Physician Contract Termination: How to Protect Your Interests

Physician contracts are legally binding documents that contain all the terms of your employment. In addition to details about your salary and benefits, contracts also include termination clauses.

The termination clause is a key part of the contract, both for physicians and employers. Before ending your contract or firing an employee, it is important that you understand every aspect of the termination clause.

Ready to learn more? Here is our guide to physician contract termination and how to protect your interests.


The Importance of the Termination Clause

The termination clause is one of the most important elements of any contract. It is designed to protect both the physician and the employer, but for different reasons.

How a Termination Clause Protects Employers

The clause prohibits a physician from quitting without notice and leaving a practice short-staffed. A termination clause includes protective covenants to protect your business, as well.

How a Termination Clause Protects Physicians

For physicians, it offers a different type of protection.

If your contract specifies with cause termination, your employer will need a reason to fire you.

If you have without cause termination, your employer will have to provide you with advanced notice that your contract is going to end early.

Both sides benefit from a thorough and detailed termination clause.

Related: Can You Negotiate Physician Contracts?

What Employers Need to Know About Termination Clauses

What physician employers should know about termination clauses
Physician employers need to pay special attention to how they word termination clauses in their contracts.

Don’t fire a physician unless you understand all aspects of the termination clause of the contract. Failure to understand the contract can result in lawsuits or the need for you to pay extra compensation or other fees.

Here is everything physician employers need to know about termination clauses.

Physicians — the following section gives insight into what employers may be thinking about or considering before ending your contract, so take note.  

Things to Think About Before You Fire a Physician

Thinking about firing a physician that’s still under contract?

Here are the main things to consider before doing so.

Do You Have a With Cause Contract?

Make sure you abide by the with cause or without cause agreement. If you have a with cause termination contract, you’ll need to make sure you have a justified reason for letting the physician go.

Justifiable reasons include loss of hospital privileges, licenses, or participation status with insurance providers. You will also have just cause if the physician breaches the contract or demonstrates willful misconduct.

To protect your hospital or medical group, make sure the contract lists every reason that meets the “with cause” criteria.

Employers can benefit greatly by having a without cause termination agreement. Under this type of contract, you can fire a physician for any reason or no reason at all. Without cause terminations are also less likely to result in litigation and wrongful termination lawsuits.

Who Will Pay for Tail Coverage?

Tail coverage is essential, as patients may sue the doctor or hospital after their malpractice insurance policy ends. This protects both the doctor and the hospital, so it is important to decide ahead of time who will be responsible for paying for tail coverage.

Some contracts stipulate that the employer and physician will split the cost of tail coverage 50/50, regardless of whether it is a with cause or without cause contract. However, it is common for with cause contracts to require the physician to pay and without cause contracts to state that the employer will pay.

Know your financial obligations regarding tail coverage before you end a physician’s contract early.

Make Sure You Abide by the Notice Period

Termination clauses include a certain amount of time that you have to give notice to the physician before ending their contract. If you are planning to fire a physician, be sure to give them the proper amount of notice.

In a without cause contract, failure to give the physician the proper amount of notice may result in having to pay them compensation anyway.

For example, if the contract requires 90 days’ notice and you only give 30 days’ notice, you will have to pay compensation and benefits for those additional 60 days.

Consult With Your Legal Counsel 

Before firing a physician or ending their contract early, consult with your legal counsel.

All hospitals and large medical groups have legal staff, so make sure they are aware of your plans to end a contract early. They will also be able to prevent you from breaching the contract in any way.

Are you a physician in private practice that doesn’t have a lawyer on staff? Physicians in private practice who want to fire a physician employee should always seek legal advice and hire a healthcare attorney that specializes in contract termination.

Make Sure You Have Restrictive Covenants in Place

Restrictive covenants are the best way for employers to protect themselves when a physician contract ends. Non-compete clauses and non-solicitation agreements are common in employment contracts of all types.

The non-compete clause restricts physicians from working for a competing practice or hospital within a certain distance for a certain period of time. In some states, these are not enforceable.

The non-solicitation clause is enforceable and states that physicians may not recruit patients or other employees to leave the employer with them.

Will You Have to Pay Post-Termination Compensation?

Depending on the termination clause in the contract, employers may be required to pay severance packages or extended benefits to physicians fired without cause. If you don’t want to have to pay post-termination compensation, make sure it is clearly stated in the contract.

What to Do if a Physician Terminates Their Contract Early

Employers also need to know what to do if a physician decides to quit or terminate their contract early.

Patients deserve continuity of care. And that means that employers must make sure that the physician is up to date on all medical records for all patients. Patients have the right to make a smooth transition to a new doctor.

If a physician tells you that they want out of their contract, make sure they follow the proper patient notification procedures.

To eliminate or minimize any lapse in patient care or staffing, employers can hire locum tenens physicians to fill in for the physician leaving. This is especially important to do in private practices and small groups that have a limited number of physicians on staff.

Hiring even a temporary physician can help maintain productivity levels and maintain consistency as to how many patients are treated.

What Physicians Need to Know About Termination Clauses

Physician termination clauses
It is crucial that physicians understand the terms of their employment contract – especially the termination clause.

If you’re thinking about quitting and terminating your own job before your contract ends, there are a few key things you’ll need to know.

Things to Consider Before Ending Your Contract Early

Make sure that you understand all your legal obligations. These extend well beyond the basics, such as when you need to give notice. In fact, legal obligations can have serious ramifications if you quit before your contract ends.

If you’re considering ending your contract early, consult with legal counsel. Provide them with a copy of your contract and ask them to explain the potential pitfalls and obligations you might not be aware of.

Restrictive Covenants and Non-Compete Clauses

It is very common for contracts to include restrictive covenants. These restrictions can significantly impact your ability to practice medicine.

One of the most common restrictive covenants is the non-compete clause. Employers often impose restrictions that prohibit you from practicing medicine within a certain geographic area for a certain period of time.

These geographic restraints and time frames could force you to have a much longer commute or to have to move to a different city.

Because physicians work for the public interest, many states do not enforce non-compete clauses. Talk to your legal counsel to see what the standard is in your city or state.

Financial Obligations

Terminating your contract before its end date can cost you. You may be required to pay for tail insurance or need to reimburse the hospital or healthcare group for recruitment costs.

Tail insurance is essential, as it is an extension of your medical malpractice insurance.

It is not uncommon for patients to file malpractice lawsuits years after treatment. Tail insurance is designed to protect you in that scenario. Keep in mind that if you terminate your contract early, paying for tail insurance may become your responsibility.

There may even be instances where a physician is required to reimburse for recruitment costs.

If the hospital or employer incurred costs to recruit you as an employee, you may have to pay those back. This is one more example of why it is so important to hire a contract review specialist. Don’t sign any contract (or try to terminate one) until you understand all of your rights, restrictions, and obligations.

What You Need to Know if Your Employer Terminates Your Contract

If your employer ends your contract early, there are some steps you can take to protect yourself.

First of all, check the terms of your contract to determine if you have a with cause or without cause termination agreement.

Most without cause contracts require that employers give you between 30 and 120 days of notice. If your employer gives less notice than required, you should still be able to receive compensation and benefits for the duration of that time.

Moreover, if you are terminated with cause, make sure that the reason is justified. If, for any reason, you think your employer does not have just cause to end your contract, seek the advice of legal counsel. You could be eligible for severance pay, or you may even want to file a wrongful termination lawsuit.

Related: How to Work With a Physician Recruiter

The Termination/Separation Agreement

The best way for both physicians and employers to protect themselves is to draft and sign a separation agreement.

If there are issues not addressed in your original employment contract, it is in your best interest to create a separation agreement. This protects both the employer and the physician. Its purpose is to serve as a summation of all of the obligations, terms, and provisions that will go into effect upon contract termination.

A separation agreement should include details regarding unused PTO, severance pay, and benefits packages. It should also include information about restrictive covenants and all things that will come to an end. Such as hospital privileges or medical staff privileges.

Separation agreements should also detail the returning of employer-owned property, the need to complete patient records, and patient notification.

A separation agreement is in the best interest of both the physician and the employer. Regardless of who initiates the termination of the contract.

Income protection is crucial. Read our Disability Insurance Guide for Physicians.

The Importance of a Contract Review Specialist

Physicians should always hire a contract review specialist before signing any contract. Contract review specialists know exactly what your contract should and shouldn’t include. They ensure your termination provisions are fair and just for both parties involved.

It’s impossible to know the future. To protect your interests, should you ever decide to end a contract, it’s vital to have your contract reviewed by a specialist.

If you’re dissatisfied with your employer, you can quit, but your employment contract will bind you to certain legal obligations. Ending your contract early can put you in a position where you may have to pay excessive fees or abide by restrictive covenants.

Ending a physician contract can have serious implications for both the physician and the employer. Both sides need to protect their own interests, so it’s critical that you know ahead of time what the other side wants.

While jobs in the healthcare sector are increasing year over year, the medical community in some regions tends to feel small.

Having a solid, sound contract prior to employment and a separation agreement post-employment is the best way to protect your personal relationships within the community. And leave you open for opportunities in the future.

Always hire a contract review specialist before you sign a contract to protect your future finances and your self-interests.

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