Physicians: How to Terminate Your Employment Contract

If you are a physician and ready to terminate your employment contract, this blog is for you. The following is a general outline of important contract clauses and legal issues that you will likely need to consider, but each employment contract is a little different. You will need to review yours in detail to see if there are any other important issues unique to your contract.

Hint: Terminating your contract probably does not involve rapidly calling all of your clients, leaving only with Tidwell and Cushman, only to lose Cush on draft day #nohandshakeagreements

Moonlighting Before Termination

I often recommend physicians consider moonlighting somewhere else before terminating their employment. It may be prudent to negotiate your current employment down to a .75 FTE (often the minimum to obtain employer benefits) or less for a period so you can more fully evaluate your options. You will want to evaluate your contract and consider whether moonlighting is allowed and under want conditions. Some contracts forbid moonlighting entirely, while others allow moonlighting outside of the non-compete. Specialties differ here, and some specialties may offer more moonlighting opportunities than others. Having viable moonlighting opportunities can create an easier glidepath out of a job that is no longer attractive for you, assisting you in an orderly transition. Moonlighting may also allow you to test out a potential employer and get a feel of whether the new employer may offer what you are not getting from your current employment. Most physicians have a good reason to leave their current employment and will want to avoid the same issue at a new employer. Moonlighting may also give you more negotiating leverage during your termination notice period as further discussed below.

For Cause Termination OR Without Cause Termination?

There are likely very different rules in the contract regarding whether the physician is terminating for cause or without cause. Without cause usually requires no reason or explanation. For cause often requires the physician to have a reason outlined in the contract for why they are terminating. For example, physician employment contracts often require the employer to pay the physician appropriately and provide appropriate staffing and office space for the physician to perform the work. There may be an opportunity to leverage this provision or another breach of contract to negotiate more favorable exit terms. Each situation is a little different, and you will want to investigate your termination options.

Malpractice Tail Coverage

Most physician employment contracts include malpractice tail insurance coverage, but some do not. I see lack of tail coverage most often in physician contracts with small private practices. Some specialties have relatively cheap coverage, but some do not. I recommend you price out your tail coverage before you terminate, and make sure you have enough saved up to buy an appropriate policy right away.

Termination Notice Period

Most physician employment contracts require a physician terminating their contract to give 90 to 180 days of notice and continue working for the employer throughout that period. Physicians who leave on short notice and do not follow this provision can face hefty lawsuits and will likely owe their prior employer damages. I very rarely recommend a physician breach the termination notice period.

However, make sure you are paid out appropriately. Almost all physician employment contracts require the employer to continue employing you and paying you during the notice period. Some physician contracts include some statement about being paid out fairly and treated reasonably during a termination notice period, but some do not. If you are paid on base compensation, then this may be less of an issue for you as you should simply be able to obtain your normal pay. However, if you are paid on productivity, watch out for your employer unfairly reducing your productivity or inappropriately removing staff and support from you. For physicians on productivity, it may be very prudent to have a lawyer remind the employer of their duties under the employment contract and the general duty of good faith and fair dealing for all contracts.

If your employer stops paying you and refuses to honor the notice period, it is time to call an attorney.

Non-Compete and Non-Solicit

The “Restrictive Covenants” are most often two provisions; the “Non-Compete” and the “Non-Solicit.” They restrict what the physician can do when the employment ends. You will want to look very closely at the terms of your restrictive covenants and investigate whether your next position practicing medicine violates them. For any close calls, I recommend reviewing it with an attorney.

The three main issues for the non-compete are time, scope, and geographic location. Time is almost always calculated from the last day of work, not the date of your notice of termination. Regarding scope, some non-competes are limited to the precise type of medicine you were performing for the employer (like Addiction Psychiatry) and does not extend to all practice of medicine (like general Adult Psychiatry). Some extend to the entire practice of medicine. Check yours closely.

Regarding geographic location, the location is most often measured in miles from the primary practice location (but watch out for multiple locations!). Distance is almost always measured in a straight line and not based on driving miles. I like to use calcmaps.com, but there are other options.

The non-solicit considers what you can say or do with your former patients. If you do not have a patient panel, then this likely will not apply to you. However, if you have a patient panel then your employment contract will likely restrict whether you can solicit former patients. “Solicit” may be specifically defined in the employment contract (look there first), but “solicit” means to try to persuade someone to do something, like be your patient at your new job. You likely cannot reach out directly to your patients and ask them to come with you, but each contract is a little different regarding what else you can do. General advertisements are likely to be alright.

Also, watch out for limitations on what you can do with co-workers. The non-solicit may extend to encouraging co-workers (physicians and staff) to come with you to your new employment.

Confidentiality

Another restrictive covenant is Confidentiality, and it applies during and after your employment. The majority of physician contracts have a provision that speaks to confidentiality, but this is not uniform. Here is a sample:

Section 10 Confidentiality

During the term of this Agreement, Physician may have access to and become acquainted with various trade secrets, consisting of business accounts, confidential financial information and other records of members of Employer (some of which may be developed in part by Physician under this Agreement), which items are owned exclusively by Employer and used in the operation of its business including, but not limited to, information that Physician obtains as a consequence of Physician’s employment, medical and business services, patients, customers, suppliers, vendors, lenders, investors, marketing strategies, employee relationships, contractor relationships, other business relationships, personnel activities and procedures, billing, computer systems, and patient records, specialized computer software, financial condition or business plans (the “Restricted Information”). Physician acknowledges that the Restricted Information for Physician’s own benefit or for the benefit of any other person or entity without the prior written consent of Clinic.

Whew! That is a lot of legalese. I have tried to highlight the provisions that are most likely to be breached by a physician during and after their employment. Bottom line here is to be thoughtful about what you say about your employer, even after the employment has ended. Be careful if you are encouraging or discouraging a potential new hire, and how you handle any business information you may have about the employer.

In the majority of cases, I believe a general discussion about your employment with someone else is unlikely to breach the confidentiality provisions of the contract. However, if you share in a public way how much all of your co-workers make and their strategic business plans of closing and opening locations, you may have some issues under the confidentiality provision.

Tips on HOW to Terminate Your Employment

Employment agreements likely have a provision that explains a formal process for how a notice of termination must be delivered. An off-hand comment to someone in the office is unlikely to be sufficient. I recommend a formal letter to be delivered in the specific way outlined in the contract.

You can negotiate your termination. You may be in a favorable position to give the employer something in return for something else. The employer may be willing to negotiate tail coverage, the non-compete and non-solicit, termination notice period, or anything else of value. You may be able to buy the employer out of any of these provisions. If part of your termination is something to do with an employment legal claim, like harassment, discrimination, etc., then I recommend you discuss with an attorney before you waive any rights or sign any settlement agreements that release any legal claims.

Finally, I highly recommend that a physician wait to terminate their first job until they have fully negotiated the new employment. Having a job gives you leverage when negotiating your next job. Your next employer will likely feel more pressure to agree to your requested contract changes and you may end up with a better contract if you pause on terminating your first job.

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