Critical Terms in Physician Employment Agreements, Part III

Ed. Note.  Welcome to the third and final installment in a series analyzing the critical terms in physician employment agreements.  Part I can be found here. Part II can be found here here.

Post Employment Covenants

Given the growing competition that health care providers face, hospitals and group practices that employ physicians generally attempt to include strong post-employment restrictive covenants on physicians. The parameters of what is allowed are generally a matter of Illinois statutes and case law and the post-employment restrictive covenants should be reviewed by an attorney as they can significantly limit the opportunities available to a physician following a termination of employment. The post-employment restrictive covenants employers typically try to secure are: non-competition, non-solicitation of patients and employees and non-disclosure of confidential information.

1.            Non-Competition with Employer

Employers will commonly attempt to include a provision in the physician employment agreement stating that during the period of time the physician is employed and for some period of time (commonly two years) thereafter, the physician will not work for any other medical practice or healthcare provider that competes in the same geographical area as the employer.

The non-competition provisions of a physician employment agreement should be carefully reviewed to ensure that any restrictions on a physician’s ability to practice following the termination of the employment are reasonable in their length and geographic coverage. Moreover, the non-compete provision can only apply to those services actually provided by the employer and where it has a legitimate business interest to be protected by precluding the physician from competing with the employer for the stated period of time following the termination of employment.

While not directly prohibiting them, Illinois courts have hinted recently that non-compete provisions in physician employment agreements may unduly restrain trade and hinder access to care and that there are sound public policy reasons to allow the physician-patient relationship to continue following a termination of the physician’s employment, even if that patient relationship does compete with the previous employer’s business interests. This area of law will continue to evolve and bears close watching by physicians as courts and public policy makers continue to struggle with issues of patient access and competition in the healthcare marketplace.

2.            Non-Solicitation of Employer’s Patients and Employees

Healthcare employers want to protect their employee and patient relationships and will often insist that as part of the employment agreement, the physician agree not to solicit the patients and employees of the employer upon the physician’s departure.

3.            Confidentiality and Non-Disclosure

Along with the privacy rights of patients, employers often seek to safeguard confidential information related to their business operations. As part of the employment agreement with a physician, an employer will often require a physician to agree not to disclose or make accessible to anyone any confidential information of the employer. The type of information covered under such a provision includes pricing or business strategies, compensation or financial information, patient lists, patient files, patient records, charge data, price lists, contract forms and other books, records or files relating to the employer’s business operations.

Miscellaneous Provisions

1.            Governing Law

The state law where the employer is located will govern the interpretation of the employment agreement. This may seem an obvious point, but a physician relocating into a new state will have to become familiar with the important concepts of employment law, such post-employment restrictive covenants, in the new state.

2.            Alternative Dispute Resolution

Some commentators urge physicians to agree to alternative dispute resolution (“ADR”) procedures in an employment agreement. However, there is increasing body of thought that suggests that ADR might be just as time-consuming and expensive as going to court to interpret or enforce the terms of an employment agreement. Before agreeing to this provision, an attorney should carefully explain to the physician the benefits and drawbacks to including an ADR provision in the employment agreement.

Conclusion

As a physician’s practice develops and partnership is realized, the employment agreement should be negotiated and interpreted along with related agreements entered into between the physician and their new partners, such as shareholder/partnership and buy-sell agreements, and deferred compensation arrangements.

Regardless of the stage of a physician’s career, a physician should take control of the process of negotiating and documenting his or her employment agreement by consulting other trained professionals such as attorneys and accountants to ensure that the final result suits the physician’s professional and financial goals. Entering into an employment relationship also means that a physician should conduct due diligence on the prospective employer and inquire of colleagues and other informed sources on the reputation of the employer and the management style of its leadership.

In the end, employment agreements are the result of some give and take by both the physician and the employer, and when finally documented, accurately reflect the goals and intentions of the parties. Upon their completion and signature, the best employment agreements are filed away and only consulted in rare instances, if a process of open and candid communication was established by the parties during the recruitment and negotiating period. A well-drafted employment agreement provides the physician with a solid foundation for building professional and financial future, but to sustain a strong and mutually productive relationship with the employer over long period of time, a physician also needs to be a trusted colleague and a strong and informed advocate on his or her own behalf.

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Check back for future posts when we explore the negotiating process for physician employment agreements.

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About Bill Cadigan

WILLIAM J. CADIGAN is principal in the Law Office of William J. Cadigan, P.C. located in Chicago, Illinois. Before starting his own firm, Bill Cadigan was a member of the Health Industry Group of the law firm of Akin, Gump, Strauss, Hauer & Feld L.L.P.
This entry was posted in Physician Employment Agreements, Restrictive Covenant/Covenant Not to Compete. Bookmark the permalink.

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