Employment at Will?

Most employer/employee relationships in New York State are considered “employment at will.” Generally this means that unless there is a written employment contract, or a union contract, the employer can generally fire the employee without cause. Similarly, the employee can leave the job without fear of being liable for money damages for not continuing the employment. Although employers may not discriminate against employees based upon race, religion, age, sex or other protected classifications, the employment at will can be terminated for most other reasons. A written employment contract can dramatically change these terms.

Employee or Independent Contractor?

Generally, an employer must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. By contrast, an independent contractor is legally responsible to pay his or her own income taxes, Social Security and Medicare taxes, since there are no payroll deductions.

The independent contractor does not enjoy the fringe benefits that employees regularly receive; such as sick leave, vacation pay, health insurance, retirement benefits, or workers compensation coverage.

The Internal Revenue Service cautions that business owners must correctly determine whether the people providing services are employees or independent contractors. The IRS is suspicious of independent contractor agreements which might attempt to incorrectly designate an employee as an independent contractor.

In determining whether a doctor who is not a partner, and has no equity interest in the medical practice, is an employee or an independent contractor, the following are some guidelines to consider:

•If there is a signed written agreement that identifies the doctor as either an employee or an independent contractor, that may have some relevance in determining the true nature of their legal relationship. Keep in mind however that the Department of Labor and the Internal Revenue Service will not simply accept the parties’ written agreement as conclusive proof of the nature of their legal relationship.
•If the medical office for whom the services are provided maintains supervision, direction and control over the doctor, that suggests that the doctor may be an employee, rather than an independent contractor.
•If the medical office provides fringe benefits to the doctor, such as sick leave, vacation pay, health insurance, retirement benefits, or workers compensation coverage, that suggests that the doctor may be an employee, rather than an independent contractor.
•If the doctor has his or her own medical practice (is in business for himself or herself), and also offers professional services to several other medical offices, that suggests that the doctor may be an independent contractor, rather than an employee.
•If the doctor provides services through his or her own professional corporation or professional limited liability company, rather than in his or own name, that suggests that the doctor may be an independent contractor, rather than an employee.
•If the doctor has the right to control the manner of the work, time of work, location where the work is performed, and the methods utilized to accomplish the work, that suggests that the doctor may be an independent contractor, rather than an employee.
•If the doctor performs work for many medical offices, that suggests that the doctor may be an independent contractor, rather than an employee.

Please keep in mind that these are only some of the factors that the IRS will consider in determining whether a particular person providing services is an employee or an independent contractor.

Employment Agreements for Medical Practitioners 

Many doctors will enter into one or more employment agreements during their careers. It is important that the doctor be represented by a lawyer who is experienced in negotiating and drafting employment contracts, especially in the medical profession. The doctor’s employment agreement should include various provisions, such as :

Doctor’s Duties and Responsibilities

The employment agreement should describe the doctor’s medical and administrative duties and responsibilities to the employer and its patients, the office locations where the doctor will be required to perform services, the doctor’s obligations regarding supervision of the medical office’s staff, the number of days and hours the doctor will be required to work in the medical practice, and a schedule of the doctor’s on-call responsibilities.

Term of the Employment Agreement, and Events That May Trigger Earlier Termination
The employment agreement should state the term of the agreement, including the beginning and ending dates of employment. The agreement should also specify those events that would give either the doctor or the employer the right to terminate the agreement before the end of the term.

Compensation

The employment agreement should state the monetary compensation that the doctor will receive. This may include a base salary, as well as a formula to calculate additional compensation based upon performance standards, profits of the medical practice, or other objective standards.

Paid Vacation, Medical Insurance and Other Fringe Benefits
In addition to the doctor’s salary and other compensation, the employment agreement should clearly state the fringe benefits that the doctor will receive, such as paid vacations and sick leave, paid leave for taking licensing exams and board certifications, medical, dental and eye care insurance, life insurance, disability insurance, and retirement plan. Other possible fringe benefits might include reimbursement of medical license fees and medical society dues, cell phone fees, vehicle expenses, and relocation expenses, if applicable.

Professional Liability Insurance

The doctor’s employment agreement will usually state that the employer will provide medical malpractice insurance coverage (“professional liability insurance”) for the doctor’s services performed for the employer’s medical practice. The employment agreement should also state the liability limits of the medical malpractice insurance coverage. The agreement should also state whether the employer will pay for the “tail coverage” on a “claims made” medical malpractice insurance policy. This coverage extends the liability insurance to cover claims asserted after the expiration of the term of the claims made policy.

Restrictive Covenants

The employment agreement will likely include some restrictive covenants limiting the doctor’s permissible future employment and self employment activities within a specific geographic location, after the expiration or earlier termination of the employment agreement. Restrictive covenants should be carefully reviewed by an experienced employment contracts attorney, and negotiated as to geographic area, length of time and other factors, in order to ensure that the non-compete provisions will not unnecessarily hamper the doctor’s employment and medical practice opportunities after expiration or termination of the employment agreement. Non-solicitation of the employer’s patients and support staff, as well as non-disclosure of confidential information are also typically requested by doctor’s employers.

Beware of Illegal Schemes under the Guise of Medical Office Rental Agreements
Care should be given, to be sure that an agreement structured as a rental of medical office space and administrative services is not a ruse for a scheme to extract illegal referral fee payments to the owner of a facility who is not a medical professional.

Medical “Partnership Agreements”

When a doctor joins a medical practice as a partner, or if the doctor’s employment matures into a partnership, it is even more important that the parties enter into a written agreement that defines each party’s rights and responsibilities. If the doctor is acquiring an equity interest in the medical practice, the agreement will be more comprehensive than the agreement for the doctor who is an employee of the medical practice. In addition to the provisions applicable to an employment relationship, the partnership agreement should also include “buy-sell” terms, such as provisions regarding voluntary sale of a doctor’s equity interest in the medical practice, and provisions relating to retirement, disability, death, etc. Depending on the legal status of the medical practice (Partnership, Limited Liability Partnership, Professional Corporation, or Limited Liability Company), the agreement may be a Partnership Agreement, Shareholders’ Agreement, or Operating Agreement.

Employment Agreements for Doctors

We strongly believe that a carefully negotiated and drafted employment agreement is the doctor’s best assurance that the employment relationship will fulfill the doctor’s expectations. Often the doctor would not have accepted the employment offer, if not for particular promises made by the employer. The written employment contract protects the employee, in the event that the employer later denies having made those promises, or agreed to those terms.

Likewise, we believe that the written employment contract is the employer’s best protection against a rogue employee who might otherwise take the employer’s patient lists, and other highly sensitive proprietary information, and use that confidential information to unfairly compete against the employer, or lure the medical practice’s support staff to the doctor’s new medical practice.

Independent Contractor Agreements

If you are a medical doctor, chiropractor, podiatrist, or other medical professional who is providing services as an independent contractor, you are probably providing professional services to several medical offices. When you accept a temporary, part-time, or other non-employment medical assignment, you and each medical practice for whom you are agreeing to provide professional services each have responsibilities and obligations, such as the parameters of the services to be provided, compensation and payment terms.

If there is no signed written agreement expressing a clear understanding as to each parties rights and obligations, what will the parties refer to if a misunderstanding or disagreement occurs? Unresolved disputes may lead to undesirable results such as non-payment, early termination by either party, the medical office’s requests for unanticipated additional services without additional compensation, or the independent contractor’s requests for additional compensation which the medical office did not anticipate, and considers to be unreasonable. Our experience supports our belief that a carefully negotiated and drafted independent contractor agreement is the best protection for both parties.

Employers Need Legal Protection Too

When a medical office hires a doctor either as an employee or as an independent contractor for a project, the employer has legitimate interests, such as insuring that the employee or independent contractor will not terminate the employment or contractual relationship before the project or anticipated term is completed. The employer also wants to insure that the doctor’s fees will continue through the agreed term at the agreed fees or daily, weekly or annual rate of compensation. Furthermore, the employer may need to protect valuable confidential information such as patient lists, as well as preventing the employer or independent contractor from utilizing the proprietary information gained in the course of employment to unfairly compete against the employer. Properly drafted employment agreements, independent contractor agreements, partnership agreements, shareholders’ agreements or operating agreements may address these issues, as well as other important terms of the relationship.

Carefully Negotiated and Drafted Agreements Can Minimize Misunderstanding and Disputes

Misunderstandings and disputes may create an unpleasant working environment and could possibly result in a lawsuit. By minimizing such misunderstandings, our goal is to avoid expensive and time consuming litigation. Every doctor who is an employee, independent contractor, partner, shareholder or other equity owner of an interest in a medical practice, and every medical practice contracting with doctors as employees, independent contractors or partners should be protected by a carefully negotiated and drafted employment contract, independent contractor agreement, partnership agreement, shareholders’ agreement or operating agreement.

Tell Us about Your Case or Legal Matter

To have your case or legal matter reviewed, or to discuss your concerns regarding a contemplated medical employment or medical partnership, we invite you to complete our Questionnaire, or click Contact Us to send an email. You may also call Michael W. Goldstein to discuss your case or legal matter by telephone, or to schedule a consultation at our office.
_________________________________________________________________________