Employment Contracts Need to Ensure Physicians are Free Agents

Physicians often have medical interests other than clinical practice. A restrictive employment agreement could quash those endeavors. Physician employment agreements play an integral role in establishing the legal, financial and operational structure of the relationship between employer and physician/employee.

One clause of particular interest to many physicians is the clause defining what a physician can and cannot do outside of providing medical services on behalf of their employer—meaning, can the physician engage in such outside activities as moonlighting, volunteering, or serving as an expert witness? Moreover, if income is generated from these outside activities, who does that income belong to—the physician or the employer?

These questions should be clearly answered in the employment agreement. And if the answers in the employment agreement do not mirror the physician’s wishes, then these terms should be negotiated with the employer and memorialized in the employment agreement.

Consult Your Contract

The first question is whether the physician is even permitted under the employment agreement to participate in activities or perform services outside of employment. Some employers prohibit engagement in outside activities and services altogether, while other employers permit certain activities that do not interfere with the physician’s day-to-day responsibilities. Physicians should be aware of requirements that give the employer the right to approve or reject outside activities. If the physician wants to be able to engage in moonlighting, expert witness consultations and testimony, speaking opportunities, volunteer efforts, teaching, research or publishing, the physician’s desired activities should be specifically identified in the employment agreement as permitted activities.

For example: Dr. A was joining a medical practice and was presented with the group’s template employment agreement. The draft agreement precluded Dr. A from participating in any medically related outside activities. In the past, Dr. A had served as a volunteer doctor for the local marathon, a medical expert witness, and was a frequent paid speaker at conferences. For Dr. A, a prohibition on outside medical activities did not align with his interests. With minimal discussion, the practice permitted Dr. A to identify the outside activities that he could conduct without violating his employment agreement:

Consult your malpractice insurance carrier to confirm whether certain outside activities are covered under the policy.

“Notwithstanding the foregoing, Dr. A shall be permitted to engage in the following activities (each a “Permitted Activity”), so long as such activities do not materially interfere with his duties under this Agreement: (i) civic, philanthropic and community service activities, including, without limitation, volunteering for the [local] Marathon and (ii) speeches, publications, lectures, expert consultations, and expert testimony which do not involve or relate to services performed by the Practice.”

If a physician is permitted to engage in outside activities or services, the second question is whether income generated from such activities belongs to the physician or the employer. This often is a topic of negotiation. Physician and employer frequently do not see eye to eye on this issue. Physicians, on the one hand, often view the income generated from permitted outside activities to be separate and apart from his or her services on behalf of the employer, and thus are outside the reach of the practice. This position is strengthened if the activity occurs on the physician’s own time and outside of the employer’s hours of operation. Employers, on the other hand, often view income from outside activities as part of the employment relationship with the physician. Some employers are of the belief that the physician would not have had the opportunity to participate in the outside activity but for the physician’s employment with the particular employer.

Dr. A’s employer felt that it already was conceding by allowing Dr. A to engage in outside activities and insisted that any payment received by him for these services should be remitted to the practice. Dr. A agreed to this and negotiated for the outside activity monies to be included in his collection amounts, which was a factor in calculating Dr. A’s compensation:

“All monies received by Dr. A from the Permitted Activities shall be remitted to the Practice and shall be included as employee collections in calculating Dr. A’s compensation under this Agreement.”

The last question is whether outside activities are covered by the physician’s malpractice insurance policy. If the employer provides the policy for the benefit of the physician, the employer—and the malpractice insurance carrier—may exclude activities performed by the physician outside of his or her employment with that employer. This is often an issue for physicians who want to moonlight, as moonlighting for a third party frequently is excluded from coverage. It is important that the physician consult the malpractice insurance carrier to confirm whether certain activities are covered under the policy. It may be the case that a separate policy is required to insure the physician’s outside activities, even those activities that are unpaid.

Contract clauses describing what the physician can and cannot do outside of the employment relationship are of key importance. These clauses should mirror the individual physician’s medically related and extracurricular interests, and the financial benefits of these activities—if any—should be addressed in the employment agreement. Don’t forget to check with the insurance carrier to ensure that the activity is covered by the policy, as even volunteering medical services could expose a physician. It is best to address these issues at the onset of the employer-employee relationship. That way, all parties are on the same page from the beginning.

Steven M. Harris, Esq., is a nationally recognized health care attorney and a member of the law firm McDonald Hopkins LLC in Chicago. Write to him at sharris@mcdonaldhopkins.com.

Reprinted with permission from the Society of Hospital Medicine.

Inventions and Discoveries

Physicians interested in developing proprietary technology (e.g., devices, techniques or software) should be aware of who will own their inventions and discoveries. Even though a physician might have invented a new technology, his or her employer may very well own the rights to that technology. Here is a checklist of key items to look out for:

• Do you have an employment agreement that requires you to assign inventions and copyrights to your employer?
• Does your employee handbook address ownership of inventions and copyrights?
• Are you subject to a research and development or technology transfer policy? Generally, if you or your employer is affiliated with a teaching hospital or academic institution, you are likely subject to these types of policies.
• Does your employer participate in government-funded research or have a technology transfer office?

Even if the answers to these four questions are “no,” you are not necessarily in the clear. Many additional factors can affect whether your employer has rights to your inventions and discoveries. For example, when you invented the technology, did you use your employer’s resources (e.g., laboratory time, personnel, supplies, computers, office space)? Was the invention made on your own time, outside of office hours? Are you also an officer or director of your employer?

The answers to these and other questions can affect who has rights to technology that a physician might invent or discover. If rights to and ownership of technology are a concern, this should be explicitly addressed with your employer, ideally prior to executing your employment agreement.