Severance agreements: What physicians need to know

February 12, 2020

Understanding non-compete clauses and other issues that physicians must confront in such agreements.

Whether it is your first job after completing medical training, or you are a mid-career physician, it is wise to examine not just the common features of an employment agreement-compensation, job duties, liability insurance, non-compete clauses, among others-but what happens at the point of termination, or the ending of the job. 

At its most basic, “a severance agreement generally looks at the employment situation at the point of termination or the ending, whereas the employment contract governs the terms while the employee is employed, “according to Justin A. Morocco, an attorney with Mowery Youell & Galeano, in Dublin, Ohio.

Severance agreements generally deal with “things like a release of claims, continuation payment of earnings beyond termination and dissemination of information like references and non-compete clauses,” Morocco added.

Severance agreements are typically offered to minimize the risk of potential litigation after an employee leaves his or her job. These agreements provide money and benefits in exchange for a release or waiver of liability from all claims connected with the employment relationship. The U.S. Equal Opportunity Commission website, https://www.eeoc.gov/policy/docs/qanda_severance-agreements.html, provides further information about the civil rights laws that are typically included in these agreements and whether these waivers are valid.

However, two important legal aspects should be highlighted about severance agreements. First, they do not preclude an individual from filing and receiving a monetary award from a government-administered whistleblower program.

Second, the agreement can’t include a waiver of any claims that may arise after the execution of the agreement. For example, filing a claim that an employer retaliated against the employee by giving an unfavorable reference to a prospective future employer.

Why do employers typically offer severance agreements?

There are three main reasons companies offer severance agreements, according to Morocco.

First, they are seeking to prevent an employee from suing the employer as “this can impact whom they hire to replace someone (as this can be a factor in discrimination suits) or whether they will have (unfavorable) information discovered as part of a court case,” he said.

Second, it is a reward in consideration of the length of service the employee has given to the employer.

Third, it is often a common feature of executive contracts, especially for physicians who are entering the C-suite (CEO, CMO, etc.). For physicians entering these executive-level positions, it has become an industry standard to have these types of agreements in place.

What are the positive features of these of these agreements?

On the positive side, it provides you a source of income and benefits if you do not have another job immediately available. For example, the agreement may include a twelve-month salary continuance and the opportunity to purchase health and dental benefits at employee rates. These contracts may also include the opportunity to convert employee-purchased insurance policies from group ones to individual ones. The agreement may also highlight how retirement benefits, tuition assistance, loans and outplacement services will be handled.

Another feature that may be addressed is if the employee lands another job while still receiving his or her salary continuation. For example, say you accept another job four months after your departure date and you have a twelve-month agreement with a six-month offset provision.

In this case, you will continue to receive your salary throughout the entire first six months while the remaining six months will be offset by any amount earned during this time. If your new job’s salary were higher, you would not receive any money during those remaining six months.

What are the difficult aspects of consenting to these agreements?

Anyone who is confronting a severance agreement has to consider what I call “the three nons.” They are:

·      the non-compete,

·      non-solicitation, and

·      non-disparagement clauses.

Typically, you will be subject to a non-compete clause. It is important to understand that states interpret non-compete clauses very differently so it is important to consult an attorney to see whether or not the company’s proposed non-compete area is too restrictive. For example, if you are a physician who is part of a large healthcare entity that has facilities in many different counties it may not be reasonable for the company to exclude you from working in say half of the state, but rather a specific distance from where you practice.

However, if you are a physician executive that is privy to your entire organization’s strategy, even though you may work in a specific geographical location, you may be given an agreement that precludes you from working in those other locations for a period of time so that you can’t take that operational knowledge to a competing organization.

The second non is a non-solicitation clause. This typically states that if you sign the agreement you will not try to hire employees from your previous employer. The third non is a non-disparagement clause. This prevents you from speaking poorly of the employer and its officers, directors, employees or agents after you leave the organization whether orally, in writing, or even using the Internet and social media to vent your complaints.

Often the employee will ask for reciprocity and demand the company not disparage the employee, but more and more companies demand that only a few key individuals be named because of the difficulty of preventing say thousands of employees from speaking about you. However, you can expect that if the company receives requests from other potential employers about you they will give a neutral reference, in that they will only release factual information about your time in the company such as length of employment, job duties and responsibilities, etc.

Although severance agreements bring up potentially unpleasant aspects of leaving a job, it is critical that you understand these agreements and do not immediately sign one just because the promise of a salary continuation gives you time to work on finding new employment. The employer is not looking out for your best professional and economic interests when you are offered a severance agreement, but if you consider hiring an employment lawyer, he or she can negotiate one that results in a more favorable agreement on your behalf.

Also, he or she can give objective, rationale, actionable advice that doesn’t damage future career opportunities especially if you are upset at the time of your departure. Physicians typically keep a calm, empathetic, professional attitude when patients and their families are upset or frustrated about an aspect of care. Here is a situation where the legal profession can actually help physicians navigate a potentially frustrating situation and allow him or her to successfull move on to their next opportunity.

Joseph M. Geskey is the Vice President of Medical Affairs at OhioHealth Doctors Hospital in Columbus, OH. He is currently working on a book about the healthcare experiences of patients with limited health literacy and challenging social determinants of health in the digital and technological era medicine is embracing.