Which Employees of a Healthcare Practice Should Be Covered By Employment Contracts?

Most medical practices treat the decision to require employment contracts for new physicians as almost automatic. But should you consider such agreements for your other staff? We help you evaluate.

Employer reviewing over an employment contract.

When you employ physicians (or other providers), it seems straightforward enough to ensure that they be bound by employment agreements. Their unique skill sets, access to confidential and proprietary information, and overall value to the practice require that you outline both permissible and “out of bounds” actions that may put the organization at risk. 

Additionally, the client base and reputation that physicians build are essential to the business’s livelihood. As a result, savvy practice owners give forethought to the terms of a physician’s potential termination or departure. 

The role of a physician is well established. In any practice, they serve similar, if not identical, functions and present much of the same baseline risk for practice groups. Because those similarities stretch across the industry, the blanket statement that “physicians need employment contracts” is universally accepted and applied. 

Do non-physicians need employment contracts?

From practice managers, advanced practice providers, clerical staff, and everyone in between, it’s more challenging to determine when employment contracts make sense. We suggest approaching each role individually. You’ll want to evaluate the potential risks that exist if the employee filling that role operates without a contract.

First, update, review, and analyze job descriptions. If employees are working beyond the scope of their job descriptions, gaps—and, therefore, more risk—may appear. This exercise is especially important for job titles with duties that are malleable across the industry. Practice managers, for example, may have more responsibility and more or less exposure to confidential information (including PHI covered by HIPAA) in different practice groups. 

Next, determine which employee roles present risk or exposure to the practice. Look at the employee’s exposure to confidential information, interactions with patients, and access to company information. Is your practice protected if an employee quits and joins a competitor practice down the road? What information would you like to protect? Should she be restricted from anything?

Determining the level of protection

According to many HR professionals, for most positions, “it is best to avoid employee contracts unless there are specific and legitimate reasons for them.” In their view, the employee handbook is the best tool for you and most of your employees. 

If you determine that restrictive covenants for a role in your practice group would lessen the risk of harm, then the employees in that role should be covered by:

  1. Your comprehensive Employee Handbook. You handbook should includes updated and thorough policies as well as a Confidentiality Agreement,  HIPAA Compliance Contract, and perhaps an Arbitration Agreement; or
  2. A stand-alone agreement (e.g., Non-Solicitation or Non-Compete) that does not need to be part of a larger Employment Agreement; or
  3. A fully executed Employment Contract.

These ascending options allow you to impose protections at as minimal a level as needed—protecting employer rights like “at-will” employment. It decreases multiple, varying, and cumbersome contracts affecting each employee relationship differently. It also allows employers in multiple states to move more freely through state laws.  

Restrictive covenants lessen risk

There are four basic types of restrictive covenants that can lessen risk and protect your practice group if included in employment contracts. The goal is to ensure that restrictions on the employee are not so burdensome that they hinder the ability to perform the job well, yet not so permissive as to over-expose the practice.

Non-Competition Provision

Non-competition provisions (often called “non-competes”) prohibit a former employee from competing against his or her former employer within a particular geographic area for a specified period. These are considered the most restrictive. Be aware, however, that some states prohibit such provisions. 

Non-Solicitation Provision

Non-solicitation provisions prohibit ex-employees from soliciting their former employer’s current, prior, or prospective customers for a specified period. Take a look at our blog post on some of the nuances of Non-Solicitation provisions.

“Anti-raiding” Provision

Patient or client non-soliciation provisions, also known as “anti-raiding” clauses, prohibit a former employee from soliciting the former employer’s employees, for example, to work at a competing business. 

Moonlighting Provision

Moonlighting provisions restrict an employee from taking a job with another company should that outside work interfere with their ability to perform their job duties at your practice. A moonlighting policy does not explicitly prevent employees from holding outside employment. It merely informs the employee of what they’ll need to do to retain their position with your company.

Such a provision can require that an employee ask permission before taking on an additional job. It should also set the expectation that the employee must first meet the demands of their current job. Employees should be informed that their employment could be terminated if their second job interferes with their ability to perform the duties of their current job.

Anti-moonlighting provisions extend these restrictions further. They prohibit the employee from all outside work.

Confidentiality Agreement

Confidentiality agreements prevent a former employee from disclosing or using a former employer’s proprietary or confidential information, or the information of the employer’s customers. The information at issue need not constitute a “trade secret” per se; it must simply be confidential and not publicly available. 

According to the American Bar Association, for each of these provisions, and all contract terms:

The most critical points to keep in mind are that the enforceability of restrictive covenants depends on state law and that the law varies by state . . . The majority of states assess restrictive covenants based on a “reasonableness” test.

That is, a restrictive covenant is considered reasonable, and thus enforceable, if the restrictions are in place to protect a legitimate business interest, and they do not impose an undue hardship on the employee.  

Finding the right balance

The steps above may make employee contracting appear to be an unambiguous process. Understand, though, that such agreements affect both the employee and the employer at varying levels of restriction. When you impose an employment contract on a particular role, you may disincentivize potential candidates. You may also strain your ability to reorganize and manage your practice’s employee roster. It’s a delicate balance. You want to protect the organization and its value, while appropriately allowing for your ability to protect and manage your practice and allowing former employees the ability to pursue new opportunities. 

Also, employment contracts, like all legal agreements, create an environment with the potential for lawsuits and costly litigation. Therefore, consider the least restrictive means possible to protect your practice. Consult with legal professionals familiar with the ever-evolving healthcare industry. They can help you put in place adequate protection and proper engagement of restrictive covenants with non-physician employees.  

Reach out to the healthcare attorneys at Jackson LLP to learn more. We can help you develop the employment contracts, staff policies, and employee handbooks appropriate for your practice. Schedule a free consultation through our booking page or the button below.

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader and should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

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