Steps to follow if closures or layoffs become necessary due to COVID-19

April 8, 2020

Physician practices are struggling with how to handle physician and mid-level employment contracts in light of the COVID-19 pandemic.

Physician practices are struggling with how to handle physician and mid-level employment contracts in light of the COVID-19 pandemic.

Although a practice may not be required to close, many have cancelled elective visits and procedures. This has greatly impacted patient volume and revenue and may require them to close eventually. Even in practices that continue to offer some patient services, cutbacks are imminent. 

Physician and mid-level employment agreements generally do not apply to extreme situations such as COVID-19. Most contracts are terminable either without cause (which typically requires 30-90 days prior notice) or for cause. Employment contracts invariably require both the employer and employee to agree to any amendment. As a result, an employer risks potential liability if it unilaterally reduces a provider’s pay or hours.

While there are common law doctrines that arguably provide a basis for a practice not to fulfill its obligations under an employment agreement, the applicability of those doctrines to a situation such as the COVID-19 pandemic is uncertain.  

As a result, practices are faced with the need to negotiate with salaried employees for reduced hours and/or compensation in order to remain in operation during this pandemic. Many practices have successfully negotiated such agreements since some staff want to be home and others are willing to take less pay or work fewer hours to preserve their benefits and their jobs.

But remember that any such modifications to employment contracts should be in writing to be enforceable and to avoid liability because the practice failed to follow the terms of the contract. Practice owners and managers should refamiliarize themselves with paid time off or other policies the practice has in place. They should also be sure to offer similar deals to all contacted practitioners to avoid any claims of illegal discrimination. 

Practices with employees who are unable or unwilling to cut back hours or accept modifications to their contracts may have no choice but to provide notice of termination as soon as possible. E.g., if this pandemic continues, but the notice period in a provider’s employment agreement for termination without cause is 60 days, the practice will at least get relief from its obligations to compensate the provider after 60 days, but before the pandemic ends.

While termination of a valued employee under these circumstances is unfortunate, it may be unavoidable. Paying an employee during the notice period may also be a challenge for the many practices that may be struggling to survive in the coming months.   
The following steps should be followed by practices as closures and layoffs become necessary:

1 Review your practice contracts and policies so you are familiar with scheduling and compensation obligations. Review which employees have contracts and how those contracts might differ.

2 Consider whether to close the practice and if this will be temporary or permanent. If you continue operating, can you lay off employees or cut hours, and what will be required to do that? Establish a timeline for when these decisions will need to be made. This is critical if you need to terminate employees without cause and continue to pay them during the notice period. 

3 Work with your employees to determine their flexibility. You may be surprised to find, for example, that some are willing to give up compensation as long as they have benefits. Others may take lower pay or fewer hours to help the practice survive.

4 Many states will provide special unemployment options for workers who have been laid off or had their hours reduced due to the pandemic. Make sure you and your employees understand the support available in your state. Even an employee who suffers a reduction in hours may be eligible for a partial benefit. 

5 Check the resources available to your practice. Many banks are making it easier to draw on lines of credit or borrow funds. The SBA is helping small businesses in many states. For example, Ohio recently sent certification to the SBA seeking an economic injury declaration related to the coronavirus. This will make funds more readily available to small businesses, and we expect to see other states follow suit.

6 Practices should look at all possible avenues to survive the weeks and months ahead. Consider the increased flexibility for telemedicine options that have been put in place during the COVID-19 emergency to see how they may benefit your patient volume and bottom line. Consider home visits, or limited services that will allow patients to feel secure in the practice’s office. 

7 Check your insurance policies to see what coverage you may have to cover business interruption and similar claims.

8 Determine if there are expenses that can be reduced or eliminated. For example, if your practice maintains a defined benefit pension plan, consider freezing the accrual of benefits or changing the plan’s benefit formula to reduce future contributions.
The current situation is fluid and available guidance is changing rapidly. Check with counsel and stay on top of what your state and the federal government may be doing to assist medical practices and other small businesses to survive.

 Ericka L. Adler, JD, has practiced regulatory and transactional healthcare law for more than 20 years. She represents physicians and other healthcare providers across the country in their day-to-day legal needs, including contract  negotiations, sale transactions, and complex joint ventures. She also works with providers on compliance issues such as Stark Law, Anti-Kickback Statute, and HIPAA.