Physician Employment Mobility: Options & Constraints Under Your Physician Employment Agreement

If you are a doctor considering a change in employment, the contract you signed when you accepted the job will provide important guidelines and restrictions regarding your options. Your Physician Employment Agreement will dictate:

  • how you can end your employment
  • any limitations on for whom you can work, and
  • repayment obligations you may have for financial incentives you received at the start of your employment

Doctors interested in changing employment should pay particular attention to the following terms of their physician employment agreement:

  • termination clauses
  • noncompetition provisions
  • repayment terms for a signing bonus
  • reimbursement for moving expenses, and/or
  • student loan forgiveness (“signing perks”)

This article addresses those key terms of your Physician Employment Agreement, as they become particularly important when a doctor transitions from one employer to another.

Noncompetition Provisions and Repayment Clauses Apply Even If Your Employer Terminated You

A common myth is noncompetition provisions and repayment clauses apply only if you quit or resign. This is not usually true.

If an employer terminates your employment, noncompetition provisions and repayment clauses still apply. Carefully read any noncompetition provision and repayment clauses for “signing perks,” so you fully understand your obligations.

Termination Clauses Will Determine How Your Physician Employment Agreements Can End

Physician Employment Agreements can end in several ways:

  • the agreement term expires
  • a party declines to renew the Physician Employment Agreement
  • a party exercises a termination clause during the term of the Physician Employment Agreement

The term expires at the end of the last year of the term of the Physician Employment Agreement. For example, if you have a three-year Physician Employment Agreement, it will expire at the end of the third year.

If your Physician Employment Agreement includes renewal provisions, it will expire at the end of the term if no party exercises the renewal option, or you or your employer opt out of an automatic renewal provision.

Most Physician Employment Agreements include a termination clause to give each party the option to end the Physician Employment Agreement during the term upon simply giving the required written notice of their intent to end the Physician Employment Agreement. This is the termination clause most frequently used by physicians who want to change employment before the end of the term of their Physician Employment Agreement.

Here are the most common termination provisions physician employment agreements:

  1. Termination by Either Party for Any Reason After Giving Notice

Your Physician Employment Agreement may provide that either you or your employer can terminate the Physician Employment Agreement by simply giving one another the requisite amount of advance notice. No reason need be given. Notice provisions typically range from 30 to 180 days.

For example, if your termination clause requires 60 days written notice to terminate the Physician Employment Agreement, you can determine your last day of employment and tell your employer in writing at least 60 days before that date.

Because notice periods usually are the same for both parties, when you negotiate your Physician Employment Agreement, you will not be able to predict whether a longer or shorter notice period is better for you. The shorter the notice period is preferable for you if you want to change employers during the term of your Physician Employment Agreement. A longer notice period is better for you if your employer elects to end the Physician Employment Agreement before the end of the term so you can look for a job while you continue to earn income in your current job.

  1. Mutual Agreement to Terminate

You and your employer can agree to end your employment before the end of the term upon mutually-acceptable terms. No notice period applies because you and your Employer select a mutually-acceptable termination date.

The most common situations when this occurs is when there is a significant change in ownership or management of your employer, or a significant change in your practice area.

  1. Termination for “Cause”

The most immediate and sometimes unexpected end to a doctor’s employment occurs if an employer terminates the doctor for “cause”, since no notice is typically given and termination is effective immediately.

“Cause” provisions typically include a felony conviction, or when a doctor loses their medical license, medical staff privileges or malpractice insurance coverage. Some employers add terms that give them significant discretion to invoke “cause” for more subjective events, including drug or alcohol impairment that impairs the ability to practice medicine, failure to follow the employer’s policies and procedures, and conduct the employer determines will damage the employer’s reputation. These subjective provisions give an employer significant power to abruptly, and sometimes unfairly, end employment without notice. The fewer the number of subjective provisions in your Physician Employment Agreement, the better.

Right to Cure Provisions

One way to temper the potential adverse impact of subjective provisions is to include “right to cure” provisions.

For example, a Physician Employment Agreement could require that if the employer believes you engaged in “cause” behavior, the employer would have to give you written notice of what the employer claims are your deficiencies, and an opportunity to “cure” them within the stated “cure” period, usually 10 to 30 days. If you successfully “cure” the alleged deficiencies, you continue to work. If you do not, your employer can terminate you without further notice.

Although the employer has significant discretion even with a “right to cure” provision, the cure period frequently provides a cooling off period that can result in a finding a solution for the situation that has caused the problem and avoiding termination.

Physician Signing Perks May Include Pay-Back Obligations

If you received signing perks, such as:

  • Signing bonus
  • Reimbursement for relocation expenses
  • Student loan forgiveness

the terms of your Physician Employment Agreement may require you to pay back all or a part of those sums back under certain circumstances, including if you quit or resign before the end of the term, or if the Employer terminates you for “cause.”

Frequently, the amount of repayment of signing perks is prorated based upon the percentage of the employment term you complete before your resignation or termination. For example, if you complete two years of a five year term (40%), you may be required to repay 60% of the signing perks.

Your Physician Employment Agreement May Restrict For Whom You Can Work

Noncompetition provisions are frequently included in Physician Employment Agreements, typically restricting the geographic area in which you can work and what medical services you can provide, for up to 2 years. Non-solicitation provisions prohibit you from encouraging staff members to leave and/or taking staff members with you. Wisconsin law generally limits noncompetition and non-solicitation provisions to no more than 2 years, in a geographic area that matches the area in which you worked, and from providing the medical services you provided to the employer.

What is a “Restricted Area” in a Physician Noncompetition Provision?

Most physician noncompetition provisions prohibit a physician from working as a physician within a stated-mile radius, usually 15, 25 or 50 miles, of the locations at which the physician performed work for an employer. If you worked at multiple locations, the scope of the “restricted area” in which you are prohibited from working could be significantly larger than if you worked at only one site, or if your noncompetition provision limited the “restricted area” to the site at which you primarily worked.

For example, if your noncompetition provision provides that you are prohibited from providing medical services anywhere within a 25-mile radius of your work site at Columbia-St. Mary’s Hospital in Milwaukee, you may not work within a 25-mile radius of Columbia-St.Mary’s. If your noncompetition provision prohibits you from working within a 25-mile radius from any site at which you devoted at least 20% of your time, and, in additional to your primary work at Columbia St. Mary’s, you spent 25% of your time at a clinic in Elm Grove, you would not be able to work within the 25-mile radius of either Columbia-St. Mary’s or your Elm Grove location.

What “Medical Services” Are You Prohibited From Providing?

Your non-competition provision will likely prohibit you from providing the “medical services” you provided to your employer. Some noncompetition provisions define “medical services” as those you provided in the 12 months prior to termination. This can be important if the type of “medical services” you provided for the employer changed over time.

For example, if you worked as an emergency room physician in the first few years of your practice, but shifted to a hospitalist role in recent years, a 12 month look-back provision would limit the “medical services” you are prohibited from working as a hospitalist, but not as an emergency room physician. In that circumstance, if your noncompetition provision did not include a look-back provision, you would be prohibited doing either role.

The most restrictive “medical services” language is “any medical services” because that phrase would prohibit you from providing any “medical services”, including those you did not provide to the employer.

Restriction From Working for ”Competitors” Is an Alternative to a “Restricted Area”

Some noncompetition provisions prohibit you from working for their “competitors” rather than defining a radius in which you may not work. Because it is not possible to define the employer’s competitors until your employment ends, the definition of who is a “competitor” is frequently broad. In order to avoid a claim by you (when you end your employment) that under Wisconsin law, the definition of “competitor” is overly broad, your employer may be willing to identify a specific list of “competitors” as of the end of your employment.

If you know where you would like to work, and are confident your employer would not see that work as competition even though it would be covered by the definition of “competitors,” consider asking your employer for a waiver for your work with that particular employer. For example, Milwaukee-area health care providers sometimes grant waivers for work with the Veteran’s Administration, “free” clinics, or community-based clinics.

A Noncompetition Provision May Restrict You for Up to Two Years

Under Wisconsin law, the maximum period for a noncompetition provision is 2 years following the end of your employment. Most are for 1 year to 2 years.

Some health care employers link the noncompetition time period to the length of your employment, if that is shorter than the stated time period. For example, a Physician Employment Agreement could provide that the noncompetition provisions are for 2 years, or the actual length of the physician’s employment, whichever is shorter. Doing so avoids the unfair situation of a noncompetition provision that is longer than the actual length of employment.

What Options Does a Physician Under Noncompetition Restrictions Have to Change Employers?

If you are subject to a noncompetition provision, your options are:

  • comply with it
  • try to renegotiate it, or
  • ask a judge to declare the noncompetition provision unenforceable

Under Wisconsin law, if any material provision is inconsistent with the parameters established by courts for reasonableness, the court can declare it unenforceable.

Under Wisconsin law, if any portion of a noncompetition provision is deemed unreasonable by a court, the entire noncompetition provision is unenforceable.

The possibility that a court would find your noncompetition agreement unreasonable may give you leverage. Most employers would prefer to narrow a noncompetition provision to bring it into conformity with Wisconsin law than risk losing the protections all together. This applies to the length of the term the scope of the “restricted area,” or the definition of the “competitors” for whom you may not work, and what “medical services” you may not provide.

For example, if your noncompetition provision prohibits you from providing medical services in your specialty anywhere in Wisconsin even though you worked exclusively in southeastern Wisconsin, a court could find the scope of the geographic restriction unreasonable, and declare the noncompetition provision unenforceable.

Unfortunately, asking a court to make such a declaration is expensive and can take a long period of time, so it is usually not your best option. Negotiating a “restricted area” that matches where you worked may be a more time and cost effective solution.

Possible Consequences for Breaching a Physician Noncompetition Provision

If you breach your noncompetition provision, you risk your former employer obtaining a restraining order prohibiting you from working for your new employer, and an order requiring you to pay your former employer damages and their attorney’s fees.

Assuming your former employer will not sue you, based upon their failure to sue physicians who previously left, is risky because your employer’s actions to date do not necessarily predict what they will do in the future. Additionally, noncompetition provisions vary among Physician Employment Agreements.

Some States Prohibit or Limit Physician Noncompetition Provisions

A few states (ex. Connecticut and New Jersey) enacted or are considering legislation that prohibits noncompetition provisions for physicians, or limits the time period to no more than 1 year, and makes them enforceable only if the physician is terminated for “cause.” Wisconsin legislators have not yet shown interest in such legislation, but that could change if this type of legislation gains momentum.

If you consider taking a job outside of Wisconsin, pay close attention to state laws as they will affect your next Physician Employment Agreement.

Consult with an Employment Lawyer Who has Significant Experience Negotiating and/or Interpreting Physician Employment Agreement

Negotiating and interpreting an existing Employment Agreement is complicated for all of the reasons discussed above. Consult with an experienced employment lawyer for help construing your Physician Employment Agreement and making a logical, step-wise plan of action for negotiating the complex terrain of any potential change in employment. Contact Hawks Quindel, S.C. to discuss your specific situation with an attorney experienced with negotiating physician employment agreements.

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Katherine Charlton