09 / 20 / 2016

Structuring Employment Contracts in the Healthcare Industry

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Nothing should be done on a handshake when it comes to employment. Everything needs to be in writing because, in today’s environment, if it was not written down and signed, it never happened.

An employment contract defines what the employer and the employee are agreeing to at the beginning of an employment relationship. Like any contract, it may not solve every problem between you and your employees, but it can reduce the chance of litigation.

For businesses in the healthcare sector, a contract customized for your urgent care clinic or home health aide company can avoid controversies that may occur between professionals who are accustomed to certain methods of working.

Benefits and advantages

Contracts are good for both employer and employee whether or not the position is in the executive suite or on the floor of a small lab. It provides you with control over an employee’s ability to leave and outlines the performance standards expected of the employee.

In the healthcare space, finding and retaining skilled and reliable staff becomes more difficult daily as practitioners retire and opportunities for positions multiply. An employment contract could attract highly skilled candidates who require assurance on the agreed scope of work and other workplace issues.

Employment contracts also serve to protect confidential or sensitive information, which is of paramount importance for medical records and patient confidentiality.

Disadvantages

A contract goes both ways; it protects the employee as well. You may lose some flexibility in terminations, changes in duties, or if you determine later that the terms are not working for your practice. All changes must be renegotiated with the employee with no guarantee of agreement.

A contract puts into writing your obligation to deal fairly with your employees. If you are taken to court and a judge or jury finds that you have not been fair, you may be found to have violated the contract and are in breach of your obligation.

What to include in your employment contract

You should include the following information in the contract, at a minimum:

  • Position
  • Scope of work
  • Compensation
  • Length of employment
  • Specifics about time off
  • Liability protection
  • Termination
A word about At-Will
 
Most states support employment “at will,” meaning when a company hires someone it can fire the employee for any reason or no reason (except in cases of discrimination). In turn, an employee is free to quit for any reason or none at all.

Employers may be reluctant to implement an employment contract due to the mistaken idea that the contract could limit the ability to terminate. However, employment contracts do not supersede or eliminate at-will status.

A contract makes the employment arrangement more predictable for both sides. You can include a clause about at-will employment for clarification if you desire. The essential part of the contract contains the length of time of the employment agreement, even if employment has no end date.

Termination
 
Termination of employment is one of the most fraught areas of employment contract law. In most cases of termination, emotions run high, and one or both parties is on the defensive.

A termination clause in the employment contract can limit and define how much notice an employer or employee is entitled to before the termination date and other details of ending an employment relationship. Without a written contract, regional practices and regulations apply in the case of reasonable notice and payment in lieu of notice.

Common provisions

Other provisions may be made within the employment contract. The most common are:

A confidentiality agreement precludes a departing employee from sharing information about how your business is conducted, including the prices you charge for your products or services. If your employees have access to trade secrets or other proprietary information, a confidentiality agreement will protect you from competitors learning your secrets.

A non-compete agreement keeps a departing staff member from opening a business similar to yours in the same geographic area or poaching your patients. There is generally a time or geographic limit to this clause, and you cannot preclude someone from making a living.

No authority to contract is also called an agency provision. The employer and the employee have an employment relationship only, not an agency relationship. It also stipulates the employee has no right to enter a contract or obligate the employer unless given permission to do so.

Arbitration clauses prevent you from court litigation because both you and the employee agree from the beginning that any employment relationship dispute will submit to arbitration instead. The arbitration can be binding if you so choose and you can state how an arbitrator would be found if needed.

Choice of Law refers to an agreement that if the parties have a dispute that results in a lawsuit, it will be governed by the laws of a particular state, regardless of where the suit was filed. If your business has offices in different states, this may be useful.

If you do not have an employment contract

If you do not have an employment contract, you and your employee may have very different ideas about the scope of work, benefits, and other information about working for you.

An offer letter is not a substitute because it often contains passages that weaken or eliminate its power as a contract. Even if you add a clause stating the new employee agrees to and is bound by the terms of your employment handbook, the agreement is inherently unfair to the employee because the handbook is not available until after the person is hired.

An employment contract is meant to protect both you and your employee, providing a predictable work environment where there is no misunderstanding of the scope of work, the pay, or any other detail of the employment relationship.

While templates and boilerplate contract language are easily obtained, it is inadvisable to use a contract that is not written specifically for your business. A template may not contain the provisions that would best benefit your business and your employees, or it may contain restrictive language that creates obligations you did not plan to make.

Seek legal advice before you finalize an employment contract from an attorney who is experienced in employment law in your state and can provide insight into the provisions best suited for your business or practice.

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