JumpStart: Employment Contract Basics: Representations & Warranties
In the previous entry in this series, we addressed some basics regarding contractual language and discussed the length, or “term,” of a contract, and how a contract may be terminated.Now, we turn to language that may appear to be mere “boilerplate,” but carries greater significance than the many physicians may realize.
Representations & Warranties
When a party “represents and warrants” something in a contract, he or she is promising that the specific statement is true. This promise is treated as an inducement to the other party to enter into the agreement in the first place; if it were not true, the other party would never have agreed to sign. If you represent and warrant something that is later proven to be false, or which you later breach, then the other party may be able to obtain punitive damages against you.
Not surprisingly, the types of things that parties represent and warrant tend to be extremely important issues, such as –
- Holding and maintaining a license to practice medicine in the applicable state(s);
- Holding and maintaining Drug Enforcement Administration certification;
- Never having been excluded from federal healthcare programs;
- Not being the subject of an active investigation; or
- Remaining “in compliance with the law.”
The last two examples—not being the subject of an active investigation and remaining “in compliance with the law” —help to illustrate one difficulty of representations and warranties: What if you cannot say with absolute certainty that the thing you are representing and warranting is true? For example, what if you are the subject of a sealed or secret investigation? Likewise, how are you to know that you are “in compliance with the law,” especially given the highly regulated nature of the healthcare industry? In such circumstances, consider asking that the language be revised to a conditional representation and warranty, such as, “To the best of Physician's knowledge, Physician represents and warrants that Physician is not currently under investigation by any third party, and is and shall remain in compliance with all applicable laws.”
The timing of representations and warranties also can be tricky. For example, if the precise wording of a clause states, “Physician represents and warrants that Physician has, and shall throughout the term of this Agreement maintain, a valid license to practice medicine in the State of Delaware,” then on the date of execution, the physician must hold such a license. If the physician is moving to Delaware, however, and has not yet completed the licensure process, then the language will need to be changed so that the representation and warranty is accurate on the date of execution. The revised language might read “Physician represents and warrants that Physician shall obtain a valid license to practice medicine in the State of Delaware within thirty (30) days of the Start Date, and shall maintain such license throughout the Term and any Renewal Term of this Agreement.”
Because a breach of a representation and warranty can result in the imposition of punitive damages, it is essential for physicians to review contracts carefully and ensure that they can comply with the requirements of the representations and warranties.
Watch for the next issue of ASNC CareerStarter, where we will address restrictive covenants.
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.