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January 02, 2017

Anatomy of a Physician Employment Agreement

In the course of your career as a physician, no agreement may be more important than the employment or services agreements that you will be asked to sign with your prospective employers. This article provides a brief overview of several of the most important provisions that customarily appear in these agreements.

Duties of Physician

The agreement should set forth the essential duties of the position in reasonable detail. Call schedule and assignments should be clearly addressed, since call coverage is often a source of conflict. Be sure you are comfortable with all required duties in advance, as well as the locations at which you may be obligated to perform such duties. Also, consider addressing your rights to both:

  • Participate in certain outside professional activities, such as professional teaching, writing, non-clinical, medical research and medico-legal activities, and
  • Keep the remuneration generated from such activities.

Compensation and Benefits

There are a number of popular models for structuring physician compensation that vary in complexity and their dependence on production:
Regardless of the type of compensation model utilized, employee benefits, including sign-on bonuses, reimbursement of moving expenses, CME expenses and professional dues and expenses should also be clearly enumerated.

  • 100% guaranteed salary
  • Base salary plus a productivity bonus. Productivity bonuses should be based on objective, identifiable factors that are set in advance and may be verified by physician.
  • Productivity (“eat what you kill”). Compensation based solely on physician productivity. It is essential that the terms of the productivity calculation be clear, including a clear explanation of the overhead and practice expenses that will be attributed to physician.

Term and Termination

The agreement will be valid for a specified term, usually one to three years. At the end of the initial term, the agreement will either terminate, requiring a new agreement to continue employment, or more likely, automatically renew for a specified period of time. The agreement will also be subject to certain early termination provisions, which define circumstances under which you or the employer may terminate the agreement prior to expiration of the term. These provisions may be broken down into “for cause” and “without cause” termination. In a for cause termination, the non-breaching party should be required to provide notice of the breach and provide the breaching party a reasonable opportunity to “cure” the breach. If the breach remains after the set cure period, the agreement may be immediately terminated by the non-breaching party. The cure period may vary depending on the type of the breach.

Often, the parties will have the ability to terminate the agreement without cause after a notice period, which may vary. In the event that the physician is relocating to accept employment, consideration should be given to excluding a no-cause termination, or permitting no-cause termination only after physician has been employed for a specified period (for example, 1 year). Finally, the agreement can be terminated at any time by the mutual consent of the parties.

Tail Insurance

Termination can trigger other clauses in the agreement such as restrictive covenants and the requirement to implement a tail policy on the employer’s malpractice insurance. Who will pay for the tail policy often depends on whether the agreement is being terminated for cause or without cause. Customarily, if the agreement is terminated by employer for cause or by physician without cause, then physician will be responsible for the cost of the tail coverage. Conversely, if the agreement is terminated by physician for cause, by employer without cause or the agreement simply expires, then employer usually will be responsible for the tail insurance premium.

Covenant Not to Compete

These covenants restrict where and when you may set up your new practice after you leave your current employment. Non-compete covenants that are deemed legally reasonable are enforceable under applicable Texas law. These provisions are generally defined by time period and geographical location. Reasonable time periods are dependent upon circumstances but typically do not exceed two (2) years. Geographical scope should be limited so that you are able to make a living in your specialty without having to relocate your residence. Reasonableness of geographical scope will also depend on whether you practice in an urban or rural area. The more urban the practice location, the smaller the geographical scope should be, generally five to eight miles. As required by Texas law, the covenant not to compete must include a buy-out option for the physician at a reasonable price, or at a price as determined by an arbitrator or a court whose decision shall be binding on the parties. The amount of the buy-out will depend on the geographic area, specialty, compensation, and other reasonable factors.


Generally, agreements that include non-compete covenants will also include a covenant that states upon termination of the agreement or employment, physician will not solicit any of practice’s past, present or prospective patients. In order for this provision to be enforceable, Texas law requires that this covenant must: (1) not deny the physician access to a list of patients whom he has seen or treated within one year of termination of the agreement; (2) provide access to medical records of the physician’s patients upon patient authorization and any copies of medical records for a reasonable fee; and (3) provide that any access to a list of patients or to patients’ medical records after termination of the agreement shall be in the same format as such records are maintained, except by mutual consent of the parties to the agreement. The covenant must also provide that the physician will not be prohibited from providing continuing care and treatment to a specific patient or patients during the course of an acute illness even after the agreement has been terminated.

These are just some of the principal terms that are customarily included in a properly drafted employment agreement. However, there are many other terms that may also be included, and therefore, both physician and employer should consult experienced legal counsel to ensure that all of the appropriate business and legal issues are adequately addressed in the proposed agreement.