Practice Economics

Four Factors Physicians Should Consider Before Job Termination


 

Leaving a job is never an easy decision, whether it is made voluntarily or not. A physician terminating a relationship with an employer may face emotionally charged conversations, difficult financial considerations, and long-term legal consequences. As you plan your exit strategy, it is critical for you to be aware of these issues and address them proactively with your employer. This can minimize hard feelings and surprises down the road for you, your former employer, and your colleagues.

In today’s competitive climate, a physician might work for several employers during the length of his or her career. With the tighter financial medical market and pressures from managed care mounting, employers are less likely to tolerate a nonproductive employee. Interoffice or personality conflicts may become intolerable for an unhappy or stressed physician. Physician turnover is a more common occurrence, and if not handled properly, it can be disruptive for all parties involved.

The following steps are meant for physicians contemplating leaving their place of employment or who may be asked to leave in the near future.

Step 1: Consider the Employment Agreement

Ideally, physician-separation matters are addressed preemptively when the physician enters the employer-employee relationship and signs an employment agreement. Thus, before contemplating a move, you should always start by reviewing the terms of your current employment agreement. A well-drafted employment agreement should specify the grounds for termination, both for cause (i.e. a specific set of reasons for immediate termination) and without cause (i.e. either party may terminate voluntarily). The agreement should specify the parties’ rights and obligations following a termination. These rights and obligations likely will vary depending on the basis for termination.

Depending on the dollar amount and the physician’s career objectives, it may be worthwhile to sacrifice severance payments for a less onerous noncompete provision.

Typically, an employer will provide malpractice insurance for its physicians during the term of employment. However, physicians may be responsible for the cost of “tail coverage” upon the termination of employment. This is designed to protect the departing physician’s professional acts after leaving the employ of an employer with claims-made coverage. Because the coverage can be quite costly, a well-drafted employment agreement often will set forth which party is responsible for the procurement and payment of tail coverage. It is prudent for a departing physician to review the employment agreement to identify who has the affirmative obligation to provide the tail coverage, as it can be a costly surprise at termination.

The employment agreement also must be reviewed to determine the proper method to provide notice of termination (such as first-class mail, overnight courier, or hand delivery). Often, employment agreements will include a clause titled “Notice” that outlines the delivery method for proper notice to the employer.

Step 2: Consider a Termination/Separation Agreement

Entering into a termination agreement (sometimes referred to as a separation agreement) between the departing physician and the employer may address and resolve many of the outstanding issues that are not otherwise addressed in the employment agreement. A termination agreement may avoid unnecessary problems down the road and potentially acrimonious and costly litigation.

The termination agreement can fill in the gaps where the employment agreement is silent (or if an employment agreement does not exist). The key elements of a termination agreement often include:

  • The effective date of the separation as well as what exactly is ending (e.g. employment, co-ownership, board membership, medical staff privileges);
  • Payment and buyout terms;
  • The physician’s removal from any management or administrative position (e.g. member of the governing board);
  • Deferred compensation payments or severance pay that may need to be calculated and distributed;
  • Employer obligations (if any) to provide the departing physician’s fringe benefits and business expenses, including retirement-plan contributions, health insurance, life insurance, medical dues, etc.; and
  • Unused vacation days, bonuses, or expenses due.

If previously addressed in the employment agreement, the parties should reaffirm their respective rights and obligations regarding medical records, confidential information, noncompetition and nonsolicitation provisions. Otherwise, the termination agreement should identify the physician’s competitive and solicitation activities post-termination.

A noncompetition provision should include the geographic territory in which and the time period during which the departing physician cannot compete with the former employer. It is important to remember courts will render these provisions as unenforceable and invalid if improperly drafted or overly broad. It is common to see nondisparagement provisions, whereby each party agrees to refrain from making any negative or false statements regarding the other. Nondisclosure provisions are common as well with regards to what may be disclosed to third parties.

The separation agreement also should address the return of company property, including office key, credit card, computer, cell phone, and beeper. Patient records and charts should be completed and returned to the employer. Often, the departing physician will still be allowed reasonable access to patient records post-termination for certain authorized purposes (e.g. defending disciplinary actions, malpractice claims, and billing/payer claims and audits), usually at the physician’s own expense.

The termination agreement may also outline how patients will be notified about the physician’s departure. If a patient wishes to continue treatment with the departing physician, the former employer must be ready to transition the patient.

A well-written termination agreement will provide for mutual releases. However, there are often exclusions from the mutual releases, such as pre-termination date liabilities; medical malpractice claims resulting from the physician’s misconduct; or taxes, interests, and penalties covering the pre-termination date.

Step 3: Severance Pay

Depending on the circumstances surrounding the termination and employment agreements, a physician may be entitled to severance payments beginning on the date of termination and/or for a period of time post-termination. The departing physician should determine whether severance is appropriate and whether he or she is willing to forego severance payments in exchange for other benefits. Depending on the dollar amount and the physician’s career objectives, it may be worthwhile to sacrifice severance payments for a less onerous noncompete provision, for example.

Step 4: Take the High Road

Because you never know when your paths might cross with former coworkers or employers, it is always sensible to remain discreet and level-headed during this trying period. Although it is natural to discuss an impending move with others, a prudent physician will avoid water-cooler gossip.

In the event conflicts arise, limit the public disclosure of these disputes. Neither side wins the public relations battle, and often, both sides lose. This is a circumstance where experienced legal counsel can be invaluable as you navigate these potentially rocky waters. You would be well served to seek legal advice to discuss your intentions before making an actual move.

As always, remember conversations you have with counsel are typically protected by attorney-client privilege. It is always advisable to secure legal counsel to review the terms of an employment agreement, negotiate a fair termination/separation agreement, and serve as an advocate during this challenging career move.


Steven M. Harris, Esq., is a nationally recognized healthcare attorney and a member of the law firm McDonald Hopkins LLC in Chicago. Write to him at sharris@mcdonaldhopkins.com.

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