you are responsible for the tail insurance, you could end up paying over $100,000 or more for that insurance. This needs to be vetted before the contract is signed.”

Physicians should work with their attorneys on issues regarding tail insurance, clarifying who bears the responsibility of payment, and if they are deemed responsible, whether they are still expected to pay in the case of termination without cause. “It's a really complex issue,” Ms Malecki said.

Noncompete Agreements

The noncompete agreement is particularly important for young physicians. “After you leave your employer, they will more than likely have a noncompete clause in your agreement,” Ms Malecki said. “For a certain period of time (usually 1-2 years), you’re not allowed to work within a certain geographic radius of where you were working.”

The enforcement of these agreements varies from state to state, but they can be detrimental to young physicians, particularly if they moved to take a new job, were terminated early, and want to stay in the area. These agreements should be vetted to ensure they are reasonable in scope and duration, she advised.

“When I look at a contract for a young physician coming out of training, I ask the details of the noncompete and the tail provisions, as well as the conditions of getting out of it early, if they can get out of it at all,” she said. “We want to save you money and headaches upfront before you sign your contract.”

The Importance of Attorney Review

Employment contracts are typically a highly complex area in the healthcare industry. “I don’t want to use the word ‘specialized’ because we don’t use that in the legal world as you do, but it is specialized. It’s an area that lawyers concentrate in,” Ms Malecki explained.

She said that although hourly fees vary widely among attorneys (approximately $350-$750 per hour), some firms, such as hers, charge flat rates to review contracts for physicians just coming out of training.

According to Ms Malecki, every physician should have his or her employment contract reviewed by a healthcare attorney who represents physicians and performs physician contract reviews. “This is a very narrow area,” she emphasized. “But you want to have your agreement reviewed because your contract is your asset. You want to contract wisely.”

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