JumpStart: Understanding Employment Contract Basics: Term & Termination
Too many physicians coming out of training, faced with an employment contract, believe, “If I want the job, I need to sign.” Not necessarily. And, even if a prospective employer considers the contract “nonnegotiable,” a legal review is still helpful to ensure you understand what is expected of you and what you can expect from your employer.
An employment contract is designed to establish, in writing, a shared understanding of each party's obligations during and after employment. ASNC is working with my colleagues at Alice G. Gosfield and Associates, PC, and me on a series of articles intended to help its members gain a better understanding of what contractual terms generally mean. Here we focus on clauses relating to the “term” of the agreement and to termination. These are two of the most important sections of an employment contract.
The “term” of the contract is the length of time for which the contract will last. Typical employment contract terms range from one to three years. However, the “effective date” of the contract—the date on which it becomes legally binding—may not be the date that both parties sign the contract; it may be later. Likewise, your start date may be different from the effective date, to allow you to obtain a license in the state (e.g., if you are moving to a new state) or to complete insurance credentialing paperwork. The effective date also usually controls when the contract will end or renew.
Some contracts renew automatically, meaning no renegotiation is necessary; the same terms that applied before will continue to apply until the contract renews again or terminates. Others terminate at the end of the term, meaning the parties must renegotiate if they want it to continue. Automatic renewal can be convenient, but renegotiation may offer opportunities to ask for more favorable terms.
All contracts can be terminated by the mutual agreement of both parties. However, most contracts allow the employer to terminate “for cause.” “Cause” usually includes problems such as breaching the contract, losing one's license or other required certifications, endangering patients or being excluded from an insurance program. Ideally, the employee can also terminate for cause if the employer breaches, declares bankruptcy or is excluded from federal healthcare programs.
In many cases, the employer can terminate “without cause”—meaning no reason is needed for termination. Ideally, the employee also can terminate without cause. Termination without cause usually requires that the terminating provide advance written notice of its intent to terminate to the non-terminating party. The length of this notice period can vary from as few as 15 days to as long as six months, although many contracts require 90 days' notice.
Some contractual obligations survive termination. These can include restrictive covenants, confidentiality obligations, records access, arbitration clauses, etc. The surviving provisions may be stated in the termination section, scattered throughout the contract or both.
It is important to understand the term and termination clauses in any employment contract you are considering signing. These clauses tell you when the contract will begin; how long it will last; and how, why and when the contract can terminate. In our next article, we will address representations and warranties.
Daniel F. Shay is an attorney with Alice G. Gosfield and Associates, P.C., a practice restricted to health law and health care regulation, focusing primarily on physician representation. He has focused his attention on electronic health records license agreements, enrollment in Medicare, quality reporting and quality measurement, physician use of non-physician practitioners and physician use of social media. He regularly represents physicians in reviewing and negotiating their employment agreements. He speaks publicly and has published on all of these topics.