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Trends in Physician Employment Agreements: Letters of Intent, Non-Competes and Signing Bonuses

As hospital networks grow and the trend toward hospital employment continues, the landscape of physician employment agreements has likewise changed. While most hospitals will advise prospective employees to consult with an attorney prior to signing any contract, these same hospitals often warn physicians to expect few modifications to their standard-form employment agreements. The employer often explains to the incoming physician-employee that this is the form of employment agreement they use for all their physicians, and, if it were to be changed for one employee, others would require changes as well. 

Although many employers do not like to make revisions to their agreements, they do, in fact, alter them in many cases, albeit sometimes reluctantly. However, as hospital networks grow bigger, many physicians worry that their negotiating power has become weaker and that fewer changes will be made to their employment contracts in the future. Therefore, physicians entering into a new employment agreement need to be particularly mindful of the terms they desire in their employment agreements from the very start of their negotiations with the employer. From the time a new employee receives a written offer of employment, sometimes called a letter of intent, the physician should start asking for what she or he wants and ensure that important terms as to salary, non-compete restrictions and signing bonuses are included in the letter of intent. 

The Letter of Intent

Most employers offering employment to physicians will begin by providing the prospective employee a written offer letter, or letter of intent, outlining the terms of their employment. Employers often place short time constraints on the physician, requiring the physician to accept or reject the initial offer in a matter of a few days to one week. The employers may also advise the employees to sign the letter of intent and indicate that it is non-binding, suggesting that the parties can agree on the final terms when preparing the employment agreement. The prospective employees may feel pressured to sign because of these time limits and, therefore, call their attorneys to discuss the particulars of the offer only after signing the letter of intent. 

Recently, I represented a physician in her employment agreement with a large Chicago hospital. The hospital pushed the physician to sign the letter of intent rather quickly, stressing that the letter of intent was "non-binding" and that final details could be hammered out later in the employment agreement itself. After distributing the agreement, the hospital's lawyers kept pointing to the terms of the letter of intent as the agreed-upon final terms of the parties and used this argument to refuse later changes. 

In the past, a fair amount of negotiation took place after the employer provided the letter of intent. More and more, I find that the terms of the letter of intent are considered the final terms of employment and less is being changed in the employment agreement itself. Now, I advise clients to negotiate the terms of their employment at the letter of intent stage and if possible, consult with an attorney before signing or agreeing to the terms outlined in the letter of intent. It is important to be as specific in the letter of intent as the employer will allow, describing the terms and conditions of the employment relationship desired from the very beginning.

The Non-Compete

Another important point to remember is that while all employees are worried that they are paid appropriately and fairly for the work they do, it is often not the compensation that is the most-negotiated and important part of the agreement. Arguably, the non-competition provision is the single most significant aspect of the employment agreement, because many physicians will leave their first employer and invariably confront the terms of their non-competition restrictions. While money seems to be the most important item at the beginning of employment, it is the non-compete that ends up being of critical importance to the physician at the end of their employment. 

Non-compete provisions in Illinois often prohibit the departing physician from practicing within a certain number of miles of the existing employer for up to two years after the termination of employment. As a result, with their next employment many physicians will be required to deal with this prohibition on competition if they desire to stay in the same general location. Unfortunately for physicians, the non-compete section of their employment agreements is also the one provision employers are most loathe to change. Remember that even slight changes to the language of these provisions can significantly help physicians when they seek their next employment. The addition of a word or removal of a word can mean the difference between being able to accept a new offer of employment and having to reject it because it runs afoul of an existing non-competition restriction.

What About the Money? Signing Bonuses and Compensation Issues

When it comes to negotiating employment agreements, employers are often more apt to increase compensation and bonuses, than to alter the non-competition provision. Most physician employment agreements include signing bonuses these days. Typically, signing bonuses range from one to a few thousand dollars, but can be over a hundred thousand dollars in some cases, as in cases where there is an extreme need for a physician in a particular geographic area of the country or in a specialty that is difficult to fill in a certain location. If a contract does not contain a signing bonus, it should, at the very least, have a moving expense reimbursement, where the employer will pay for a physician's moving costs often up to approximately $10,000. In addition to signing bonuses, the compensation itself is often negotiated. If the base salary or bonuses were not negotiated at the letter of intent stage, then the physician should definitely attempt to negotiate these items when drafting the final employment agreement.

Final Thoughts On Physician Employment Negotiations

Despite the growth of hospital networks and the reluctance of these large employers to negotiate with individual physicians, many employers will still revise and make changes to these employment agreements, even for physicians who have just graduated out of their residency or fellowship. When it comes to physicians who have been practicing longer and have significant patient bases that will follow them, employers will often revise many provisions of the employment agreement, even the non-competition provision. In very few cases will non-compete clauses be removed altogether, but even slight changes and adjustments to these provisions can be a real victory for the physician later on. 

Perhaps most important, physicians should be mindful to bring their attorney into the process early on, to negotiate key issues of compensation and non-competition restrictions from the start of their discussions with a prospective employer, and should attempt to detail as many of these items as possible in the letter of intent.

© 2021 Much Shelist, P.C.National Law Review, Volume V, Number 259
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About this Author

Jonna Daleiden Eimer, Much Shelist Law firm, Mergers & Acquisitions Attorney
Principal

Jonna Daleiden Eimer concentrates her transactional practice in mergers and acquisitions, general corporate law and health care law. Jonna represents a wide variety of organizations, from large corporate clients to smaller, entrepreneurial companies. She negotiates and documents complex mergers; stock and asset acquisitions and dispositions; employment and consulting agreements; and stockholder, limited liability company and partnership agreements. Jonna also has extensive experience representing physicians, having negotiated and documented physician employment agreements and buy-in...

312-521-2465
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