What Doctors’ Contracts Say About Termination and Severance in MN

By Bert Black |

Three earlier posts on the Schaefer Halleen website provided:

• An introductory discussion of why legal counsel is important when a doctor is negotiating a contract
• A brief discussion of contract law fundamentals and basic provisions that appear in almost all physician contracts, and
• The promises doctors are typically asked to make when they enter into a contract, and the kinds of benefits and compensation they typically receive in return

This post covers provisions governing termination and severance pay. Subsequent posts will cover:

1. Malpractice insurance, non-compete and non-solicitation provisions, and confidentiality and intellectual property rights, and
2. Other provisions, such as legal rights and remedies if disagreements arise

No employee enters into a contract expecting an unpleasant termination, but that doesn’t mean contract provisions on this issue should be ignored.  Most contracts distinguish between termination “for cause” and “not for cause.”  The former generally means there are grounds for termination; for example if a doctor is engaging in conduct that’s a threat to the health or safety of patients or co-workers.  The latter may require no reason, or a reason not related to a doctor’s performance.  In some instances, where “for cause” termination is not based on health or safety concerns, a doctor may be given notice and an “opportunity to cure” the deficiency in question, and in some contracts there are explicit provisions giving the doctor as well as the employer a right to end the relationship for cause.

“For Cause” Grounds for Termination of a MN Doctor

The following are typical “for cause” grounds for termination of a doctor.  Note that they overlap to some extent, and that no contract is likely to include them all.

• Conduct that endangers patients or staff.  Notice and an opportunity to cure should be included for conduct susceptible of remediation
• Loss of license to practice.  Preferably only after any appeal process is exhausted
• Loss of insurance coverage
• Death
• A determination that the doctor is not competent to practice.  It may be possible to negotiate a procedure for contesting such a determination
• Disability of the doctor, usually with provisions allowing time to resolve the disability and perhaps to resume work on a limited basis.  The time to resolve a disability typically ranges from 60 to 180 days.  It may be possible to negotiate a procedure for situations in which a party disputes the existence or extent of disability
• Suspension or expulsion from a professional society, or resignation in the face of the threat of discipline.  It may be possible to negotiate a provision that delays termination until after exhaustion of any appeals process
• Loss of privileges at hospitals where the employer treats patients.  If possible the contract should delay termination until the loss of privileges is final after all appeals have been exhausted
• Restrictions on practice by a government authority, such as the Drug Enforcement Administration or Medicare/Medicaid.  If possible, delay termination until any appeals have been exhausted
• Conviction of a crime, or a guilty plea.  Most misdemeanors should be excluded, and there may be room to negotiate regarding felonies that don’t relate to dishonesty or other factors that could affect a doctor’s performance.  A suspended sentence for a manslaughter conviction following a traffic accident, for example, should not affect a doctor’s ability to practice
• Breach of contract.  The breach should be material, and there should be notice and at least a 30-day opportunity to cure
• Actions detrimental to employer.  A broad catchall that should be avoided if possible.  In any event, there should be at least notice and a 30-day opportunity to cure
• Failure to perform duties or comply with employer rules and policies.  Another overly broad catchall, but there should be at least a 30-day opportunity to cure after notice
• Failure to cooperate with co-workers.  A nebulous provision that could be very subjectively enforced.  At the very least there should be an opportunity to cure after notice

Sometimes a contract will give the doctor an explicit right to terminate if the employer materially breaches the contract.  If so, there will likely also be an opportunity to cure provision.  In negotiations, it sometimes pays to push other reciprocal “for cause” provisions.  For example, failure to follow rules and policies.

“Not for Cause” Grounds for Termination of Minnesota Physicians

Typical “not for cause” grounds for termination include the following:

1. Employer goes out of business.  Sometimes considered a “for cause” provision, but any negative implications of a “for cause” termination should not apply.  If possible, also make it clear that any non-compete provisions would not apply.
2. Employer merges with another practice or entity.  Again, sometimes a “for cause” provision, but one that should not have negative implications.  If possible, negotiate a severance package relating to such an occurrence (for example six months’ salary and assistance in finding new employment).  It may also be possible to abrogate any non-compete provisions.  Note that merger may be grounds for either party to terminate.
3. By mutual agreement of the parties.
4. By either party after giving notice, typically 30 to 90 days.  A provision like this effectively means the contract can be counted on for no more than the notice period.  Even if the term is two or three years, the contract can end as early as a month or so after the employer has given notice.  This kind of notice provision should be reciprocal, but occasionally an employer will propose a contract in which the doctor does not have the option.

Some contracts include language that prohibits either party from disparaging the other after termination.  Disparagement is different from defamation because it includes statements that are negative but true.  Non-disparagement clauses are more typically found in settlement agreements relating to a negotiated departure or a post-termination dispute, but occasionally they appear in employment contracts as well.

Most contracts do not contain any severance provision beyond an obligation to continue paying during the notice period if the employer decides to terminate early.  Do note, however, that provisions other than compensation can be affected by how a contract is terminated.  For example, if the employer elects to terminate early and “not for cause,” would a one year post-termination non-compete provision still apply?  It seems unfair for the employer effectively to say “you’ve done nothing wrong, but we’re terminating your job because we don’t have enough patients.  And by the way, you can’t work in this town for the next year.”

If there is a severance provision (including perhaps pay for period longer than the notice period), it may be accompanied by a requirement that the doctor waive any claims against the employer in order to receive payment.  Whenever possible, a doctor should seek to have that kind of waiver language removed.