Physician Contract Negotiation: Restrictive Covenants

Watch out for termination provisions that can cause significant consequences

Negotiate restrictive covenants by offering palatable alternatives

Most physician contracts for employment relsationships or partnership agreements use language that is designed to protect the employer’s interests. A common provision used for this purpose is a restrictive covenant. These covenants provide much needed protection for the employer and they are a legitimate method used to prevent the business and its partners from experiencing unnecessary financial loss. For example, an employed doctor could build a successful practice by leveraging the stability and reputation of an existing group, later terminate the relationship and then, pull existing or prospective patients away from the group. Additionally, privileged information originated and maintained by the existing practice may benefit the terminated doctor in a way that causes unwanted competition.

The key to negotiating these provisions is to offer changes to the physician contract that are reasonable and don’t favor one party more than the other. Keep reading to see an example of a restrictive covenant and a recommended alternative that most employers would be willing to accept.

The “bold font” is a revision that could be made to the original “non-bold font” for the purposes of limiting the employed physician’s exposure to the restrictive covenant.

If the Practice terminates your employment for cause, or if you terminate your employment without cause,you agree that during the twelve (12) month period commencing on the date your employment terminates (“Post-Termination Period”), you will not practice medicine in the Non-Compete Area except through a Private Practice. In addition, during such Post-Termination Period you will not own, directly or indirectly, an interest in any Competing Business located in the Non-Compete Area. For purposes of this Agreement: a “Private Practice” is a physician practice that meets all of the following criteria: obtains ninety percent or more of its collections from performing professional services (and not ancillary or other services); is not owned, managed or controlled, directly or indirectly, by a Competing Business, and has no financial relationships or compensation arrangements, as defined in the Stark statute, with a Competing Business or any Affiliate of a Competing Business; a termination by you is “With Cause” if you terminate as a result of a material breach of this Agreement by the Practice; a termination by the Practice “For Cause” is if the termination is pursuant to the provisions of Section 11.B or 11.C. Any other termination is without cause. “Affiliate” of an entity means an entity that controls, is controlled by or is under common control with that entity. If you are terminated by the Practice without cause, this Agreement naturally expires, or you terminate this Agreement for cause, the provisions of this Section 10 shall not apply. In addition, this provision shall only apply to Physician for a period of six (6) months so long as Physician remains employed by the Practice for a period of one (1) year, and upon the second anniversary of this Agreement, this provision shall be of no further effect upon the termination of this Agreement for any reason.

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The example above is not intended to be specific legal advice and Physicians Thrive assumes no risk or responsibility for the use of such material. Since each state has unique guidelines that govern the enforceability of such provisions, you should consult appropriate professionals for advice that is specific to your situation.

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