Key Clauses Physicians Often Overlook in Employment Agreements

​​Employment agreements set the financial and professional landscape for physicians during their term of employment. These contracts include details on compensation, obligations, and protections that can have meaningful implications for daily practice patterns and longer-term career decisions. Physicians can best protect their income, strengthen negotiation position, and understand the risks and constraints of changing employers through careful consideration of important clauses.

Termination Clauses

Termination language specifies when and how an employment contract can be ended. While termination rules are common in physician employment agreements, important nuances may determine the difference between a physician being able to leave a position without problem versus becoming stuck and incurring unexpected expenses. Key provisions to consider include:

• Periods of notice required for termination without cause
• Definition and grounds for termination for cause
• Obligations of employer during notice period
• Obligations of physician during transition period
• Financial responsibilities of physician after termination

A notice period of ninety days might be reasonable for some positions, while in other cases more flexibility is required. Definitions of for-cause termination can vary significantly, and may include subjective language such as vague performance issues.

Review of each of the above provisions enables clear understanding of the circumstances for which a contract may be terminated, the conditions that result in financial penalties, and the clinical obligations of the physician during a transition period. These terms directly affect both professional mobility and income protection.

Non-Compete Restrictions

Non-compete clauses in employment agreements specify where and for how long a physician may not practice after leaving an employer. Common elements to non-compete clauses include:

• Radius of geographic restriction
• Duration of non-compete restrictions
• Scope of prohibited clinical services
• Circumstances of extension or increase of restrictions
• Language related to telehealth or virtual services

Restrictions with similar parameters may still have very different implications for physicians depending on market competitiveness and medical specialty. For example, a multi-zip code radius of restriction rather than a single municipal or county boundary could unnecessarily narrow future employment options.

Similarly, some employment agreements also seek to broadly restrict a physician’s activities rather than the care that the physician provides. In these situations, it is important for physicians to ensure the restriction is limited to what is reasonable, is enforceable under state law, and is proportionate to the employer’s legitimate business interests.

Malpractice Insurance and Tail Coverage

Employment agreements often require a physician to carry malpractice insurance and specify types of coverage. The most critical component of this section is whether the employer provides tail coverage or whether a physician will be required to purchase it independently. Key considerations include:

• Claims-made versus occurrence-based coverage
• Whether employer provides tail coverage at termination
• Allocation of tail coverage costs between parties
• Tail coverage required after without cause termination
• Cost and duration of required tail policy

Tail coverage can range from one to three times the annual premium. This is especially important if a contract requires a physician to pay for tail insurance, which could have substantial financial implications upon departure. These costs may drive negotiation tactics, impact long-term planning, and affect the overall attractiveness of the offer. Clear language about any post-termination coverage obligations also prevents significant financial liabilities.

Productivity Models and Formulas

Compensation formulas in employment agreements can vary widely based on health system, private practice, and academic environments. Physicians should carefully review calculations for productivity and bonuses. Key components to consider include:

• Work RVU formula
• Stability of conversion factor
• Quality incentive specifications
• Collections-based compensation requirements
• Timing of productivity reconciliations

Physicians Thrive’s latest Compensation Report indicates that almost 50% of physicians earn bonuses under RVU-based payment structures. Mismatch between expected clinical volume and the compensation formula can lead to underpayment, delayed bonuses, and unrealistic productivity expectations. Attention to each detail of the formulas helps physicians to anticipate income more accurately and to identify areas for negotiation to achieve better results.

Call Coverage and Compensation

Call coverage and compensation can have significant impact on the work-life balance and overall earnings. Employment agreements may contain terms that include:

• Frequency of call expectations
• Structured versus unstructured call schedules
• Compensation for additional calls
• Post-call obligations and restrictions
• Holiday call assignments

Unstructured call language often means an increasing workload without a commensurate increase in pay. Call expectations, in particular in multi-specialty group settings, can also escalate with time if clear boundaries are not set. Physicians should be sure the contract language specifies mechanisms for compensation related to additional call and that the schedules remain in a predictable framework.

Benefits, Support, and Resources

Employment agreements often detail the support physicians receive from their employers. Essential elements to consider in this section include:

• Ancillary staff support
• Equipment and technology resources
• Continuing medical education allowance
• Relocation or signing bonus
• Retirement and disability benefits

Inadequate staffing or limited access to clinical tools could prevent a physician from being able to meet productivity expectations. Benefits packages may also be a factor in the overall financial value of the contract and play a role in long-term stability and professional satisfaction. Review of each of these areas is key to aligning a contract with a physician’s practice goals.

Careful Contract Review for Physician Career Security

Employment agreements touch every aspect of physicians’ professional lives and impact decisions that have implications for income stability, mobility, liability exposure, and long-term financial planning. This article provided an overview of key clauses that, when addressed, put physicians in the best position to negotiate effectively, avoid unexpected costs, and prevent contractual limitations from constraining future opportunities.

A thorough legal and financial review of all parts of an employment agreement also gives physicians the clarity required to make informed decisions about accepting an offer. Physicians Thrive helps physicians with contract review, compensation benchmarking, malpractice insurance planning, and financial strategy. Contact our team today.