Oregon Physician Contracts

by Jim Vogele

Oregon physicians find employment in one of the state’s many hospitals (most are nonprofits), in professional corporations, in educational and research institutions, and in other commercial settings such as the biopharma industry. Regardless of the setting, physicians are nearly always employed pursuant to the terms of a written employment contract. The Oregon employment attorneys at Vogele & Christiansen have extensive experience providing advice and counsel to Oregon physicians and also represent physicians in employment-related litigation.

This article is a general overview of selected issues relating to Oregon physician employment contracts, including discussion of a recent federal court decision regarding physician nonsolicitation and noncompetition agreements under Oregon law. While this article refers to “physicians” there are, of course, many stages in a medical doctor’s career that may involve contracts, including internships, residencies, and fellowships. The issues addressed below also arise in connection with the employment contracts of other medical professionals such as dentists, pharmacists, and licensed professional counselors.

General Provisions

Physician contracts involve all of the issues that one finds in any sophisticated employment contract, along with an overlay of issues unique to the medical profession. Some of the boilerplate language in a physician contract — e.g., choice of law, severability, integration, and assignment clauses — are found in every detailed employment contract. A typical physician contract will include many pages of legalese and there is no single, uniform format for a physician contract. Nearly all Oregon physician contracts are drafted by the employer’s attorneys. The occasional exception to this rule has resulted in a few of the more unusual contracts and contractual provisions that we have seen. For example, we have encountered a number of DIY independent contractor agreements that are de facto employment contracts. This sort of misclassification can lead to significant problems down the road for physicians, just as it can result in legal headaches for both employers and employees in other lines work.

Rate of Pay

As with other provisions in physician contracts, compensation may be addressed in the body of the contract, or it may be covered in an attached Exhibit, Schedule, or Addendum.

Compensation may be a flat rate salary, which is common for new physicians, while more complex compensation arrangements involve a wide variety of bonuses and compensation tied to productivity as well as the possibility for equity ownership in a practice group. If you are reading this article, there is a good chance that you are familiar or very familiar with wRVUs (“work relative value units”) which may or may not be used in your compensation formula. Depending upon your particular situation, you should also have an understanding of your employer’s billing and collections procedures, and how practice expenses are allocated. Unless you are on a flat salary, expenses may be a direct offset against your income. Physician compensation plans can be complex. Unless you are on a flat rate compensation plan, it is worth asking questions and inquiring about recent history in terms of physician income at your employer’s practice

Physician contracts frequently include signing and/or retention bonuses, with the latter structured or staged for payment as tenure benchmarks are reached. Relocation reimbursement is also common. Attention should be paid to repayment obligations with respect to all of these. If the physician does not remain employed for the contractually-established term, a repayment of part or all of a bonus or relocation expense may be required.

Employment Term

Physician contracts may be for a set term, but will often include an automatic renewal provision as well. If the parties do not pay attention to renewal and implement changes, the physician should assume that all of the contractual provisions, e.g. compensation, will continue as is. We have seen situations in which automatic renewals have lead to confusion, or worse. When an employment relationship is harmonious, successive automatic renewals may pass unnoticed. If the relationship sours for some reason, this can result in conflict. It is not uncommon to meet a physician who signed a contract for a one year term, 5 or 6 years ago, and has not looked at the contract since it was signed.

Another key provision regarding tenure will be the provision for notice of termination. Physician contracts inevitably include termination clauses, regarding termination for cause and without cause. Take a look at the “for cause” definitions; they are usually limited to extreme events but can also be tied to subjective criteria such as acceptable performance or fulfillment of duties. It is hard to argue against an “acceptable performance” standard, but keep in mind it is subjective. For example, if a substantial severance payment may be owed upon termination, depending upon whether an employee is terminated with or without cause, the employer’s and employee’s interpretation may differ greatly.

A 30 to 90 day notice requirement for either party to terminate a physician contract is typical. Be aware, however, that a contract for a set term of a year or more that includes an option for the employer to terminate without cause in 60 days is, in effect, internally inconsistent. Nonetheless, this scenario is common, and it is often said that this agreement is akin to a 60 day contract.

Oregon physician contracts also generally provide that employment is “at will.” That means the relationship can be terminated by either party at any time and for any (lawful) reason. The at will concept is also technically inconsistent with a 60 day or 90 day notice of termination clause.

This inconsistency is attributable, however, in part, to the nature of a physician’s workplace, where patient care is of utmost importance and a more abrupt termination of employment may be antithetical to the healthcare mission.

As mentioned above, there may be repayment requirements for bonuses and relocation expenses if a contract is terminated, by either party, early on. We have seen more than one situation in which a physician purchases a home at the outset of employment only to encounter the necessity of moving and selling the home far sooner than expected.

Scheduling and Call Coverage

Depending upon the nature of the practice and setting, nailing down the specifics of your schedule may or may not be possible. Your contract will certainly address call coverage in at least general terms. Sometimes the contract will simply indicate that your call coverage schedule will be consistent with that of others in the practice. Call coverage can certainly become a bone of contention; or, more aptly, freedom from excessive call coverage might be in contention.

Discuss call coverage in interviews and pre-employment discussions. It may be best to have call coverage obligations specifically detailed in the agreement (e.g. with a ratio of days or nights on/off).

Benefits

Oregon physician contracts may include specifics regarding benefits or may simply refer to a benefits summary in a separate document. It is wise, indeed essential, to review all documents referred to or incorporated by reference in your physician employment agreement. We have seen contracts and employment negotiations that were cavalier with respect to benefits, only to find later that there was not a “meeting of minds” on certain issues. For this reason, it is best to have benefits itemized in a contract or written policy, including health care, disability and life insurance, vacations, holidays, and incidentals such as continuing medical education, license fees, staff dues, a professional journal subscription, and so forth.

Insurance

Malpractice insurance coverage is obviously an important topic to physicians. It will generally be paid for by the employer. One key issue, however, is tail coverage and who will pay for it. If you have an occurrence policy, tail coverage will not be necessary as it will cover any incidents that take place during the policy period.

If you have a claims made policy, you may be able to negotiate a provision requiring the employer to pay for tail coverage if you are terminated without cause.

Restrictive Covenants

Restrictive covenants generally refer to confidentiality, nonsolicitation, and noncompetition agreements. Oregon law provides specific requirements that an employer must satisfy to establish an enforceable noncompetition agreement. ORS § 653.295. These requirements may be summarized as: (1) the employee must be notified of the noncompetition requirement in a written offer two weeks in advance of employment, or, if employed, upon a subsequent bona fide advancement, (2) the employee must be in an exempt, “white-collar” professional, managerial, or administrative position, (3) the employer must have protectable interests, such as trade secret information, at stake (patient lists will meet this requirement in the medical setting), and (4) the employee’s gross annual salary and commissions must be greater than the median family income of a family of four as determined by the most recent U.S. Census Bureau information.

Nonsolicitation agreements are not covered by the requirements of ORS § 653.295. In other words, if an agreement includes the other indicia of a binding contract — offer, acceptance, and consideration — the physician who signs an agreement not to solicit former patients or employees of the employer should expect this agreement to be enforceable.

As of this writing, in 2016, restrictive covenants are among the most contentious issues in Oregon employment law. This is true generally, and is also true with regarding to physician contracts. A recent decision from U.S. District Court in Oregon is illustrative. See Pacific Kidney & Hypertension, LLC v. Kassakian, 2016 WL 223709, 156 F.Supp.3d 1219 (D.Or. 2016).

In Kassakian, the physician employee provided nephrology services to employer’s patients. The employment agreement contained noncompetition and nonsolicitation provisions. The nonsolicitation of patients provision applied for 2 years and the noncompetition agreement was for a period of 1 year (note that ORS § 653.295 was amended effective Jan. 1, 2016 to allow a maximum period of 18 months for a noncompetition agreement; the prior limit was 2 years).

Notably, the “restricted area” was within a 25 mile radius of where the physician practiced. For a breach of the provisions, the contract provided for liquidated damages of compensation equal to 1 year’s salary. The physician’s salary was $144,000 annually for a four-day workweek with benefits and bonuses.

The contract met the four threshold requirements of ORS § 653.295: it was provided to the physician two weeks before her first day of work, the physician was clearly a “professional” within the meaning of ORS § 653.020(3), the employer had a “protectable interest” in the form of access to “trade secrets” as defined by ORS § 646.461 (“at least in the form of a confidential customer list” according to the court), and the physician’s salary was greater than the median income of a family of four as measured by the U.S. Census Bureau.

After a year of employment, physician provided employer with her 90 day notice of termination and intention to begin employment with a “direct competitor” within the “Restricted Area” of a 25 mile radius. The physician also tendered $145,299 to employer in an attempt to satisfy the liquidated damages provision. The employer rejected the check, returned it to employee, and sued to enforce the restrictive covenants. The employer sought, among other things, a temporary restraining order and injunctive relief (in essence, a judicial order preventing physician from working at new employer, for the applicable time period and within the Restricted Area).

Spoiler alert: the federal court granted a partial restraining order despite the fact that the evidence indicated that the demand for nephrologists in the Portland vicinity appears to exceed supply and some Portland-area patients must wait a very long period of time to see a nephrologist. New employer’s Clinic President testified that there is a wait time of two to three months for scheduling new patients at new employer’s clinic.

As a factual finding, the court noted that several of physician’s patients at employer wanted to continue receiving treatment from physician. Furthermore, the court noted that the AMA Code of Medical Ethics Opinions indicate that physicians should avoid entering into restrictive covenants that “do not make reasonable accommodation for patients’ choice of physician.”

Nonetheless, the Kassakian Court noted that two Oregon decisions — one from the Supreme Court in 1964 and one from the Court of Appeals in 1982 — have held that enforcement of a physician’s noncompetition agreement does not violate Oregon public policy. The U.S. District Court observed that although the Oregon Supreme Court could choose to overrule those cases, it has not done so to date. Whether a physician’s noncompetition agreement is void as against public policy “is a question that only may be decided by the Oregon Supreme Court in exercising its common law authority or by the Oregon legislature.” To unpack this conclusion, for readers who are not lawyers, a federal court sitting in diversity jurisdiction applies the substantive law of the state in which the federal court is located; hence, the federal court in Oregon does not ‘make’ Oregon law but instead attempts to apply Oregon law as it exists.

The U.S. District Court ultimately held in Kassakian that (a) physician could not solicit former patients, but (b) she could treat patients she had treated at former employer if the patients came to her at new employer without any direct or indirect solicitation on physician’s part.

The lesson from Kassakian is that Oregon law does not preclude noncompetition agreements and nonsolicitation agreements as to physicians and medical professionals. Assuming all the other prerequisites are satisfied, such agreements are enforceable against physicians just as they may be for other Oregon professionals, executives, and administrators. Therefore, it is imperative that physicians carefully study the specific language of the restrictive covenants in their contracts. In many communities in a state such as Oregon, a 25-mile “restricted area” can effectively guarantee that a physician will be required to relocate to continue his or her career upon departure from employment in light of an enforceable noncompetition agreement.

In sum, the language of restrictive covenants is often unique and we recommend that any physician with questions concerning their employment contracts – and especially the restrictive covenants – seek legal advice from an experienced Oregon employment attorney.

Noncompetition and nonsolicitation litigation, or arbitration, can be very expensive. Proceedings for injunctive relief are expedited and attorney’s fees of tens of thousands of dollars can accrue very quickly.

Dispute Resolution

Among the other important provisions you may find in a physician employment contract will be dispute resolution clauses, including arbitration agreements. These agreements will require you to present any formal disputes over your contract to an arbitrator or arbitrators rather than filing a complaint in court where the issues would be resolved by a judge or jury (there are of course licensing bodies with jurisdiction over many aspects of the physician’s practice, but here we are talking about a contract dispute over employment matters).

Most employees who have signed arbitration agreements have at best a fuzzy recollection of having done so. While everything is negotiable, if your employer has included an arbitration agreement in your employment contact, that provision may not be negotiable. Nonetheless, you should at a minimum understand what you are agreeing to. By signing an arbitration agreement, you will give up the right to a jury trial, the right to appeal, and the right to utilization of a public forum for conflict resolution (as extra-judicial arbitration of a physician contract will be resolved in private). You will likely have assumed obligations to pay for a part of the proceedings, including arbitrator’s fees (filing fees are typically paid by the litigants in any event, whether in court of arbitration). Along with the arbitration clause, the employment contract may also contain an attorney’s fee provision. If this provision is a one-way fee provision, purporting to allow only the employer to recover attorney’s fees, Oregon law will require that the provision be interpreted with mutuality. ORS § 20.083.

While you may or may not have a choice whether to accept a contract containing an arbitration provision, it behooves Oregon physicians to educate themselves about their rights and options under the contracts they sign. Read your employment contract and ask questions if there are any aspects of the agreement that you may not understand.

Conclusion

This article is not legal advice and is of course extremely general in nature. As mentioned above, if you have questions after reading your employment contract very carefully you should seek legal advice from an Oregon employment lawyer before signing. The attorneys at Vogele & Christiansen are experienced and happy to help with most Oregon employment contract issues.