Watch out for disguised or indirect non-compete clauses in physician contracts
One of the biggest issues new hires of medical groups deal with is misunderstanding the enforceability of restrictive covenants and non-compete clauses. Add to this the trickiness of employers telling them “we do not have restrictive covenants” when other provisions exist that essentially act as restrictive covenants. For example, an employer may offer a position with “no restrictive covenants” but the physician contract has a termination fee that acts as an indirect “restrictive covenant buyout.”
A physician contacted our advisory group with two employment offers. Both offers had provisions that forced him to write a check to the employer if he terminated the physician contract before it reached its full term. The first physician contract required him to pay a pre-defined lump sum within 60 days of termination and the second stated the following:
“Physician and employer recognize and agree that the damages associated with such a breach are difficult, if not impossible, to estimate accurately at the time of this agreement. Therefore, in the event of physician’s termination…physician shall pay on demand to the employer 35% of his annual base salary…”
While it might be technically correct to say “we don’t have restrictive covenants because they are too hard to enforce or assess the amount of damages,” physicians need to examine the whole picture. The kind of statement “we don’t have restrictive covenants” should always be taken with a grain of salt because, in the end, after reviewing the details of the offer, a physician may find that even though they are not restricted to practice their specialty in a certain geographic area for a period of time, they may have to cough up tens of thousands of dollars to satisfy the employer for the harm caused by the physician leaving.
Removing the mystery associated with termination provisions is key for doctors to have no regrets when signing physician contracts. Physicians who want more information on this topic, have questions, concerns or want to talk with a physician contract expert can do so by going to the Contact Us page. We’d be happy to expose disguised or indirect restrictive covenants and help the doctor know how to handle ambiguous language in physician contracts.
For more info on income protection, read this: Disability Insurance for Physicians.