Home | Drafting and Negotiating Professional Employment Contracts
Drafting and Negotiating Professional Employment Contracts
DRAFTING AND NEGOTIATING PROFESSIONAL EMPLOYMENT CONTRACTS
Physicians. Insurance agents. Accountants. These are just a few of the many professionals who are often expected to sign employment agreements.
While there are a number of key elements generally addressed in a professional employment agreement, the actual terms of such agreements can widely differ and make a significant difference in a professional’s compensation, benefits, tenure, and permissible post-employment activities.
The following are some provisions to think about:
Duration. Some employment agreements provide that the employee is an “at-will” employee who can be terminated at any time, with or without cause. Other contracts contain a fixed term (e.g. one or two years) and allow the agreement to be automatically renewed if not terminated within a certain window.
An employment contract should specify when and how the contract may be terminated. Fixed term contracts generally provide that the contract may be terminated at any time with the agreement of the parties, or “for cause.” The definition of “for cause” varies widely and is often a subject of negotiations between professionals and their employers. Employers may want broad discretion to deem minor infractions (e.g., “illegal conduct,” which could be a parking ticket) or vague discretionary language (e.g., “unacceptable behavior”) as constituting “cause” for termination. Employees generally want to narrowly define “for cause” as serious matters that affect potential job performance, such as loss of a professional license, felony-level conviction, material breach of a significant contract term, fraud or embezzlement, or the use of illegal drugs.
Employees and employers often negotiate due process protections to give the employee an opportunity to “cure” or remedy an alleged infraction before a contract may be terminated for cause.
The contract may also provide for termination in the event the employee becomes disabled and unable to perform his or her job duties for a certain period of time. The time period is often subject to negotiation.
Professional Job Duties. The contract should delineate the job duties the professional is expected to perform as part of the employment relationship. It is important that the job duties be sufficiently specified, especially if the professional may be terminated “for cause” for not fulfilling the duties.
Performance Expectations. The contract may set forth the performance standards used to measure whether the employee is adequately performing the job or entitled to incentive compensation. As noted above, some contracts give employees an opportunity to negotiate, or “cure”, any performance problems prior to termination or disciplinary action.
Compensation. The contract should set forth all compensation to be paid to the professional, including any base salary, commissions, and incentive compensation. For incentive compensation, it is important to carefully delineate the amount, formula, and qualifying events. The contract should also identify the fringe benefits to which the employee is entitled, such as health insurance, life insurance, disability insurance, severance, and retirement, pension, deferred compensation, and 401(k) benefits.
Employee Obligations. There are a number of employee obligations that may be delineated in a professional employment agreement, such as:
Any professional autonomy.
Whether the employee may engage in outside activities and, if so, the nature, scope, and extent of any permissible outside activities and whether the employee may be compensated for such activities.
Requirements that the employee behave ethically and in accordance with professional expectations and organizational policy.
An obligation to maintain all professional licenses and to notify the employer of licensing investigations.
Employer Obligations. There are also a number of employer obligations that may be contained in a professional employment contract, such as:
The infrastructure support to be provided by the employer, such as office space, staff, supplies, equipment, services, and the like.
Whether the employer is responsible to pay or reimburse the employee for reasonable work-related expenses, such as cell phones, cars, travel, continuing education, professional licensing, professional membership dues, and the like.
Whether the employer is responsible to pay for professional liability insurance, both during employment and after employment ends. This is an important consideration. Professional liability insurance can be expensive. Employers generally provide “claims made” professional liability insurance that covers the professional while employed, but the coverage often ends when the professional leaves the organization. A “tail policy” can provide coverage for the professional after employment ends. In some cases, the parties may negotiate who is responsible to pay for the “tail coverage.”
Whether the employee has any eventual ownership or partnership opportunities in the organization.
Whether the employer is responsible to provide training or to pay for or assist the professional in marketing his or her services.
The amount and accrual of any vacation or personal leave.
Post-Termination Obligations. Professional employment agreements may restrict the ability of the employee, after employment ends, to (1) use confidential information obtained during employment, (2) compete in the same field for a defined period, or (3) solicit or service past clients, patients, or customers for a defined time period. Such provisions may significantly impact the professional’s ability to earn a livelihood. Overly broad provisions may be unenforceable.
Factors to consider—which may be the topic of negotiations—include:
The geographic radius in which the professional is prohibited from competing or soliciting past contacts.
The time period for which the employee is prohibited from competing or soliciting past contacts.
The scope and nature of any work that cannot be performed during the covenant period.
Which clients, patients, or customers the professional may not solicit. For example, does the non-solicitation covenant extend to customers, clients, or patients that (1) he or she actually dealt with, (2) who anyone at the employer dealt with, or (3) who the employer marketed to? Does it extend just to individuals who were current clients or patients at the time of termination of employment, or to current or former clients or patients?
The remedies to be imposed if a covenant is violated.
Third Party Assistance. It can be advantageous for both employers and professionals to retain an attorney to assist in the drafting and negotiation of an employment agreement. The attorney can ensure that the agreement is fair, clear, and accomplishes the parties’ intent. Furthermore, it can be awkward for an employer and prospective employee to directly negotiate contract terms and to “butt heads” over any differences. The involvement of an attorney can help remove this discomfort and keep the new employee-employer relationship moving forward on solid footing.
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Swanson Hatch, P.A. is a Minneapolis law firm with an extensive health care and insurance practice. The firm regularly represents physicians, insurance agents and insurance agencies, and others in drafting, negotiating, and enforcing professional employment contracts and in a variety of other legal matters. The firm was founded by two former Minnesota Attorneys General: Mike Hatch and Lori Swanson, who consecutively served as Attorney General of the State of Minnesota for 20 years, from 1999 to 2019. Lori Swanson served as Attorney General from 2007 to 2019. Prior to that, she served as Solicitor General of the State of Minnesota and Deputy Attorney General. She was previously Chair of the Federal Reserve Board’s Consumer Advisory Council in Washington, D.C. Mike Hatch served as Attorney General from 1999 to 2007. Prior to that, he served as Commissioner of the Minnesota Department of Commerce for seven years. Hatch and Swanson have handled and supervised thousands of regulatory enforcement cases. They may be reached at 612-315-3037. Visit their website at www.swansonhatch.com.
www.swansonhatch.com
431 South Seventh Street, Suite 2545
Minneapolis, MN 55415 612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
Physicians. Insurance agents. Accountants. These are just a few of the many professionals who are often expected to sign employment agreements.
While there are a number of key elements generally addressed in a professional employment agreement, the actual terms of such agreements can widely differ and make a significant difference in a professional’s compensation, benefits, tenure, and permissible post-employment activities.
The following are some provisions to think about:
Duration. Some employment agreements provide that the employee is an “at-will” employee who can be terminated at any time, with or without cause. Other contracts contain a fixed term (e.g. one or two years) and allow the agreement to be automatically renewed if not terminated within a certain window.
An employment contract should specify when and how the contract may be terminated. Fixed term contracts generally provide that the contract may be terminated at any time with the agreement of the parties, or “for cause.” The definition of “for cause” varies widely and is often a subject of negotiations between professionals and their employers. Employers may want broad discretion to deem minor infractions (e.g., “illegal conduct,” which could be a parking ticket) or vague discretionary language (e.g., “unacceptable behavior”) as constituting “cause” for termination. Employees generally want to narrowly define “for cause” as serious matters that affect potential job performance, such as loss of a professional license, felony-level conviction, material breach of a significant contract term, fraud or embezzlement, or the use of illegal drugs.
Employees and employers often negotiate due process protections to give the employee an opportunity to “cure” or remedy an alleged infraction before a contract may be terminated for cause.
The contract may also provide for termination in the event the employee becomes disabled and unable to perform his or her job duties for a certain period of time. The time period is often subject to negotiation.
Professional Job Duties. The contract should delineate the job duties the professional is expected to perform as part of the employment relationship. It is important that the job duties be sufficiently specified, especially if the professional may be terminated “for cause” for not fulfilling the duties.
Performance Expectations. The contract may set forth the performance standards used to measure whether the employee is adequately performing the job or entitled to incentive compensation. As noted above, some contracts give employees an opportunity to negotiate, or “cure”, any performance problems prior to termination or disciplinary action.
Compensation. The contract should set forth all compensation to be paid to the professional, including any base salary, commissions, and incentive compensation. For incentive compensation, it is important to carefully delineate the amount, formula, and qualifying events. The contract should also identify the fringe benefits to which the employee is entitled, such as health insurance, life insurance, disability insurance, severance, and retirement, pension, deferred compensation, and 401(k) benefits.
Employee Obligations. There are a number of employee obligations that may be delineated in a professional employment agreement, such as:
Employer Obligations. There are also a number of employer obligations that may be contained in a professional employment contract, such as:
Post-Termination Obligations. Professional employment agreements may restrict the ability of the employee, after employment ends, to (1) use confidential information obtained during employment, (2) compete in the same field for a defined period, or (3) solicit or service past clients, patients, or customers for a defined time period. Such provisions may significantly impact the professional’s ability to earn a livelihood. Overly broad provisions may be unenforceable. Factors to consider—which may be the topic of negotiations—include:
Third Party Assistance. It can be advantageous for both employers and professionals to retain an attorney to assist in the drafting and negotiation of an employment agreement. The attorney can ensure that the agreement is fair, clear, and accomplishes the parties’ intent. Furthermore, it can be awkward for an employer and prospective employee to directly negotiate contract terms and to “butt heads” over any differences. The involvement of an attorney can help remove this discomfort and keep the new employee-employer relationship moving forward on solid footing.
Swanson Hatch, P.A. is a Minneapolis law firm with an extensive health care and insurance practice. The firm regularly represents physicians, insurance agents and insurance agencies, and others in drafting, negotiating, and enforcing professional employment contracts and in a variety of other legal matters. The firm was founded by two former Minnesota Attorneys General: Mike Hatch and Lori Swanson, who consecutively served as Attorney General of the State of Minnesota for 20 years, from 1999 to 2019. Lori Swanson served as Attorney General from 2007 to 2019. Prior to that, she served as Solicitor General of the State of Minnesota and Deputy Attorney General. She was previously Chair of the Federal Reserve Board’s Consumer Advisory Council in Washington, D.C. Mike Hatch served as Attorney General from 1999 to 2007. Prior to that, he served as Commissioner of the Minnesota Department of Commerce for seven years. Hatch and Swanson have handled and supervised thousands of regulatory enforcement cases. They may be reached at 612-315-3037. Visit their website at www.swansonhatch.com.
www.swansonhatch.com
431 South Seventh Street, Suite 2545
Minneapolis, MN 55415
612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
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Swanson | Hatch, P.A.
431 S. 7th Street, Suite #2545
Minneapolis, MN 55415
612-315-3037
www.swansonhatch.com