Historically, health care provider employers and employees have tended to use termination “without cause” as a proxy for termination “without fault.” That is, in the traditional physician employment agreement, there may be one set of consequences if the agreement is terminated “with cause,” and another, different set of consequences if the agreement is terminated “without cause,” with those consequences established on the assumption that “without cause” means the employee is not at fault.  As described below, that assumption may be both incorrect and disadvantageous to employers.

The typical physician employment agreement will contain a laundry list of grounds for termination “with cause” by the employer.  Some grounds may be totally objective, such as loss of license, DEA number or board certification, termination of medical staff membership and clinical privileges, or inability to obtain malpractice coverage.  At the other end of the spectrum, some grounds may be quite subjective, perhaps best exemplified by the catchall grounds for termination:  ”Engaging in any other activity adverse to the best interests of the employer or its patients.”  In between, there are grounds which arise from the breach by the employee of a material term or provision of the employment agreement (such as failure to follow employer rules and regulations), usually paired with a requirement for notice from the employer and an opportunity to cure the breach within some designated period of time (e.g., 15 – 30 days).

Most employment agreements for physicians contain the traditional list of grounds for termination with cause, but don’t go overboard.  This, in turn, can lead to many situations where the actions of the employee might be grounds for termination with cause, but, because no one ground fits perfectly, legal counsel for the employer recommends use of the termination without cause provision, which simply requires prior written notice (e.g., 60 – 90 days) and no stated reason or grounds for termination.  This is oftentimes seen in cases dealing with an employed physician who had a “bad attitude” or didn’t get along well with his colleagues, or was abusive to staff; it also comes up in cases involving suspected drug or alcohol abuse, or suspected fraternization between the physician employee and a staff member, if clear employment policies are not in place which prohibit such activities or if the evidence is less than totally persuasive.  In these cases, the employed physician is clearly at fault, as his/her actions are the direct cause of the termination.  However, if the employment agreement equates “without cause” with “without fault,” the employer may not be very happy with how termination plays out.

The better practice, when negotiating a physician employment agreement, would be to NOT automatically assume, in laying out the effect of termination, that termination without cause means the employee is without fault.  Instead, the employer would be better served in taking a more hard-line approach.  For example:

  • If there are restrictive covenants, including covenants not to compete, no-pirating covenants, non-solicitation covenants or confidentiality/non-disclosure covenants, the employer should consider having them apply whether the employment agreement is terminated with cause or without cause.
  • If the employee is entitled to a bonus at the end of a contract year or term, the employee shouldn’t necessarily get that bonus (or a prorated portion thereof) if the agreement is terminated early without cause (but forfeit the bonus if the agreement is terminated early with cause).
  • If the employee is required to obtain “tail coverage” upon termination of the agreement, the employer should consider having the employee pay for that coverage if the agreement is terminated without cause, just as the employee would be required to do if the agreement were terminated with cause. (For a more detailed description on this issue, see my February 28th blog post.)
  • If the employee is also an owner and, as such, entitled to severance pay approximating the value of his/her share of the practice’s accounts receivable value, the employer shouldn’t necessarily agree to pay severance pay in full if termination is without cause, but not pay severance pay (or pay a lesser amount) if termination is with cause.
  • If the employee has received a substantial moving allowance or an up-front signing bonus, the employer ought to consider requiring all or a portion of those benefits to be repaid to the employer if termination occurs within a specified period of time (e.g., 12-24 months),  whether the agreement is terminated with or without cause.

The Bottom Line:  These are tough issues to negotiate, especially in a “buyer’s market” where employers are competing aggressively for new physicians.  The employer should expect to get significant pushback from a prospective employee, who views some or all of these provisions as being “unfair.”  Still, it pays to deal with these issues up front and recognize that, as an employer, it may be necessary to terminate an “at fault” physician employee without cause, to avoid or minimize the risk of costly litigation.  That decision is much easier if the consequences of termination match up with the true level of respective fault between the employer and employee.