Explore This IssueJanuary 2015
Deciding to Leave: Physicians consider leaving their practices for many reasons, including philosophical differences with partners, family needs, illness, better hours, or financial concerns. If you’re thinking about exiting your practice, you should review your existing employment agreement and, in some cases, your shareholder agreement to determine what provisions will be applicable if you decide to terminate the agreement. Typically, an employment agreement will address various matters dealing with a physician’s departure from a practice, including the grounds for termination, notification requirements of your intent to terminate, any noncompetition and/or nonsolicitation restrictions, and malpractice tail insurance coverage.
The employment agreement will set forth the allowable reasons for termination, whether it is for cause or without cause, as well as any restrictions on termination rights. For example, some agreements won’t allow termination without cause during the initial term of the agreement. The agreement should also include the proper method to provide notice of termination, such as first class mail, overnight courier, or hand delivery. The amount of advance notice you must give to the practice prior to your departure will factor into the timing of your decision. Although the notice provisions set forth the minimum amount of notice you must give, your specific circumstances may necessitate giving more notice to stay on good terms with your current practice by giving it enough time to handle the transition.
If your employment agreement contains any noncompetition provisions that may affect your potential ability to practice within a certain geographic area, this would limit where you can practice after you terminate your employment. Any nonsolicitation provision may affect your ability to contact patients to invite them to follow you to your new location, as well as possibly restricting your ability to solicit practice employees to join you at your new practice. Not all noncompetition and nonsolicitation agreements and provisions are enforceable, so it’s important to have them reviewed by an attorney.
Typically, an employer provides malpractice coverage for physicians during the term of their employment. Upon termination, it’s possible a physician will be personally responsible for the cost of “tail coverage” if the practice has claims-made coverage. Claims-made policies require that both the incident and the resulting claim occur during the coverage period. Therefore, the tail coverage provides insurance for claims that are made after employment is terminated for events that occurred during employment. Tail coverage can be costly, so ideally the employment agreement will address whether the practice or physician-employee will be responsible for acquiring and paying for the coverage.
Before You Leave
Once you have made the decision to leave your practice, the following considerations should be taken into account as you plan your transition.
If your employment agreement does not address some of the terms discussed above, you may want to consider entering into a separation agreement with the practice. A separation agreement can help provide clarity and avoid unnecessary issues and disputes, and will typically include the following: