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Explore This IssueJanuary 2015
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Deciding to Leave: Physicians consider leaving their practices for many reasons, including philosophical differences with partners, family needs, illness, better hours or financial concerns. If you’re thinking about exiting your practice, you should review your existing employment agreement and, in some cases, your shareholder agreement to determine what provisions will be applicable if you decide to terminate the agreement. Typically, an employment agreement will address various matters dealing with a physician’s departure from a practice, including the grounds for termination, notification requirements of your intent to terminate, any noncompetition and/or nonsolicitation restrictions and malpractice tail insurance coverage.
The employment agreement will set forth the allowable reasons for termination, whether it is for cause or without cause, as well as any restrictions on termination rights. For example, some agreements won’t allow termination without cause during the initial term of the agreement. The agreement should also include the proper method to provide notice of termination, such as first class mail, overnight courier or hand delivery. The amount of advance notice you must give to the practice prior to your departure will factor into the timing of your decision. Although the notice provisions set forth the minimum amount of notice you must give, your specific circumstances may necessitate giving more notice to stay on good terms with your current practice by giving it enough time to handle the transition.
If your employment agreement contains any noncompetition provisions that may affect your potential ability to practice within a certain geographic area, this would limit where you can practice after you terminate your employment. Any nonsolicitation provision may affect your ability to contact patients to invite them to follow you to your new location, as well as possibly restricting your ability to solicit practice employees to join you at your new practice. Not all noncompetition and nonsolicitation agreements and provisions are enforceable, so it’s important to have them reviewed by an attorney.
Typically, an employer provides malpractice coverage for physicians during the term of their employment. Upon termination, it’s possible a physician will be personally responsible for the cost of “tail coverage” if the practice has claims-made coverage. Claims-made policies require that both the incident and the resulting claims occur during the coverage period. Therefore, the tail coverage provides insurance for claims that are made after employment is terminated for events that occurred during employment. Tail coverage can be costly, so ideally the employment agreement will address whether the practice or physician-employee will be responsible for acquiring and paying for the coverage.
Before You Leave
Once you have made the decision to leave your practice, the following considerations should be taken into account as you plan your transition.
If your employment agreement does not address some of the terms discussed above, you may want to consider entering into a separation agreement with the practice. A separation agreement can help provide clarity and avoid unnecessary issues and disputes, and will typically include the following:
- The date the employment will be terminated as you transition to a new practice;
- Any payment terms or buy-out requirements for the physician-employee;
- Any post-termination compensation owed to you, including unused vacation days, bonuses or expenses reimbursements;
- Employer obligations, including those associated with retirement plan contributions, health insurance, life insurance and other fringe benefits;
- A statement of obligations surrounding noncompetition, solicitation of patients and/or practice employees, if any, and obligations surrounding retention of medical records;
- A nondisparagement provision, which states that both the practice and the physician will refrain from making false or disparaging statements about each other;
- Obligations to pay premiums associated with malpractice tail coverage; and
- Direction as to who will handle the patient notifications described below.
Not all noncompetition & nonsolicitation agreements & provisions are enforceable.
The physician–patient relationship is an ongoing responsibility, and patients will need to be notified of your departure from the practice. If you signed an agreement with noncompete or nonsolicitation provisions with your current practice or employer, it should be evaluated by an attorney to determine if the terms are enforceable and any potential impact on your patient relationships. Depending on the terms of your employment, the patients may be considered patients of the practice rather than you personally, which could impact how notification is provided. Further, there are some states that specify the manner and content of this type of patient notification.