Key Considerations in Physician Employment Agreements

When it comes time to sign a Physician Employment Agreement, although many physicians may feel pressured to quickly sign their agreement, it’s important to fully understand the terms of the agreement and, if necessary, negotiate for more-favorable terms.

While it is often apparent that the terms of a Physician Employment Agreement can have a major impact on a physician in the near term, many physicians, especially junior physicians, don’t realize the restrictive effects certain provisions can have when it comes time for the physician to move on to the next opportunity. For example, some Physician Employment Agreements may try to place geographic and time restrictions on where and when a physician can practice following termination of their employment agreement.

Accordingly, it’s important for physicians to fully understand all terms and provisions of any Physician Employment Agreement presented to them. Nonetheless, some of the key provisions to pay special attention to include the following:

I. Independent Contractor v. Employee Provisions          

It’s important to verify if your Physician Employment Agreement calls for you to be hired as an independent contractor or as an employee. Generally, whether one is considered an employee, as opposed to an independent contractor, turns on the amount of control the hiring party maintains over the physician. Where as an employee’s actions are generally governed and directed by the hiring party, an independent contractor maintains greater autonomy in determining how they carry out their work.

Because an independent contractor classification turns on factors such as control, even if a contract uses the term “employee” or “independent contractor,” such language may not be determinative. Instead, it is important to analyze the contract (and any related documents, policies, rules, or procedures) as a whole, to determine the parties’ respective rights, authority, and control. The determination is significant however, as a physician’s classification as an employee versus an independent contractor can have a significant impact on what rights and benefits the physician is entitled to.

II. Compensation Provisions

As with any employment contract, it is essential that the provisions governing compensation in a Physician Employment Agreement are clear and unambiguous. This includes not only clearly specifying the structure in which a physician is to be compensated (i.e. salary versus commission), but also clearly stating when such compensation is due, how such compensation is calculated, and how such compensation will be paid out. This is especially true for contracts calling for a commission-based method of compensation; for example, numerous problems may arise where a Physician Employment Agreement is ambiguous as to whether commissions are based on the number of patients served or based on the amount of fees collected. Issues may also arise where a commission-based provision is not clear as to when such commissions are to be paid out.

Ideally, a Physician Employment Agreement will also include provisions that clearly address questions regarding bonuses, raises, and expenses.

III. Schedule Provisions

Although employment contracts—and, especially, Physician Employment Agreements—are often silent in regards to an employee’s or contractor’s schedule, because an employee’s or contractor’s schedule is often the driving force behind a contractor or employee’s compensation, if possible, it is essential to include clear language in a Physician Employment Agreement that lays out a physician’s schedule or the parameters governing it. Such language not only serves to help ensure a physician receives their anticipated compensation, but may also be used to help ensure a physician maintains an expected quality of life.

IV. Benefits Provisions

Benefit provisions are often tied to whether a physician is considered an independent contractor or an employee. Generally, although independent contractors are not entitled to most benefits, employees often are. This may be true even if a Physician Employment Agreement is silent as to what benefits are provided as many states mandate employers provide employees with minimum guarantees regarding paid leave, insurance, maternity rights, and other benefits. Accordingly, it’s important to understand what benefits are being offered in the Physician Employment Agreement itself, as well as what rights or benefits may be available by way of applicable local law.  

V. Physician Obligations

Given the various legal rules and regulations imposed on physicians in the practice of medicine, and given the nature of medical practices, it is important that Physician Employment Contracts contain clear provisions describing the various rights and obligations of both the employer and the physician with respect to not only complying with legal requirements, but also with respect to day-to-day operations. Accordingly, a Physician Employment Contract should clearly lay out, for example, what obligations the physician must abide by in terms of maintaining and protecting patient records, obtaining insurances such as malpractice insurance, and providing the employer with indemnities. Likewise, the Physician Employment Agreement should clearly describe what extent, if at all, the Physician will be responsible for administrative taks such as billing patients or dealing with insurers.  

VI. Non-Compete & Other Restrictive Covenants

Lastly, it is imperative that physicians understand what restrictive covenants a Physician Employment Agreement may place on them. Restrictive covenants are obligations placed on a party to a contract that may limit such parties’ rights. Although restrictive covenants may prohibit a physician from taking certain actions during the term of the agreement, many covenants survive the expiration of an employment agreement. For example, some Physician Employment Agreements may contain covenants restricting a physician from obtaining employment within a certain distance or time following such physician’s departure from the employer. Likewise, some Physician Employment Agreements may contain non-solicitation provisions prohibiting a physician from attempting to bring other employees with them in the event the physician changes employers or sets up their own practice. Such provisions can place a heavy burden on physicians, especially junior physicians, when it comes time for the physician to move on to new opportunities. Because laws governing non-competes, non-solicitation, and other restrictive covenants differ from state to state, it may be prudent for a physician to consult a local attorney to verify what restrictions, and to what extent such restrictions, may be enforceable. This is especially true in states like Colorado, which have recently enacted stringent non-compete statutes severely limiting employers’ ability to subject employees and contractors to non-compete, non-solicitation, and similar provisions. Although states like Colorado largely prohibit employers from placing non-compete provisions on physicians, and provide for harsh penalties where an employer fails to comply with applicable non-compete statutes, many employers nonetheless continue to include non-compete and non-solicitation provisions in Physician Employment Contracts and many physicians aren’t aware of the rights they may have regarding freedom of practice.  


If you need assistance with a Physician Employment Agreement, contact the Law Office of Nicholas J. Vail today to set up a free consultation.