Author: Ericka L. Adler, JD, LLM
Medscape Business of Medicine>Legal Corner
Hi, everyone. I’m Ericka Adler, shareholder and leader of the healthcare practice at Roetzel & Andress.
An important element of your employment agreement is how it can be terminated. We often focus on how you get started in your job, but you also need to understand how it can also come to an end.
Expiration vs Renewal: Know What You’re Signing
Typically, a contract will continue until somebody does something to terminate it. However, some contracts include an expiration date. If your contract expires, you may want to discuss this with the employer.
I’m not a fan of contracts that expire because people often forget, and when you’re working without a contract, some of the protections on which you are relying may no longer apply.
Either have the contract automatically renew, or if there’s going to be an expiration date, try to include language requiring that, 5-6 months before expiration, you are offered a new contract to consider or you start looking for another job. It takes about that long to find something and get it signed, so make sure you don’t miss that window of opportunity.
Key considerations for expiring contracts:
- Does the agreement automatically renew?
- Is there advance notice before expiration?
- Do you have enough time to secure a new position?
Nonrenewal: Don’t Miss the Window
If your contract does not expire and instead continues until somebody does something to terminate it, it’s important to understand how it can be terminated.
There are a variety of ways in which this can occur.
One way is that the contract can be nonrenewed. Many contracts are written to run for a 1- or 2-year term, and then automatically renew from year to year. This is called “evergreen language.”
However, nonrenewal language allows a party to give advance notice that they don’t want the contract to renew. Typically, this notice period is 90-120 days, and it’s easy to give this notice if you’re aware that you need to give it. If you miss that window, the contract will renew, and may not be able to give that notice again until an entire year or more has passed.
Termination Without Cause: Your Flexibility
For that reason, it’s important that physicians don’t sign contracts that only allow termination based on nonrenewal. Instead, you should look for “termination without cause.”
“Termination without cause” allows either party to terminate the agreement with advanced written notice.
On average, in physician contracts, that’s about 90-120 days. Sometimes it can be longer, but rarely is it shorter. Less than 90 days can be problematic, considering how long it takes to interview for a job, relocate, obtain state licensure, get on the medical staff, or get recredentialed. That can easily take 3-4 months.
Keep that in mind when considering how much notice is required in a contract. What’s important is that both parties should have to provide the same amount of notice when possible.
What to look for in termination without cause:
- Notice period (typically 90-120 days)
- Equal rights for both parties
- Enough time to secure a new role
When Employers Accelerate Your Exit
When you give notice, has the employer given themselves the right to accelerate your termination date? For example, you give your proper 90 days’ notice, and the employer says, “Well, thank you. We’ll consider today your last day.” Unfortunately, that’s not uncommon.
What’s important is that if the employer does this, they continue to pay you for the entire notice period and maintain your benefits, even if they’re not allowing you to work.
Pay special attention if you’re paid based on production. The contract should specify how compensation will be calculated — typically based on your average production prior to when notice was given. This type of provision is showing up in more contracts, and all doctors should look for it.
Protect yourself if termination is accelerated:
- Continued salary through the notice period
- Benefits maintained through the notice period
- Clear formula for production-based compensation
Termination for Cause: Objective vs Subjective Risks
Other than termination by non-renewal or termination without cause, there’s “termination for cause.” Most contracts will have a provision that allows a party to terminate by giving notice when they think the contract has been breached, and an opportunity for the breaching party to fix it.
If it’s fixed, the contract does not end. If it’s not fixed, the contract will end at the end of the period that’s given to fix the problem. Make sure your contract allows both parties the right to give this kind of notice.
Other than that, there’s also “termination for cause” for obvious reasons:
- Loss of medical license or Drug Enforcement Administration registration
- Removal from medical staff
- Exclusion from Medicare or Medicaid
- Loss of insurability
I can assure you that you’re not going to be able to negotiate these types of provisions.
However, sometimes “for-cause” provisions can create issues. They can be quite subjective. Examples include failing to meet employer standards or conduct that may affect the employer’s reputation. When you see these provisions, it’s important to look at them carefully.
First, consider whether the issue is curable. If so, request language allowing notice and an opportunity to fix it when feasible.
Avoid provisions granting the employer sole discretion over subjective determinations. Instead, request that any of those grounds for termination be based on the employer’s reasonable, good-faith determination.
These types of small changes will often be accepted, whereas asking for a provision to be removed entirely is unlikely.
What to negotiate in subjective clauses:
- Opportunity to cure alleged breaches
- Removal of “sole discretion” language
- Use of “reasonable and good faith” standards