Letters of intent are a normal part of the contract negotiation process and are the first step toward accepting a job offer. But you must be careful not to “tie your negotiation hands” when signing an offer letter.
While the terms of employment may seem very simple and straightforward, signing this before you fully understand the ramifications is not wise.
There are some key elements of a letter of intent that you should review. Preferably with the help of a physician contract negotiation lawyer to ensure you don’t back yourself into a corner before the negotiation even begins.
What is the Purpose of a Letter of Intent?
When an employer sends you a letter of intent, you should feel confident that they are serious about offering you a position. A letter of intent is only sent out to those who meet their requirements.
This letter of intent is an official job offer. Just as it is serious from their end, it shouldn’t be signed unless you are serious about potentially accepting an employment agreement offer.
Understandably, many physicians and healthcare employers consider the signing of a letter of intent as a mere formality of the hiring process, but it is much more than that and shouldn’t be taken lightly.
In other words, a letter of intent is the first step to begin the negotiation of terms. Once signed, employment contract negotiations begin quickly.
The letter of intent also lets the physician know if this position is not meant for them. If the terms are way off or the compensation is too low, you can skip the lengthy and complicated process of contract negotiation and tell the employer upfront that the position does not meet your expectations.
What Should be Stated in the Letter of Intent?
Most prospective employers write very succinct and detailed offer letters. To ensure that you’re aware of all the necessary major terms, there are a few key areas that should be addressed.
A letter of intent should give you an expected pay range based on different situations. This doesn’t mean that you need to stick strictly to this compensation in the contract, but it will give you a ballpark range of numbers to begin your negotiation process.
This compensation range should match the market rate for physicians with your background and accomplishments in the geographic area that the practice resides.
Length of Employment
In this offer, you should also have an identified length of employment. If you aren’t looking for short-term employment but a stable long-term commitment, the letter of intent should reflect this.
A contract generally lasts for a year with automatic renewal of the terms, if both sides agree. However, a physician’s letter of intent can also outline the expected years that a contract is to be renewed.
Employment Begin Date
Of course, you need to know when you are expected to begin working for the employer so that you can get your affairs in order.
The start date can make a big difference in the urgency of the matter. If the employer needs you on staff within a couple of months, and the job is several states away, you may not be able to move so quickly.
Duties and Responsibilities
The physician letter of intent should explain the duties and responsibilities that you will be expected to fill.
This should include whether you will be a full-time employee and what full time entails. For some employers, full time is a minimum of 30 hours per week; for others, you need to meet the 40-hour workweek mark.
It should also include your on-call duties. For example, the position could include a rotation of on-call duty one week each month.
The letter of intent should also list all expected duties such as making hospital rounds, hiring support staff, or procedures to be performed.
If a physician is looking for opportunities to become a managing partner of the practice, the offer letter should mention the possibility of future ownership or partnership and identify a typical buy-in procedure.
Benefits really can make or break a contract. So an important term that should be outlined in the letter of intent is that of included benefits of employment.
This includes health insurance for the physician and the physician’s family. For young families, this can be a big deal when the insurance premiums can run anywhere between $10,000-20,000 annually. Even great compensation can’t possibly cover the expenses of health insurance.
It would also include how much malpractice insurance coverage the employer will pay for.
As a practicing physician, it is imperative that you have good malpractice insurance to protect you. A good employment contract will include this in the benefits package, but if you don’t see it in the letter of intent, don’t be surprised to find it lacking in the proposed contract.
It’s also important that the malpractice coverage includes tail coverage or coverage that remains after termination.
If the physician’s letter of intent lacks this provision, you will want to address that before signing.
What are the Dangers of Signing Before the Contract Agreement?
The question is a valid one. Why not just sign the letter of intent and get on to the important negotiations of the formal contract? Isn’t that where the real decisions are made?
A compensation package may seem attractive and worth signing. But once the actual employment contract is reviewed, factors like restrictive covenant, non-compete buy-out clause or the lack of adequate employer-funded malpractice insurance during and after termination may come to light.
While it’s true that the final terms will be met during the negotiation of a physician employment contract, signing the letter of intent hastily could lead to less negotiation power for that very contract.
What other dangers are you opening yourself up to by signing a letter of intent that hasn’t been properly analyzed?
Without having your expected duties and workweek defined in the letter of intent, you could be signing onto more than you can handle.
It is all too easy to see a great compensation rate and jump on board. This can be a big mistake if you don’t yet know what is expected in order to earn that pay.
For example, consider a physician who signs an offer letter for a three year guaranteed salary that is around the 75th percentile for similarly situated employees, with a signing bonus that is above average. The contract is delivered and upon the review of the agreement, the doctor finds that the schedule and hours are more demanding than the average physician in that specialty.
A higher compensation may actually mask what an effective annual compensation should be on a normal increasing projection.
Restrictive Covenants or Non-Compete
Also, be wary of any lack of definition within the restrictive covenants or non-compete clauses in the letter of intent.
Even with a great compensation package, these terms can render the physician employment contract inadequate if they are too restrictive.
Are You Signing an LOI Template or One Made to Fit Your Needs?
Some employers are so nonchalant about sending a letter of intent that they use a template or cookie-cutter LOI for all their prospective physicians.
You can easily spot if you’ve received one of these because some of the terms won’t fit your particular position or situation at all.
When this happens, it’s best to really scrutinize the letter of intent for any missing terms or discrepancies.
If they didn’t take the time to write up a letter of intent tailored to you, expect other missing pieces of the puzzle.
Is a Letter of Intent Non-Binding or Conversely Binding?
A physician’s letter of intent is usually non-binding, but some states and circumstances are an exception. It’s always best to protect yourself by making sure that the letter of intent is written in a way that makes it legally non-binding.
In order for this to be so, it must specifically state “non-binding” in easy-to-read terms and an all-encompassing way. It should not use the suggestive language of a binding agreement, such as “agree,” “acceptance,” or “offer.”
This LOI should also include a statement that negotiations could be terminated by either party on good faith. Otherwise, simply signing the letter of intent could hold you liable to fill that position at any measure.
Even with the right key terms and non-binding statements, some parts of the LOI can still be considered binding.
Two that are commonly considered binding when signing a letter of intent are confidentiality of the employer’s information and practices, and a standstill agreement, where the employer expects to have your exclusivity for a period of time.
Terms in LOI are Still Negotiable
It’s important to know that even though it can be dangerous to sign a letter of intent without careful consideration of its language, inclusions, and exclusions, many of the terms in the letter of intent are still negotiable during the contract negotiation process.
Some employers consider your signature to mean your agreement to all the terms, but you can still negotiate terms when you have ensured that your LOI was non-binding. Contract negotiation should go on as normal and not be taken lightly.
Benefits of Hiring a Physicians Employment Contract Specialist Before Signing
Many physicians consider bringing on the help of experienced physician employment contract review specialists to help them with the negotiation of the contract.
But there are some benefits of hiring specialists at this earlier stage.
A contract review attorney can help protect you from signing a letter of intent that could be damaging to your employment opportunity. The letter of intent is certainly a simpler document than the contract itself, but it is still a legal document. These attorneys understand the legal language included in the letter of intent and can guide you in your decisions.
Contract review financial planners know the market because they deal with many physicians and their employment contracts. They can help you decide whether your offer is a good one or if you should expect more compensation or better benefits.
They may even know the employer from past negotiations. This means that they could have insider knowledge of their tendencies when negotiating and their culture and reputation. If the employer has been fair in the past, your specialists can let you know.
A good specialist’s legal advice can save you time and money in negotiations as well as save you from agreeing to terms before its time. The longer you wait to bring up concerns and areas of negotiation, the harder it will become to get the employer to consider alternate terms.
As stated, receipt of a letter of intent is an expected and even beneficial beginning to the hiring process.
Its statements can help you make an informed decision before wasting your time through a lengthy and complicated negotiation process that cannot come to agreeable terms.
When faced with a letter of intent, it is important to communicate with a potential employer that you are not fully settled on the terms contained in the offer letter until you see the entire picture.
Remember: you start negotiating when you first meet your prospective employer, long before a contract is even presented.
We recommend you connect with an experienced physician contract review team early in your search, even before you’re in contract discussions.
For more on this topic, access to the law firms in our network who specialize in physician contracts, or to find out more about how to manage interviews and contract negotiation, request a contract review. The Physicians Thrive team can coach you through each step of the process and help guide you to the strongest negotiation position possible.
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