Updated June 17, 2020

This is second article of a of three-part series on physician employment during COVID-19. Read additional articles from the series Navigating Physician Employment during COVID-19.

Most hospital and health system employment relationships with physicians are reflected in written employment agreements. As such, most physician employment arrangements are subject to contractual terms rather than being entirely “at will.” Locate a copy of your employment agreement and any applicable policies and procedures. These documents will serve as the starting (and, in most instances, ending) point governing what is permitted under the agreement, absent any amendment(s).

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Key employment agreement terms and their relevance to the COVID-19 emergency include:

Duties–Most agreements define the duties required to be performed by the physician employee, along with associated requirements related to schedule, location and other variables. The contractual provisions addressing these concepts may be general (e.g., “physician agrees to practice medicine as an employee of Employer”) or specific in their detail (e.g., “physician will furnish primary care clinical services in the XYZ clinic of employer, four days per week, 48 weeks per year”).

The degree of specificity in these and other provisions may support or limit an employer’s ability to change the physician’s job duties or assignments during the COVID-19 emergency or otherwise.

Term and Termination–Written employment agreements will typically have a defined term of employment (e.g., one (1) year with automatic renewals unless either party provides notice of non-renewal 90 days prior to the renewal date). Such agreements will also contain termination provisions which will typically be “with cause” (e.g., breach of the agreement such as non-payment of compensation), or “without cause” by one or both parties.
These term and termination provisions help to define the employee’s rights, along with the employer’s ability (or inability) to terminate the employment relationship without breaching the agreement. Violations of the agreement’s term and termination provisions by an employer (e.g., terminating the agreement before the term expires, or terminating without appropriate cause or advance notice) will potentially permit the employee to seek damages or other redress, while also providing important negotiating opportunities.
Listen to this Making the Rounds podcast for more information on termination and other physician contract clauses.

Compensation–Of course, the degree to which compensation is “guaranteed” as opposed to contingent upon production or other variables will be important to understanding and positioning the physician employment arrangement.

Covenants Dealing with Competition, Solicitation, Practice Transition and Other Variables–These contract clauses address whether a physician may solicit patients and/or staff following termination of employment, under what circumstances the physician may engage in a competing practice, and other variables. The enforcement of non-compete clauses may be prohibited or limited under applicable state law, but the existence of the clause (or lack thereof) can impact the negotiations. Where a covenant is enforceable, a physician may be able to argue that the covenant should not be enforced as a matter of public policy if the physician is furnishing professional services tailored to and specifically in response to emergency medical conditions.
So, the circumstances in which care is provided may be relevant. Physicians seeking to engage in outside activities while remaining employees may also (i) request that the employer’s professional liability insurance cover their outside activities, and (ii) negotiate that the compensation earned is not required to be provided to their employer, is excluded from fair market value calculations, and is permitted when the physician is not otherwise being required to furnish services on the employer’s behalf.  The AMA has additional resources on restrictive covenants in light of COVID-19.

Contractual “Exit” Clauses–Some, but certainly not all, employment agreements will contain clauses that provide an exit or out for the employer under defined circumstances. These potentially include “force majeure,” frustration of purpose or similar clauses that effectively state that, if defined conditions are present, the contract and the underlying relationship may be ended.

Additional considerations

Notwithstanding the provisions outlined above, it is important to know that employers and employees, as parties to a written employment contract, are free to bargain for and enter into contract amendments and new agreements. Accordingly, the parties to an employment contract may amend the terms of the contract or enter into a new contract to adapt to the changing conditions caused by the COVID-19 emergency (with certain exceptions for terms that are themselves illegal and/or unenforceable under applicable state or federal law).

Relatedly, one cost-saving measure that some employers may consider in response to the COVID-19 emergency is a furlough.  A furlough is a temporary unpaid leave of absence (sometimes termed a temporary layoff due to nuances in state law). In general, furloughed employees are eligible for unemployment insurance benefits and retain employer sponsored insurance benefits (although potentially at the employee’s cost) during the furlough.  A furlough is different from a termination or reduction in force because the employee is still employed and is expected to return to work. 

Accordingly, a furlough generally does not trigger any termination provisions that may be in an employment agreement. Whether a physician must be paid during a furlough depends on how the furlough is structured. Most often, if a furlough is in increments of at least a week, the compensation provisions of an employment agreement may not require payment to the physician.

In addition to the provisions of any contract or contract amendment, various provisions of federal and state law govern the employment relationship. Select key laws that may come into play depending on the facts include:

  • Federal and state laws against discrimination based on age, race or other protected classes.
  • State wage and similar laws governing the amount, timing and payment of wages.
  • Federal and state laws requiring employers to give advanced notice (typically 60 days) to employees before a large-scale reductions in workforce. (Note that these laws generally include exceptions that shorten or eliminate the notice required in unanticipated situations and emergencies.)
  • Federal and state laws governing health insurance availability after termination of employment or other loss of coverage under a group health insurance plan.

Negotiate the best exit package

For physicians who will be severing their existing employment relationships, serious consideration of what’s needed for the next stage of practice (or retirement) will be essential. Here, too, understanding personal and professional goals and objectives will be essential. 

A physician’s short and long term professional viability will be protected by asking for, and obtaining, key employment related concessions. Common concessions sought are:

  • Severance packages designed to provide financial assistance upon termination of employment and to help begin a new practice.
  • Express waiver of non-competes, non-solicitation and other covenants that would prohibit the physician from working for a competitor, joining a group or otherwise maintain a practice in the community outside of the employment relationship.
  • Agreements and actual provision of practice-related start-up and other forms of operational assistance on favorable terms (e.g., access to electronic health record (EHR) and billing systems, provision of Management Services Organization services in support of a new practice, office space, equipment, telehealth technology and other resources).
  • Where the existing professional liability coverage is a “claims made” policy and not already promised by the employer in an employment agreement, an agreement for the employer to obtain and maintain, at its own cost, an extended reporting endorsement (tail coverage) providing coverage to the physician for the applicable statute of limitations.
  • Waiver of provisions requiring divestiture of existing investments in Ambulatory Surgical Centers or other ventures in the event that the employment relationship terminates (to permit such arrangements and investments to continue post-termination).
  • Ensuring access to patient records and patients, by receiving support of notification of patients and other key parties (including payers) to ensure a continued practice.
  • Ongoing relationships with hospital/health system affiliated networks that are made available to independent and employed physicians for payer contracting and other purposes.

At least during the time period in which the COVID-19 emergency exists, hospitals, health systems and physicians will have considerable flexibility in what resources and support can be offered and provided to ease the transition out of an employment relationship. 

Read more articles in the series

    Disclaimer: The information and guidance provided in this document is believed to be current and accurate at the time of posting. This information is not intended to be, and should not be construed to be or relied upon as, legal, financial, or consulting advice. Consider consulting with an attorney and/or other advisor to obtain guidance relating to your specific situation. References and links to third parties do not constitute an endorsement, sponsorship or warranty by the AMA, and the AMA hereby disclaims all express and implied warranties of any kind

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