By Christopher E. Brown, J.D., and George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law
This blog is the second in a series intended to provide an introductory review of the basics of contracting for physicians and health professionals, primarily by discussing employment agreements. We will highlight many of the common provisions found in employment contracts, along with many of the mistakes and pitfalls that we see in our day-to-day practice.
By the end of the series it is our hope that physicians and other health professionals will understand the common language and terms found in employment contracts for professionals so they can recognize mistakes commonly made by physicians and health professionals when negotiating them. We hope to help make both employers and employees more knowledgeable about employment contracts so they can avoid potential problem areas and legal entanglements.
The first part of the series can be found here.
Our comments here are meant to provide general rules we have learned from our experience. However, please remember, every situation is different and there are exceptions to every rule.
Tip 4 - Make Sure the Parties are Identified.
In many contracts we review, the correct names of the parties, especially the employer, are not included. Often, the only identification of the employer is a fictitious business name or part of a fictitious business name. Additionally, many business entities are not incorporated in the state in which the job is located. There is a misconception that a corporation or limited liability company, its owners and directors have far greater legal protections in states such as Delaware. Therefore, a disproportionately greater number are incorporated or organized there.
Often a large institution such as a hospital system or health maintenance organization (HMO) has a business entity to hire and manage its physician and other health professional employees. Sometimes a potential employee may incorrectly believe that he or she is being employed by the larger organization. More often, the business entity that employs the health professional is actually a wholly owned subsidiary corporation or company.
Always be sure that the contract includes the complete name of any corporation or company, the state in which it is incorporated (or organized or registered), its address and its fictitious business name (sometimes called a d/b/a or "doing business as" name). We include the complete identities and addresses of each party to the contract in an addendum, if they are not included in the main contract.
Tip 5 - Make Sure That the Employee or Contractor is Fully and Consistently Identified and Treated as Such Throughout the Contract.
In the case of physicians and many other health professionals, a medical group or business with which that person contracts may seek to treat him or her as an independent contractor instead of an employee. Independent contractors have far fewer rights and protections against the party with which they are contracting and have to incur a number of expenses that a true employer would have to pay otherwise.
It may be legally incorrect for a group or business to attempt to treat someone as an independent contractor instead of an employee. This may be attempted by someone who has received incorrect advice on how to evade taxes or to avoid paying legally required taxes and fees (such as Social Security deductions and workers compensations insurance payments). If the Internal Revenue Service (IRS), Department of Labor or Department of Finance scrutinizes the employing entity, it may result in an assessment of back taxes and penalties, stop work orders and other sanctions being taken against the employer.
In most cases, doctors, nurses, physical therapists, dentists, psychologists, nurse practitioners, physician assistants, mental health counselors, massage therapists and other health professionals should be treated as employees. The law requires that an employer pay a portion of the taxes, social security and other government assessments for those employees. Being an employee usually requires the employer to include the employee in any health insurance, retirement plans or other employer benefit plans which the employer has. The employer is also required to incur the costs of withholding taxes, unemployment compensation assessments, social security payments and other government-required deductions and forwarding them to the correct government entity. This saves administrative costs an employee might otherwise have to incur.
If the health professional has his or her own professional service corporation (sometimes called a professional association or "P.A.") or limited liability company (L.L.C.) then this business entity can be contracted by another group or business as an independent contractor. The individually-owned P.A. or L.L.C. is the employer of the health professional.
Employees receive an IRS Form W-2 at the end of the year. This recaps the withholdings, Social Security, Medicare, unemployment compensation and other taxes and assessments deducted from their pay. Independent contractors receive an IRS Form 1099 at the end of the year with the total compensation paid to them reflected on it.
Employers are vicariously liable for the negligent acts of their employees while they are within the scope and practice of their jobs. The company or group that retains an independent contractor is not liable for the negligent acts of the independent contractor under the same circumstances.
Regardless, it is important that a contract accurately identify whether the health professional is an employee or an independent contractor. It must also consistently refer to and treat the individual as either an employee or independent contractor throughout the contract. If the contract is one that an employer has taken and tried to modify without the help of an attorney, it may use the term, incorrectly or include conditions that violate the law or that negate the treatment desired.
It is almost always far more advantageous for the individual being hired to be treated as an employee.
Future Blogs on Employment Contracting.
In our future blogs, we will continue to provide tips on various issues to watch for in health care employment contracts.
Contact a Health Care Attorney Experienced in Negotiating and Evaluating Physician and Health Professional’s Business Transactions.
At the Health Law Firm we provide legal services for all health care providers and professionals. This includes physicians, nurses, dentists, psychologists, psychiatrists, mental health counselors, durable medical equipment suppliers (DME), medical students and interns, hospitals, ambulatory surgical centers, pain management clinics, nursing homes, and any other health care provider.
The services we provide include reviewing and negotiating contracts, preparing contracts, helping employers and employees enforce contracts, advice on setting aside or voiding contracts, litigation of contracts (in start or federal court), business transactions, professional license defense, opinion letters, representation in investigations, fair hearing defense, representation in peer review and clinical privileges hearings, litigation of restrictive covenant (covenants not to compete), Medicare and Medicaid audits, commercial litigation, and administrative hearings.
To contact The Health Law Firm, please call (407) 331-6620 or (850) 439-1001 and visit our website at www.TheHealthLawFirm.com.
About the Author: Christopher E. Brown, J.D., is an attorney with The Health Law Firm, which has a national practice. Its main office is in the Orlando, Florida, area. www.TheHealthLawFirm.com The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, FL 32714, Phone: (407) 331-6620.
George F. Indest III, J.D., M.P.A., LL.M., is Board Certified by The Florida Bar in Health Law. He is the President and Managing Partner of The Health Law Firm, which has a national practice. Its main office is in the Orlando, Florida, area. www.TheHealthLawFirm.com The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, FL 32714, Phone: (407) 331-6620.
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