Contract Issues

Contracts 101: Employment at Will/Good Faith and Fair Dealing

by Robert V. West, MD JD FAAEM

Traditionally the parties to a contract for the provision of medical services were just the doctor and the patient. Even as recently as the 1980s, most of my fees were paid by my patients, who then filed a claim with their insurance carrier. As the 80s faded so to did physician independence as hospitals and large groups sought to roll up market share by offering discounted fees to patient members, and coercing doctors to participate or risk losing their patient base to those who did. Enter the world of PPOs, HMOs and "participating" federally funded reimbursement such as Medicare, Medicaid etc. A niche was created for business entities to manage and negotiate the contract, thereby entitling them to collect and manage our revenues, while collecting a management fee. Some physicians even became entrepreneurs and started rolling up ED contracts, taking advantage of the good will and hard work of their colleagues

Today, most of our contracts are now between the physician and the business entity that manages his or her practice. Absent a provision specifying the term or scope of the employment relationship, neither party to the contract has any rights to legally enforce or continue the contract upon termination. Without a contract, most courts will adhere to this "employment at will" doctrine as the rule in analyzing employment disputes. Most management groups covet this doctrine as it allows them maximum flexibility in terms of shuffling emergency physicians to fit "their needs". More specifically, it fosters the growth and vitality of contract management groups in a market with a fixed number of ED slots (approx. 5000 Hospital EDs) to take up the slack in a tumultuous labor market. Frequently, the end result from the ED physician perspective is here one day, gone the next. Your stock generally goes down as the "number of gigs" goes up.

The underlying premise is that when a term of employment is left to the discretion of either party (employer or employee), then either party may terminate the arrangement at will. Furthermore, the employer can terminate for any reason, even a bad reason or for no reason at all. The only legal limitation is that if there is a reason that can be detected for the termination, it cannot be an illegal reason. Hospital based physicians should be aware of this doctrine before accepting the lure of a "full time" position, absent any term set forth defining the scope of this arrangement. The downside is that you may have a full time job one month, and find yourself off the schedule the next, with the kids in school and bills to pay. Good faith and fairness are not relevant factors in contesting or legally analyzing your termination, if the contract holder is empowered to exercise their sole discretion in making out the schedule.

A "Common Sense" approach to avoid this sort of trouble is to agree to accept a position that specifies a term of employment, such as a year with automatic extensions every year, terminable only for a cause. Similarly, termination should be for a cause and the causes should be clear and concise. And finally, since most of assign our billings in lieu of an hourly salary, a provision for annual adjustments based upon our collections is advisable so that we can determine a fair salary and equitable profit sharing arrangement.