No contract? No good!

December 2, 2005

Leaving things to chance can spell disaster for your practice, the author says.

Unless there's gobs of money at stake, most couples who plan to marry don't need a written contract before saying "I do." But that's certainly not the case when you're hiring another physician to work for you. When your employees don't have things spelled out for them in writing, bad things can happen to your practice. Let me illustrate with a case I was involved in:

A surgical client called us for advice; he had a physician employee who said he wanted to become a partner. The employee, whom I'll call Dr. Smith, was working without a contract. This meant, of course, that none of the typical employee/employer agreements-restrictive covenant, nonsolicitation of records and employees, a buy-in formula or price, and damages for breach of contract-had been spelled out in advance. Despite this, Dr. Smith had been assigned wide-ranging responsibilities within the practice. Besides assuming all surgical work (our client had decided to cease his completely), Dr. Smith was in sole charge of the practice's key satellite office, where he saw all patients.

I interviewed him to identify his real intentions, while at the same time initiating a search should he need to be replaced. His true strategy, I discerned immediately, wasn't to become a partner at all but to depart as his second anniversary with the practice approached, at which time he believed he could take half of the patients with him. Try as I might, I couldn't convince our client of his employee's real intentions. He continued to regard him as an honorable fellow who would stay with the practice forever.

What none of us realized, however, was that Dr. Smith had already begun exercising his strategy. He'd signed a lease for an office across the street; begun to copy patient records; recruited practice employees to join his new practice; and started to market his surgical services. Still, our client continued to believe in his employee, and even agreed to pay him three-months severance after he finally submitted his notice. We, on the other hand, were unceremoniously dismissed-accused of driving the good Dr. Smith out of the practice!

Before long, our client came to know better. Besides leaving with four of the practice's top employees, Dr. Smith siphoned off as much as 50 percent of its patients, and an eye-popping 70 percent of its cash flow. Our former client had to borrow $250,000 just to stay in business. Recently, through a combination of sheer determination and hard work, he's started to recoup, winning back many of his former patients and all of his former employees. He's even called us to say: "Sorry, you were right."

The lesson here is that employer-employee relationships may evolve into friendships-and sometimes even marriages. But, at base, they're financial arrangements, and they require a written employment agreement. Depending on circumstances, that agreement should contain all or most of the following items:

Spelling out expectations in each of these areas will help to protect you, whether you're the hiring physician or the one being hired.