Letters of Intent within Contract Negotiation Process
Be careful not to “tie your negotiation hands” when signing an offer letter.
Many employers use a Letter of Intent, also known as an Offer Letter, to get new physicians to agree to certain terms before they draft the actual employment contract. This is a routine part of the negotiation process, but it should not be treated as such.
Sometimes the Offer Letter is written in such a way that it is binding and other times it is not. The key point here is to make sure that when signing an Offer Letter, the employer knows that you are signing it without settling on the final terms until you have reviewed the entire contract. It is advisable to consult with an experienced contract attorney early in the process, even before a letter of intent is on the table, so you can address key terms up front. 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.
Why is this important?
In a Letter of Intent, an employer may try to get you to agree to a salary guarantee or signing bonus that is within your acceptable range without detailing the financial obligations that may be imposed upon you in the final contract. Then what? Having some wiggle room to keep the door open for negotiating the numbers would come in handy and provide the margin needed to account for such limitations.
For example, consider a physician who signs an Offer Letter for a 3 year guaranteed salary that is around the 75th percentile for similarly situated employees along with a signing bonus that is better than 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. While it is nice to start out at a higher compensation, in this case it actually masks what an effective annual compensation should be on a normal increasing projectile.
Another common scenario is to find a compensation package that seems attractive and worth signing. But once the actual employment contract is reviewed, the restrictive covenant, the non-compete buy-out clause or the lack of adequate employer funded malpractice insurance during and after termination, among other things, all cause the offer to not be adequate.
One frequently overlooked deficiency is when a Letter of Intent looks appealing, but the actual employment benefits are very limited. For example, an offer may contain little to no employer contribution toward the health insurance premiums. For young families this can be a big deal when the insurance premiums can run anywhere between $10,000-20,000 annually.
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 or Letter of Intent until you see the entire picture. Ensure that you are signing with the contingency of receipt and review of a satisfactory employment agreement.
It is important to realize that you started negotiating when you first met your prospective employer, long before a contract is presented. We recommend you connect with an experienced physician contract review team early in your search, even before you’re in contract discussions. Our team can coach you through each step of the process and help guide you to the strongest negotiation position possible.
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.