Are No Moonlighting Clauses Enforceable for a Physician?

When a physician is an employee or even an independent contractor associated with an employer, there will generally be language that prohibits or requires approval from the employer if the physician wants to do what we would call outside activities. Exclusivity is one way of referring to it. Outside activities are another way of referring to it: Moonlighting, locums, that type of thing. I’d say most contracts group into outdoor activities. 

And in that case, it means that the agreement would state that if the physician wants to work for any other employer when they’re providing the practice of medicine. They must get written approval from the employer for a couple of reasons. From the employer’s side, they don’t want their employee, the physician, to engage in medicine, which may interfere with their duties to the employer. This is also specialty-dependent. Let’s say a physician is a hospitalist or works in the ED or seven-on/seven-off. The employer generally doesn’t care what they do on their week off. So, if the physician wants to pick up extra shifts, there’s usually no problem. 

However, they must let the employer know that they will do that. And then the employer would have to approve in writing that they’re allowed to do those things. Most contracts will also state if the physician is going to work outside for someone else. They also must get their medical malpractice policy that covers their work with that employer. And then most places also want the physician to provide the employer with a copy of that malpractice policy to ensure that the physician is taking proper safeguards.

Who Covers Resident Physician’s Moonlighting Malpractice Insurance?

Now, if you are a physician and you are going to moonlight or do locums or whatever on the side, that employer would provide, or at least should, malpractice insurance for you. They would be the ones to cover the cost of that policy as well. You can get a copy of that policy and then provide that to the new employer. Most employers simply don’t have a problem if the physician is going to work outside, as I said before, if it doesn’t interfere with their duties to that employer. 

Now, let’s say your primary care. Then you want to work on the weekends at another primary care office, potentially building up a patient base. Then your current employer may say, we don’t want you doing that because maybe if you leave, there would be anti-competitive behavior. And perhaps you could siphon patients away from our practice. So, no, we’re not giving you approval. You can’t do outside activities. 

But if maybe you’re a surgeon, let’s say you’re a pediatric plastic surgeon working for a children’s hospital. Still, you also want to do some general plastic surgery on the side, maybe at a surgery center for a different employer. Usually, in that scenario, the employer wouldn’t care that you’re doing things on the side if it doesn’t interfere with your general duties for your current employer.

Are Physician Moonlighting Clauses Enforceable?

Now, are these clauses enforceable? Yes, they are. Some states will prohibit wholly unenforceable non-compete clauses. I’m not going to go through every state. Still, California, New Mexico, and Massachusetts, these states prohibit the employer from putting a non-compete into the contract. However, that does not generally apply when people are employed in other jobs. It only stops having the non-compete, which always takes effect after the contract is terminated. 

But there will also generally be language that says, wow, the person is employed and working for us. They cannot compete with our employers. Or the easiest way to do it is to say. You must get written approval if you’re going to do any practice medicine anywhere while you’re employed with us. In that way, there’s no ambiguity about it. The employer then has complete control over the situation. 

Why Do Physicians Need to Disclose Outside Employment?

So, if you’re a physician and have every plan to do locums, moonlighting, whatever you want to do. At the same time, you are employed, and there’s a clause that says, either this is your only exclusive job, if you want to do anything else, you must get our approval. They absolutely can be enforced. They just can. So, in advance of signing the employment agreement, you need to know if you have a current job that you would like to continue, or maybe you have a job in mind that you’d like to pick while employed. I find going through that before signing the employment agreement is the best way. Many of the contracts will have an exhibit at the end, which lists all the outside activities pre-approved by the employer. I certainly would state that the physician should do that. They need to disclose. 

What happens if you don’t disclose outside employment? Well, you’re in breach of contract. Suppose you sign an agreement with the outside activities clause and start doing outside activities without getting approval. You are in breach of the contract, and they could potentially terminate the contract because of that. They can generally terminate it immediately in that type of situation, or maybe they would state, this is what your contract says. You can’t be doing these activities. We’re not going to terminate you; however, we will say that you must stop those activities immediately. So, that is moonlighting or at least a clause that states the physicians can’t moonlight. Enforceable? Yes, but generally, some ways of working with the employer would allow the physicians to do that.

When Is Moonlighting Prohibited?

Can a physician work locum with a full-time job? The answer to that is yes, but it will depend upon the contract wording. Most employment contracts will contain language about either exclusivity or, many times. It’s also called outside activities. And in those sections, it will state that the physician can only work for. And provide physician services to that employer unless the employer gives them specific written approval to pursue another job opportunity on their off time. This is specialty-dependent, but it is possible, but you can’t just do it on your own normally. 

Now, people who do shift work like ED, hospitalists, maybe some who are doing critical care and are only working a certain number of shifts per month. And then they have 12 to 16 shifts as a normal range for most people doing those shifts. So, they have plenty of time to do locum work. They could go to another hospital and staff that ED or do hospital work in the other hospital as well. Most employers don’t want them doing locum work for direct competitors. In any normal situation, the physician would then say to the employer.

 I have an opportunity to take a locum contract with this specific employer in this particular place. I want your written approval. And then, usually, the employer will not withhold that approval if it’s a reasonable request. As I said before, if it’s: hey, I want to work across the street with your direct competitor three times a month, it’s probably unlikely that the employer will be okay with that.

Can Physicians Moonlight With a Full-Time Job?

There are also some considerations in what’s the non-compete. Many contracts prohibit competition after the contract ends and during the contract. 

So, can physicians work locums with a full-time job? Absolutely, but it’s specialty-dependent, and they need to get written approval. I have had people say, well, do I have to do this? And then what are the repercussions if I do this without seeking permission first? Well, if it’s in the contract and it states you need to do this, meaning, get approval to work in any outside employment, and you don’t do that, then it’s a breach of contract. The employer can say, look, you signed an agreement that said you had to do this, and you didn’t do it. You’re a breach of contract, and we will terminate you for the cause. That’s one repercussion. Why do employers do this? Well, beyond the competition portion of it, they will also generally require that the physicians provide proof of malpractice insurance. 

A medical malpractice policy only covers the physician’s services for a specific employer. Just because the physicians have a malpractice policy with their employer doesn’t mean it covers them for doing services for another employer. Usually, their current employer would state yes. You can do this job. But you must provide us with proof that you have a malpractice policy that covers your services provided for them for a period. So, yes, you can work as a locum, but you need approval for the most part.

Other Blogs of Interest

• Can a Resident Physician be Fired?
• Will I be Paid My Bonus if I Terminate the Physician Contract Early?
• Surgeon Contract Negotiation Tips

Can Surgeons Moonlight? | Outside Activities and Exclusivity

Can surgeons moonlight? Simple question. And the answer is it depends. In the employment agreement, there will almost always be a section called outside activities. Sometimes, it’s called exclusivity. There will be something in there that states under what scenarios the surgeon can work for a different employer, even if it’s just part-time. Usually, it would state the surgeon must get written approval from the employer to practice medicine for any other organization while employed with the employer. 

Discuss the Scenario with the Employer Before Signing the Contract

Before signing the employment agreement, I find it helpful to discuss scenarios where the surgeon would want to do other things. For instance, maybe it’s like a plastic pediatric hand specialist. Still, they also want to do general plastics on the side or something like that. You would like to run that by the organization in advance and say, these things I’d like to do while employed. These activities will have no interference with my duties to the employer. I’ll do them on the weekends. I’ll do it all my days out. 

But I would like the opportunity to keep my skills up in that area, and I won’t be able to do that like, say, the person is employed with a pediatric hospital network. I won’t have the opportunity to do that with adults, and I’d like to keep up my skills. Most of the time, the employer certainly would be okay with it. They would not be okay if the surgeon were interested in working for a competitor, even on a part-time, short-term basis.

Indeed, if a hospital network employs a surgeon and asks their employer if they can work for another hospital network part-time, the employer would usually be cool with that. Even maybe providing a call or something like that. They would be concerned that the surgeon would start to build relationships and maybe eventually want to give notice, leave and move over. That’s something that it generally would not allow. 

What Should Be Included in a Medical Contract?

The contract will dictate under what scenario the surgeon can moonlight or work elsewhere. Many of the contracts will also have a disclosure form that states what the things you’re currently doing are. Those are disclosed and then either approved or disapproved by the employer. For some people, it’s a big deal.

Because of the scenario I just listed, they want to keep up their skills. They don’t have the opportunity to do it with that employer. So, being able to do outside activities in moonlight is very important, which is understandable. If you bring some of these issues to the employer and they’re just, it’s a flat no, well, that might not be an employer you want to lend support. Suppose they’re so rigid that they’re unwilling to give the surgeon any opportunities elsewhere. In that case, I don’t think that’s reasonable. It also probably means that the employment relationship moving forward or on a day-to-day basis could be strained because they’re unwilling to bend the rules. I mean, it’s not even betting the regulations, just making accommodations for the surgeon.

In Summary

So, can surgeons moonlight? Indeed, they can. But the contract language is going to dictate whether they can or not. That kind of language may be completely absent from the agreement. In that scenario, unless there’s something in there that states you can only work for us. Or you can only work outside, under those scenarios, if it’s completely absent. Then, typically, it would be fine for the surgeon to do what they want, considering that it absolutely can’t interfere with their full-time job. I mean, you couldn’t certainly say to your employer, oh, I have another case somewhere else, so I can’t do that. That would be a breach of contract in some way.

Can You Moonlight in Residency?

Can residents moonlight during residency? The short answer is that it depends on the program and the signed residency contract. The assurance that most residents sign before starting into the residency program is not like an employment agreement that you will sign once you’re finished training and then get your first job offer. It’s usually much shorter and doesn’t cover the usual terms that an employment agreement will cover. However, there might be some language in that residency contract that states you cannot do outside activities without employer approval or program approval. 

What Are the Requirements Needed for Moonlighting?

If you have language in your contract that states you must get approval to do any outside employment, then that’s what you need to do. It would help if you had to get written authorization that says, yes, the program is okay with you doing this. And then you also consider several different things. 

One, your professional liability insurance is not specific to you. It’s particular to the employer. So, suppose you’re working in a residency program. In that case, any activities you do in that program are covered by that insurance policy. However, if you were to moonlight or work anywhere else, you would need a separate professional liability insurance policy that covers your activities for that new employer. 

One policy doesn’t cover you in whatever you do. It would be best if you had a specific procedure for each employer. Now, if you are moonlighting, whoever you’re moonlighting for will cover your professional liability insurance. And then you also need to consider whether, once you leave the moonlighting position, they will pay for your tail insurance if there’s a claims-made policy. I have several blogs about claims-made coverage and tail insurance.

Avenues for Moonlighting Based on Physician’s Position

I’m not going to get into it in this blog, but I would also consider it. The specialty is also essential. You’ll usually have a lot if you’re in a shift work type position like ED, hospitalist, or any IM position. You could do urgent care. There are a lot of different avenues for you to moonlight. Same with surgeons as well. But most programs are okay if the resident does moonlight. If one, they ask for permission. Two, they ensure professional liability insurance at that new position. Then three, they don’t want any moonlighting to interfere with the resident’s schedule or duties with the program.

What Can You Negotiate in a Physician Contract?

What can a physician negotiate in an employment contract? The short answer is everything. It ultimately depends upon the willingness of the employer as to whether they’re willing to negotiate terms or not. Extensive hospital networks are less likely to change an employment contract agreement significantly. Unlike if a physician is looking into a physician with a smaller physician-owned practice, there’s much more leeway for significant changes. What are the things that are important to the physician, and then what are the things that they can get changed?

In my mind, when I’m talking to a physician, the things that stick out as the most important would be:

• The signing bonus, 
• Relocation assistance, 
• How to terminate the contract agreement, 
• Making certain there’s without-cause termination that’s a reasonable length, 
• Compensation, 
• Productivity bonuses, 
• Non-compete, 
• Tail insurance and,
• Who pays for tail insurance if it’s a claims-made policy.

Physicians Contract Negotiations

Let’s go through each of those and come up with some tips on negotiating. First, as far as compensation goes, the physicians need to know their and their specialty’s value. Getting the MGMA data is helpful. It is beneficial to talk to colleagues about what they’re being offered or what they’re currently making in different organizations. Sometimes, the associations for each specialty can provide information on your specialty’s average salary. That’s one way to look at it. As far as productivity goes, this is a little more difficult. It’s going to be completely based upon, I guess, the arrangement. Is it kind of a hybrid between a base salary and RVU production? A base salary and net-collections? Is it all RVU? Is it all net-collections?

This one is dependent upon the type of structure. You’re getting a base plus a certain amount if it’s net-collections or a hybrid model. Let’s say. For instance, the expectation was 20,000. Anything collected is over 20,000 by the medical practice, and the physicians will get 15 to 25% of that. That would be a standard percentage. If the physicians are purely on net-collections, around 40 to 45% is average. As far as RVUs go, there are two things you can negotiate: the threshold, meaning how many RVUs you must generate to get a certain amount, and the compensation factor, which is the monetary value associated with the RVUs. That has some leeway as well. Regarding signing bonuses and relocation assistance, the main things are the actual number, obviously, but more importantly, what’s the repayment schedule? 

Forgiveness Period in Physician’s Contract

Almost every contract is going to have a forgiveness period. Let’s say the physician gets a $20,000 signing bonus, and the initial term of the contract agreement is two years. Usually, they’ll have to stay for that initial two-year term to have the entire $20,000 forgiven, so they don’t have to pay anything back. The same goes for relocation assistance. Between $10,000 and $15,000 should be the cost of relocation assistance. The signing bonus can vary widely from 10 to 75. That one is specialty-dependent. As far as non-compete goes, this does vary state by state on what’s considered reasonable. There are a few states where it’s wholly unenforceable; California and Mexico, for instance. Usually, the non-compete shouldn’t be any longer than a year. The geographic restrictions should be 5 to 15 miles from your primary practice location. Where to negotiate with this?

Terms That Matter for Physician Contracts

You want to keep the length at one year or shorter. You want the non-compete to only apply to a few locations. Some employers will say the non-compete applies to every facility we own in the city. Instead of having one office within 10 miles, you could have 30. So, that’s very important. And then specialty as well. Some specialties can do multiple things. Let’s say you are in internal medicine. You can be a hospitalist, and you can go into family practice. You can do urgent care. If the non-compete states that you can’t practice medicine within that geographic restriction, you’re out of luck. Whereas if you keep it to the specialty of what you’re providing to that employer. Specifically, in this case, let’s say you are a hospitalist. 

You could go to family practice or urgent care for a year, and then when the non-compete ends, go back to being a hospitalist. That’s something to consider. And then malpractice insurance is always a considerable discussion with the physicians’ coworkers. First, you must identify whether it is a claims-based or occurrence-based policy. If it’s a big hospital, they might be self-insured. And after you determine what type it is, if it is a claims-made policy, tail insurance will need to be purchased after the contract terminates. And then who pays for that? Most of the time, if you’re in a small private physician-owned practice, the physicians must pay for tail insurance when they leave. You rarely have to pay for tail insurance with an extensive hospital network. Now, tail insurance usually costs about twice what your annual premium is.

Physician Employment Contracts & Negotiation Tips

Your family practice’s annual malpractice premium is somewhere between $6,000 to $8,000. If you had to pay for tail insurance, it’s somewhere between 12,000 to 16,000. One thing you can negotiate is who pays for tail insurance coverage. Sometimes an employer will say if you’ve been with us for one year, we’ll pay for a quarter, then two years, half, and then three years, 75%. Some ways of getting out of having to pay the entire amount depending on the situation. Now, the first thing I talked about was whether the employer was willing to negotiate or not. Some employers will say this is a take-it or leave-it deal. I don’t think those employers will be great for getting together. If an employer is unwilling to budge on anything, it will likely be challenging to team up.

It means they’re not going to accommodate the physician somehow. So, I caution any physician who has been given a job offer. We ask for some clarification or certain concessions, and they say no, this is it. That’s usually a red flag. And I tell the physician that you may want to continue looking for a job because this might not be a good fit for you. Anything in the contract is negotiable. You need to figure out what’s most important to you. Sometimes, a non-compete is absolutely the number one thing. For others, it’s the compensation. For others, they do not have to pay tail insurance. It depends upon the physician’s wants and needs and then tailoring the negotiations to get them to that point.

Is a W2 or 1099 Better for a Physician? 

This depends upon your specific situation and setting. But sometimes, a physician can choose whether to be an employee or an independent contractor, so let’s break down both advantages and disadvantages. 

An employee receives a W2 at the end of the year. So, you’ll receive a frequency payroll where you’ll get paid a salary. However, some might be on productivity compensation and be paid differently. Still, regardless, the taxes will be taken out from any of the payments you received. At the end of the year, W2 summarizes all compensation you’ve received and taxes that were withheld from it. As far as an independent contractor goes, you get 1099 at the end of the year, which says how much the business paid you. If you’re a 1099 independent contractor, no taxes will take out.

What Are the Advantages of Being an Employee?

What are the advantages of being an employee? Most revolve around security and benefits, so it should be easier to get into or out of an independent contractor agreement. Meaning that the notice period to terminate the contract is usually shorter. Whereas if you’re a physician employee, that’s between 60 to 90 days. If the employer gets rid of you, they still must pay you for that notice period if they don’t want you to continue providing patient care. As an employee, you will get average benefits that anyone will receive like health, vision, dental, life, disability, and retirement. They will pay for your licensing, DEA registration, credentialing, and privileging.

They’re going to pay for your malpractice insurance. The employer may pay for your tail insurance if it’s a claims-made policy. It would help if you looked at the contract’s language to determine that. And then, as I said before, retirement is also something you won’t get as 1099. So, as an employee, you receive a ton of ancillary benefits in addition to the compensation you receive. 

Pros and Cons as a 1099 Physician

Now, as a 1099 independent contractor, you’ll receive none of those things. You will have to pay for your malpractice, your license, your DEA registration, your credentialing, and privileges for the facilities needed to perform the duties. Likely, whoever you’re contracting with will not pay for your malpractice insurance. And indeed, they’re not going to pay for your tail insurance if it’s a claims-made policy. There are some tax advantages to being 1099. I’m not a tax attorney, and I’m not going to get into that in this blog, but there are tax advantages. You can deduct almost everything I stated before that you’d be concerning the circumstances. Does that put you in front ultimately as far as compensation goes? I’m not sure. You’re going to have to do the math. 

I find that the compensation for an independent contractor generally is equivalent to what you would get paid as an employee. And so, if you’re getting paid the same. You’re also getting none of the benefits of everything I stated. Are you coming ahead even with those kinds of deductions as a 1099 independent contractor? I’m not sure. You’re going to have to figure that out.

Some Things to Consider between W2 and 1099

I find that most healthcare employers or businesses that use 1099 employees often do that to avoid paying employment tax. For whatever reason, I find that anesthesia and dermatology are the two specialties that utilize 1099 independent contractors the most. For anesthesia, that makes sense because you can pop in and out, do a case, and there will be no follow-up. So, I think in that scenario, it makes sense to be a 1099. However, suppose you’re in dermatology and have an extensive practice base. In that case, you need to think about the continuity of care if you were to terminate the agreement. Those are things that you need to consider. Another disadvantage of a 1099 is that many of the restrictive covenants for an employment agreement are put into an independent contractor agreement.

What Is the Purpose of the Independent Contractor Agreement?

I mean, the entire point of an independent contractor agreement is kind of straightforward in and easy out. Physicians theoretically should have more control of their schedule when they work, how they work, that type of thing. But in any employment agreement, or at least almost all employment agreements for physicians, there will be restrictive covenants. So, there will be a non-disparagement clause, a non-solicitation agreement, and a non-compete. I find that most of the people requiring the physician to sign an independent contractor agreement put in all of those restrictive covenants in the independent contractor agreement.

So, even if you’re acting as an independent contractor for a business, you need to think, alright, if I have a non-compete, what does it prohibit me from doing? What is the geographic radius? And then, how long does it last? I get asked a lot, well, is non-compete enforceable against an independent contractor? And the answer is yes. They can be. You must be very careful if you work as an independent contractor for multiple businesses.

The contract doesn’t prohibit that while the contract is ongoing. And then two is the non-compete going to be so demanding that it knocks you out of an area for a period where you’re scrambling to figure out what you’re going to do. Is one better than another? No, it depends upon the compensation, setting, and area of expertise. Then three, are you able to procure all those benefits you can’t get when you’re an employee?

In Summary

Once again, as an independent contractor, if you have to get health, vision, dental, disability, life insurance, malpractice, all of that, how easy will it be for you to get that? And then, is the cost going to be, I guess, much more than if you were kind of an employee, especially when it comes to tail insurance? There are many things to think about when determining what works best. Now, the percentage of independent contractors of physicians is relatively low. There aren’t a ton of independent contractor physicians out there. If they’re doing locums, moonlighting, or things like that, that makes sense for those short independent contractor relationships to exist. But physicians who work as independent contractors, I believe it’s in the teens. It’s a low amount.