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J Oncol Pract. 2006 November; 2(6): 308–311.
PMCID: PMC2793669

Employment Contracts: What to Look for

When starting a new employment position, make sure you have a written contract, and have it reviewed by an attorney or practice management consultant familiar with the applicable laws in the state where you will practice. The attorney should be one who is familiar with the business of medicine, in addition to having familiarity with employment law and employment contracts. Remember, you are investing your time in building a business of which you may potentially buy a piece. Your attorney should understand this.

One young oncologist—let's call her Dr Landry—learned the hard way that a “handshake agreement” can lead to problems. She accepted her first position during her interview with a small group that hadn't hired anyone for many years. “I was focused on the medicine I would be practicing, and I didn't know the right questions to ask,” Landry said. “I worked without a contract for 7 months. I didn't get paid until I'd been there 6 weeks, and I never had any health benefits.” She left the group after a year.

Unfortunately, according to San Antonio attorney Michael L. Kreager, Dr Landry's experience is all too common. “It's most likely to happen with a small group or solo practice, especially if the hiring physicians have been practicing for an extensive period of time and haven't recently added new physicians to the group.”

L. Michael Fleischman, FAAHC, a principal with the Atlanta-based consulting group Gates, Moore & Company, agrees. “When physicians are in training, nobody tells them what to look for. That's why so many younger physicians bounce around from job to job.”

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L. Michael Fleischman, FAAHC

All terms guiding your relationship with the group should be explicit and in writing. Keep in mind that what is in the contract is important. Never accept a statement dismissing something in the contract, such as, “Oh, that provision is never enforced,” or “That won't ever apply to you.”

Ask for copies of the corporate bylaws, partnership agreement, and other documents that may affect your future relationship with a practice. One young oncologist signed a 2-year contract with two partners in their 50s, only to find out later that a policy existed that physicians older than 55 years would not take night calls.

Any attachments to the contract are part of the contract and are enforceable. If the contract refers to another document, such as corporate bylaws, a health plan, or a retirement plan, obtain a copy and be sure it is dated.

How to Begin

If you have found a practice that is interested in hiring you, a letter of intent is a typical starting point. “A letter of intent is not legally binding, but it will spell out previous conversations and put them in writing so there are no misunderstandings,” Fleischman said. “If it is not offered, the candidate can suggest that the practice prepare a letter of intent so that he or she can discuss the details with family and advisors.”

Kreager adds, “Never select from a pool of one. There are plenty of opportunities out there for oncologists now, so job applicants should take the time to look at each one very closely to make good comparisons.”

Once you have decided to proceed, the practice should offer you a written contract. Obtaining professional advice in reviewing the contract is critical. In most cases, you will do your own negotiating and consult privately with your attorney or other advisors about the contract terms and the effect they will have on your career. If you prefer, your advisor will deal directly with the practice. “I negotiate directly with a practice a lot of times for my clients who ask me to because they are too busy, or feel they don't understand the terms sufficiently,” Fleischman commented.

In considering a contract, you don't have to accept whatever is offered, but don't try to negotiate every point of the contract, either. Decide which issues are most important to you. Be firm on those and flexible on less critical areas. A future article in “Strategies for Career Success” will discuss negotiating strategies, not only for dealing with contracts but for many aspects in your career.

Elements of an Employment Contract

What should you expect to see in a contract? Naturally the specifics will vary greatly, but you should be familiar with the basics. “Physicians should know the lay of the land of what's normal in a contract,” Kreager pointed out. “If something is missing they should be able to ask for it. By knowing what is in the boundary of normal, they can be on the alert if something is outside those boundaries.”

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Michael L. Kreager

Term

The term of a contract refers to how long it is in force before it expires or has to be renewed. Be sure the start date is realistic and takes into consideration any need to obtain a state medical license or to become credentialed by the hospital(s) and the group's insurance plans. Most employment contracts have a term of 1 or 2 years, and they often have an “evergreen” provision, stating that the contract is renewed automatically unless terminated by either party. If your contract is automatically renewable, you can renegotiate the terms before it expires. You should start discussions about any such changes about 90 days before the term ends.

Job Duties

The contract should describe the conditions on which continued employment is contingent, such as appropriate licensure, maintaining hospital privileges, and participating in continuing medical education (CME). It may include a requirement that you become board certified within a certain period. The following are other aspects of your work that the employment contract should cover:

  • Responsibilities. Your job description should be clearly delineated, including patient care responsibilities and any administrative and teaching duties. The contract may describe special services you are to provide that are not typical for the other physicians. If this is the case, the contract should detail the expectations for such services and specify the compensation. The contract should cover how you will be assigned patients and procedures. This area can be especially important if you have a productivity incentive based on patients seen or services billed.
  • Performance standards. The agreement should clarify how your performance will be evaluated. Performance reviews help both you and the employer to identify potential problems. You should insist on this provision, which forces dialogue and assists both parties in addressing issues in a constructive way.
  • Physician autonomy. As a licensed physician, your clinical autonomy in treating patients should be spelled out in the contract.
  • Office hours. The contract should delineate office hours and how many hours per week you are expected to work.
  • Call coverage. Specific call schedules are not usually included in the contract, because they are subject to change. The contract will likely have a general statement indicating that you will be expected to share call equally with the other physicians who take call.
  • Office space and resources. The sites where you are expected to practice (main office, satellite office, clinic, etc) should be specified. In addition, the contract should note that the practice will provide clinical and office space, staff, and billing services adequate for you to carry out your duties.
  • Outside activities. The contract may prohibit you from providing services outside the practice, such as moonlighting, teaching, and medicolegal consultation. “The practice wants to know that the physician is 100% committed to the practice,” Kreager explained. If outside activities are allowed, the agreement may state that income from such activity goes to the practice. If this is the case, Kreager offers this advice: “A good compromise is to specify that income over a certain threshold, such as $5,000 annually, accrue to the practice. That way, if a physician receives an honorarium of, say $1,000 for a presentation, he or she can keep it.”

Compensation and Benefits

In comparing positions, consider the entire compensation package, not just the base salary. Some positions may guarantee a higher salary but require you to pay practice expenses. Fringe benefits and tax implications also change the compensation picture. In addition to describing the method of your compensation (salary or salary-plus-productivity, for example), the contract should state how often you will be paid. The following are various elements that may be included in your compensation package:

  • Signing bonus. You may be offered a bonus for joining a practice. “This is more likely with hospital contracts and not so common in private practices,” Fleishman stated. “But I'm seeing more and more oncology fellows requesting it and receiving it, in addition to a moving allowance.” The contract should specify how you will be paid a bonus. A bonus is considered taxable income, so find out if taxes will be withheld or if you will need to pay them. It's a good idea to consult with an accountant regarding the tax implications of a bonus paid over a period of time.
  • Moving costs. Providing an allowance for your relocation is not universal, but many practices offer it. “If a relocation package is not there, I would tell them to ask for it,” Kreager advises. The amount can be negotiated. If the practice pays for your moving costs, the agreement will likely specify that you must reimburse the group if you leave voluntarily before a specified time point.
  • Straight salary. A straight salary for 1 to 2 years is common. If your contract is for more than a year, it is customary for the salary to increase in the second or third year, or for the contract to specify that a salary increase will be negotiated at certain intervals. The stated salary is the gross amount, not including deductions for income tax, Social Security, Medicare, or deductions that may be agreed on, such as those for health benefits and retirement plans.
  • Productivity incentives. If you are offered a base salary plus a productivity incentive, the contract should spell out the incentive and how it will be paid. For example, a productivity incentive may be a percentage of the revenue you generate in excess of a set amount, such as two or three times your base salary. Thus, if your base salary is $125,000, the productivity incentive may be a bonus of 20% of the revenue you generate over $250,000 or some other agreed-upon amount. In contracts of more than 1 year, if your base salary increases each year, the threshold for receiving a productivity bonus will generally go up as well.

Fleischman noted that productivity incentives are becoming more common. “I think that's because a lot of younger physicians are looking for opportunities to increase their income to pay off educational loans,” he commented.

The contract should be very clear about how productivity is defined, such as fees billed, number of patients seen, hours worked, fees collected, or profits of the entire practice. The measures of productivity should cover details such as whether (and how) your productivity will be affected when you provide services to a partner's patients, and vice-versa. If expenses are included in the compensation formula, the contract should specify how the group's expenses are allocated to each physician.

  • Leave time. A common arrangement for the first year is 2 or 3 weeks paid vacation and 1 week paid leave for CME. Paid sick days and parental leave time should also be specified. Some groups count sick days against vacation leave.
  • Health insurance. Health care insurance is an expensive benefit and therefore an important element of the compensation plan. Some employers will pay the premium for you and your family, while others will pay your premium but require you to pay the cost of insurance for your family.
  • Life insurance. Life insurance is not universally offered by employers, but the practice may have a group policy for all the physicians. Premiums the group pays for insurance exceeding a $50,000 death benefit are considered taxable income to you by the Internal Revenue Service, so if life insurance is provided at all, most small practices provide only the threshold of $50,000 of coverage.
  • Disability insurance. If your contract does not provide disability insurance, be sure to obtain your own coverage. Smaller groups are less likely to have a disability insurance plan in place than are large groups. If the practice pays for your disability insurance, you must pay income tax on the benefit payments if you are disabled. Because of this tax disadvantage, if you are offered disability insurance by the group, you might want to negotiate to receive additional salary (equivalent to the disability insurance premium the practice would pay for you), and secure your own disability coverage, because disability benefit payments are not taxed if you pay your insurance premiums with after-tax money.
  • Malpractice insurance. Typically, your liability coverage will be paid by the group. If its policy is the claims-made type, your employment contract should specify who will pay for the insurance “tail” if you leave the group. Often, a physician employment contract calls for you to purchase the tail policy at the end of the contract, whether you leave voluntarily or are terminated. One compromise to ameliorate this responsibility is to ask that the contract specify that the tail policy be paid by the party that initiates the termination.
  • Retirement plan. The employment contract should specify that you are eligible for the group's pension plan. The retirement plan benefits, such as the vesting schedule, are typically the same for all members of the group. The amount the group contributes to your retirement is usually a set percentage of your total compensation.
  • Paid expenses. Reimbursable expenses, such as cell phone or automobile expense to serve in a satellite office, are benefits that sometimes can be negotiated, especially if they are provided for the owners or the partners.
  • Professional fees and CME allowance. Many practices pay for professional society dues, medical journal subscriptions, hospital staff fees, and CME programs. The contract usually states a dollar limit for these items. A CME allowance with an annual cap ($2,000 to $3,000 range) is common.

Restrictive Covenant

A noncompete clause or “restrictive covenant,” prohibiting you from practicing in the same area if you leave the group voluntarily, is included in most employment contracts. The rationale behind a restrictive covenant is that the group has expended resources in recruiting you and setting you up in practice and doesn't want you to have the advantage of those resources if you leave the group and set up a competitive practice.

A noncompete clause will specify the scope of services, the geographic area, and the period of time that are restricted, such as practicing oncology within a certain radius from the practice for the next 1 or 2 years. Most states allow restrictive covenants that are reasonable in scope and duration; check with your attorney about how the courts have ruled in the state where you will be practicing.

You and your attorney should review any noncompete language carefully and try to limit the restrictions. Usually the terms can be negotiated to reach a satisfactory compromise that is reasonable and fair for both parties. Although a 2-year restriction is common, Kreager counsels oncologists that 1 year is a reasonable length. “One year provides plenty of protection for the group. For one thing, in oncology, within a year, your referral sources are going to go somewhere else, so you don't really represent a threat to the practice after a year. In considering a noncompete clause, physicians should ask themselves, ‘Can I live with this if this position doesn't work out?'”

Termination

Your agreement should include a section describing the conditions under which the employment contract may be terminated before the scheduled end date. Death or permanent disability are conditions that terminate the contract. In the case of disability, typically there is a “qualifying period” ranging from 60 to 180 days before the contract ends. Look for a provision stating that you will receive your salary during the qualifying period. The agreement should also specify provisions for termination.

  • For cause. The contract may have a section describing circumstances under which you could be terminated “for cause.” Conditions warranting termination for cause are typically serious lapses, such as loss of medical license or hospital privileges, use of illegal drugs, or conviction of a felony. Beware if cause is defined with subjective language such as “inappropriate behavior” or “actions that are negative to the practice.” If failure to follow employee policies is listed as a cause for termination, be sure the contract gives you the right to rectify (or “cure”) the problem. A cure provision should include a notification to you and a period of time to rectify the situation so that you are not terminated.
  • Without cause, or termination with notice. The contract should state that either party may end the employment at any time without specifying a reason, by giving sufficient written notice. Be sure the terms for terminating the contract without cause are the same for both you and the employer. Notice can vary from 30 to 180 days, during which time you continue to work and receive a salary and fringe benefits. Both Fleischman and Kreager suggest that 60 to 90 days is a fair compromise, pointing out that if you are unhappy in the practice, working for 180 days after giving or receiving notice is not productive for either party.
  • Other termination provisions. The termination section may also address the ownership of medical and financial records. Usually the practice retains the ownership of the records.

The contract should stipulate what payments you will receive for unused vacation days if you leave the practice. In addition, if your compensation is based on your collections, the contract should state how long after the end of the contract you will continue to receive payments from collections.

Dispute Resolution

Your contract should state how major disagreements can be resolved. Binding arbitration may be called for, or the contract may state that, in the case of a lawsuit, the prevailing party is reimbursed for legal fees and other costs.

Future Partnership

It is not common for an employment contract to cover specifics about your becoming a shareholder in the practice, but discussions about future partnership should be documented in the letter of intent. Be sure you are made aware of how much a buy-in to share ownership might cost.

Kreager suggests that the contract specify a date at which time the employee will be evaluated for share ownership. “If you are interested in becoming a partner (or shareholder), ask for a provision committing the employer to consider you for equity ownership at a certain time, such as after 2 years,” he advises. “It's very important to have a specific goal.”


Articles from Journal of Oncology Practice are provided here courtesy of American Society of Clinical Oncology