What’s the difference between an offer letter and an actual employment contract and then, is the offer letter binding? Some employers will ask that the physician sign an offer letter and the letter dictates basic terms of the agreement. Generally, salary, any other kind of compensation, signing bonuses, relocation assistance, maybe getting into the benefits of PTO, what they’ll pay for as far as dues and fees, maybe what the basic terms of the non-compete are, very base level things like your PTO will be 30 days or your base compensation in year one will be $300,000. Many physicians don’t want to go through the hassle or expense of drafting an employment agreement if they can’t at least come to terms on the basic level of what will be in the employment agreement itself.
Offer Letters from a Practice
Now, many physicians will ask, okay, I have signed the offer letter. I now have the employment agreement and after reviewing it, I don’t like what’s in there, or maybe it’s substantially different than what was in the offer letter. Am I bound to the offer letter? And the answer to that is no. Although the basic terms have been agreed to and will then be incorporated into an employment agreement, there are simply so many complicated and nuanced things that could be in an employment agreement that after reviewing the basic terms, the job looks great, but then getting into the actual details of the employment agreement, the job doesn’t look so great anymore. Usually, the areas that might not be in the offer letter, but might make an employment agreement terrible would be the kind of nuts and bolts of the non-compete and non-solicit
Employment Contract Negotiation
If the offer letter says it’s one year and five miles, then when you get into the agreement, when you get into the details, it’s one year, but then it’s five miles from every single facility that a healthcare network owns. One location for five miles is usually reasonable. 100 locations for five miles obviously is not. And that itself could be, for a physician, an absolute no, I’m not signing this agreement. It has this. Or maybe if someone’s on a net collection based compensation structure for a contract and in the offer letter it says, you’ll get 40% of all net collections, but then in the actual agreement, it’ll say, when the contract terminates, you won’t get any collections after that. The physician in that scenario would be essentially working for free for the last three months because they wouldn’t get anything that they produced and collected after the contract ends. Other blogs of interest include:
Offer Letter vs. a Contract
And that can be an absolute no, I’m not signing this. So, in short, no, the offer letter is not binding. Things can absolutely change from the offer letter into the details of the actual employment agreement. And it is well within the rights of the physician, after reviewing the details of the employment agreement to tell the employer, I’m not going through or at least negotiating some changes to make it palatable to them and saying, although I signed the offer letter, I understand that, but I’m not signing this agreement. And there’s not much the employer can do about that.
Can a Physician Back Out After Signing an Offer Letter?
What happens if I sign an offer letter, but I don’t want to go through with signing the actual contract? Maybe due to a change in circumstances, family issue, maybe you got a better job offer somewhere else. Maybe you decided to move home instead of moving to a different city. Basically, the question is, can a physician back out after signing an offer letter? The short answer is yes, probably, unless there’s binding language in the offer letter, which there almost never would be. The physician can back out. The offer letter just has kind of basic terms.
Normally, it would be like, okay, here’s what your compensation is. Maybe a brief review of benefits, the term length, maybe how to terminate the contract, maybe a brief mention of a non-compete. It is normally like a one-page document that just kind of briefly goes over here’s what it’s going to look like for your employment. There are times when I’ll have a physician get an offer letter and just the kind of cursory terms look great. And then when we get the actual agreement, it could absolutely change whether it’s a good offer or not. And so, until the employee him an agreement is signed, it’s not going to be a binding document for that reason. Let me give some instances of maybe why the job opportunity looked okay with the offer letter, but once we got the actual employment agreement, it changed.
One thing could be how to terminate the agreement. I would say it’s probably rare to put into an offer letter but let’s say, normally a physician would have to provide either 60- or 90-days’ notice to terminate the contract without cause. Meaning, they can get out of the agreement for any reason with the amount of required notice. Let’s say the contract had a 12 month without cause termination notice. Well, nobody wants that, right? Once you give notice, relationships change within the organization, you’re on your way out, you’re no longer you’re building a practice. If someone had a 12-month requirement, there’d be an entire year of potential kind of awkward relationships, and I would never suggest that a physician would have to give a year’s notice.
On the back end of that, if you’re currently in practice and you must give 12 months’ notice, there are very few practices that are willing to wait 12 months for the physician to give notice and be able to leave. It just doesn’t happen that way. Sometimes, if the physician is in training, and an organization forecast that they will be needed a year or two down the line, that’s a different story. But if a physician is currently practicing and switching to a new job, they’re almost never going to wait two months. Another thing could be the terms in the non-compete. Maybe you’re expecting a reasonable non-compete like one year, 10 miles from your primary practice location. Non-competes kind of the reasonableness of non-competes varies state to state pretty much are like one of the only things that kind of varies in physician contracts, but let’s just say, for instance, it’s one year, 5 to 10 miles from your primary practice location.
That’s what you’re expecting. And then you get the contract and it’s a two-year non-compete and 25 miles from every location that you practice in while employed with the employer. That can change things substantially. If someone is absolutely married to a town, like they grew up there, the family’s there, they want to raise their kids there, and then they have some terrible non-compete, which would essentially force them to move for a period that can make a great offer a terrible offer. And that’s a term that could change. That’s not spelled out in the offer letter that could then make a great offer a bad offer. Benefits as well. Generally, there’s no specific recitation of all the benefits that are offered. What if the employer doesn’t offer health coverage, disability, or life or retirement, they won’t pay for your medical license and DEA registration, they won’t give you anything for continuing medical education. Perhaps the time off is bad. The average amount of total time off is 30 days. That would include sick days, holidays, vacation CME. Let’s say they offer you 15 total days. Almost no physician has that small amount of time off. And that could change substantially whether the offer is good or bad. So, in short, yes, you do not have to go forward, even if you’ve signed an offer letter because the terms of the employment agreement could change the offer substantially. It can start in awkward conversations.
And the sooner that you give notice to the employer that you are not going to start, the better. People also ask, what could be like the absolute worst-case scenario? In this case, if it’s just an offer letter, I would say it’s a low downside risk. Obviously, if you sign an employment agreement and then wait until a week before, you’re about to start and then say, hey, I don’t want to start the contract, the employer can certainly say that they’ve suffered some damages and potentially could come after you for that. If you’ve just signed the offer letter without even seeing employment agreement, I’d say that the physician is safe in backing out of it and looking elsewhere.
Can a Physician Back Out After Signing an Employment Agreement?
If I have signed an employment agreement, but I don’t want to go through with it, can I back out without repercussion? The answer to that is it depends. When you sign a contract to start employment, then you are bound to those terms. Just because you don’t want to move forward with the contract, doesn’t mean that the employer hasn’t suffered damages duty or desire not to start. Let’s just kind of back up and break down each stage of the process. First, the employer offers you an employment contract, and I assume you’re going to either have it reviewed or negotiate the terms.
And then you sign the agreement, which will generally happen in the future. If you’re in training, maybe you’re in your last year residency or fellowship, you could sign contracts that won’t even begin for a year. If you are currently practicing somewhere and then looking for a new job, sometimes the other employer is willing to start essentially as soon as you are ready and for most people, their without cause termination notice is 60 to 90 days, somewhere in there. Some employers will give you the contract and then expect you to start within shortly after the 60- or 90-day period ends. So, you’ve signed the contract, the terms are binding, the employers are expecting you to start and then something happens, right? What led up to the decision to you wanting to back out of the contract will also kind of dictate how the employer reacts.
It will also depend upon kind of the ideology of the employer. Some employers are very forgiving. They understand life happens. Maybe you had a significant other that was supposed to be in one location and then now they must move to another, and you need to follow them. Maybe there’s illness in the family that’s going to require you to move back home or somewhere else. Those personal situations where there is just something that was completely unforeseen and that your situation has changed, you just absolutely cannot go through with the contract. You just need to confront the employer and just say, look, this is what’s happening in my life. I really appreciate your interest. I appreciate the agreement that you offered me, and I understand you are relying upon me to start.
However, I just simply can’t because of these issues. Most of the time, if you come to the employer honestly, with those types of issues, they’re going to be understanding and they’ll most likely let you out of the agreement without any consequences. Let’s do another scenario. You sign the agreement, you’re all excited to start and then another job creeps up and says, hey doctor, here’s more money, here are better benefits, here’s more time off, and now, although you’re kind of tied into another agreement, you want to leave and not due to family circumstances, just due to pure compensation or something else that makes the contract better. Well, I can tell you in those circumstances, most employers are not going to be super excited to let you go, just because of that. Now they certainly can’t force you to start, right?
There will be notice requirement in your contract, and I guess, theoretically, you could just give the without cost termination notice even though the contract hasn’t commenced, and then get out of it. What are the potential damages if you do essentially terminate a contract before you even began? I think it would depend upon when you gave notice that you weren’t going to start. If you wait one week before your start date and the practice is expecting you to come and they’ve gone through the credentialing process and they’ve gone through the ping process of the facilities, they’re going to need privileges for you at, and they’ve hired additional staff for you, and they’ve covered your medical license and DEA registration, and they’ve done all these things. They’re relying upon you to come in and start generating income by seeing more patients.
And then you say, hey, I know I was supposed to start next week, but I’m not. That company has some damages because of your short notice, and they could potentially come after you. When I said, come after you, I mean either sue you, threatened to sue you, or many contracts of arbitration clauses where the case would go through the arbitration process. The more time that you can give to the employer to let them know that you are not going to fulfill the contract, the less damages that that employer suffered. Most employers simply want nothing to do with litigation with other physicians. No matter what the reason is if an employer gets a reputation as being litigious and going after physicians, that spreads fast amongst the physician community, and it will be more difficult for that employer to bring on good, qualified physicians.
For the most part, people and organizations simply don’t want to get into a legal fight with the physician, regardless of how much time you gave them. Now, on the other side, this mostly applies to physician-owned practices. Let’s say you were scheduled to join a smaller physician-owned practice, at least in my opinion, those types of employers, maybe it’s a single physician done practice, those types of employers in my experience are much more likely to go after or sue or go to arbitration against another physician. If I had to be an armed share psychologist that thinks kind of the entrepreneurial spirit in a physician opening their own practice and kind of being self-employed and being their own owner makes them more aggressive and defending. Those types of issues with people who are pulling out of starting what they were expecting to be a good, positive working relationship.
So, can a physician back out of a contract after signing an employment agreement? Yes, however, there may be repercussions involved with that. I worked in the legal department of hospitals before and the risk management department would always go through training with the physicians and they said, if there was some kind of clinical issue, the physicians who are upfront and truthful and go to the family and explain what happened, and there’s a negative outcome, and don’t hide things, they are much more likely to have a situation where the family is not going to pursue any kind of legal action. I think it’s kind of like the situation. If you go to the employer, explain what’s going on, just let them know this is not going to be a good situation for me. And then even if I start, even if you force me to start, I’m going to immediately give notice or give notice even before it starts.
That’s not a situation anyone wants to be in. You do have some leverage even though you haven’t started. And the fact that nobody wants to bring in an employee that they know is just going to immediately leave or leave within the required notice period.
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