What are 4 Reasons for Termination of a Medical Contract? | Contracts Termination

What are four reasons that a medical employment contract can be terminated? Let’s discuss the differences between why a contract would be terminated and how a contract can be terminated. The “why” doesn’t matter. What matters is the language in the contract that tells the provider how the contract can be terminated. There are four common ways for a contract to be terminated. 

Fixed Term Contract

First, in a contract, it’s going to list the terms of the agreement. The term just simply means how long does the agreement last. Now, there are contracts that have a language where it automatically renews after the initial term, usually for one year period. Let’s say it’s a two-year initial term, it’ll just continuously automatically renew for one-year additional terms unless terminated in one of the three ways. After this, we’ll talk about that next. There are some contracts that have no fixed term at all. Meaning all it states is that as soon as the contract is signed, it continues forever unless terminated. The first way to terminate the medical contract is for the initial term to end. There’s no renewal language, neither party wants to renew the contract and that’s it. 

Mutual Agreement Termination

Next would be by mutual agreement. A medical contract can be terminated by mutual agreement of both parties. Let’s just say, the provider starts, just not the right fit, the employer says, you know what? This isn’t the right fit. We’re not going to require you to give us notice. We’re not going to require you to work anymore. Let’s just wash our hands of the situation. And you both can leave. A mutual agreement is the second way you can terminate a medical contract. 

With Cause Termination in Medical Contracts

The third way is for cause or with cause termination. What this means is that if a provider or the employer is in breach of contract, there will usually be language that states one of the parties has to give written notice to the other that they are in breach of contract and the reasons why. And then, normally, there would be what’s called a cure period. 

Cure Period

A cure period simply means how much time a party must fix the breach or cure the breach. Let’s say, a provider had productivity bonuses in their contract that was supposed to be paid out monthly. The employer is simply not paying it either on time or at all. Well, in that situation, the provider would then send a written notice to the employer stating you’re in breach of contract.

You’re supposed to pay me a monthly bonus, and you’re not. If you don’t fix this within whatever the allotment is, let’s say 15 days, then the provider can terminate the contract immediately for cause. The third way of terminating the medical agreement is for cause or with cause termination. It honestly doesn’t happen very often that a contract would be terminated with cause. 

Normally, the parties would work out the differences in advance of that. But it does provide some leverage, I guess, to both sides if one of the parties isn’t holding up their end of the bargain. From the employer’s side, let’s say the contract states that the provider must take one in four calls and then the provider refuses to take calls at all. Well, then they’re in breach of contract. The employer will then basically state, you’re not taking calls. You’re in breach. You need to start taking calls, or we’re going to terminate the agreement immediately. So, it goes both ways. 

Without Cause Termination – A Physician Would Want This in a Contract

And then the last and the most common way to terminate a medical contract is through what’s called without cause termination. Nearly any employment agreement is an At-will contract. And that simply means either party can terminate the agreement at any time, but for a medical provider, it’s a certain amount of notice. Normally, 60 to 90 days is the industry standard for terminating an employment agreement without cause in the healthcare industry. Now, why do you have to give this much notice? Let’s say you’re a provider, you’re unhappy, you want to leave, you have a better opportunity, the contract states, you have 60 days without-cause notice, then you’d send them in writing saying, I’m terminating the agreement per without cause termination section. Then you’d work out your 60 days and then you’re free to move on after that.

Reasons Why Without-Cause Termination Is Important

The reason why this is important and the reason why it needs to be in the contract is if a provider starts with somebody and the practice made it out to be much better, the volume is much better, and your productivity incentives are going to be great, the hours are going to be reasonable, and it’s not. There’s no language in the contract where the provider can terminate it without cause they could be stuck in that contract until the initial term ends. 

So, you always want to have without cause termination. And as I said before, normally 60 to 90 days. If you have 180 days, you want to negotiate that down to a reasonable amount. Now, the reason why there are between 60 to 90 days in most contracts is for continuity of care purposes. Maybe if you’re in sales, you don’t need 90 days lead time to leave.

But if you’re a medical provider and you have a patient base, there needs to be some time to transition them to a new provider, refer them to different providers, or provide bridge prescriptions. So, they don’t just go cold turkey until they find a new provider. That’s normally why there are 60 to 90 days. Just to allow enough lead time to make a smooth transition and provide continuity of care for the patients. So, those are the four reasons you can terminate a contract. Either the term just ends, mutual agreement, for cause termination, or without-cause termination.

Other Blogs of Interest

• Everything You Need to Know About Medical Employment Contracts
• Breach of Employment Contract Examples
• Backing Out of a Physician Contract

Can a Contract be Terminated by Agreement?

Can a contract be terminated by an agreement? In short, yes, if it’s written into the contract. 

There are four main ways to terminate a contract. If there is a fixed term, usually a contract will be one year, two years, or three years long. And then if there’s no language for automatic renewal, meaning the contract doesn’t automatically renew for usually successive one-year periods. It just ends, and neither party wants to continue the agreement. The employer terminates the contract, and that’s it. Another way parties can terminate a contract is with cause. Say one of the parties breaches the contract. They don’t fix the breach. The other party would generally have the option to terminate the agreement.

The third way is without cause termination. Here, either party would have the opportunity to terminate the agreement at any time. For any reason. With a certain amount of notice to the other party. Usually, an employment contract is going to be somewhere between 30 to 90 days. In that scenario, as the employee, you’d give the employer written notice and say, I’m terminating the contract without cause. Then if it’s 60 days, you work out the 60 days, and the contract ends. And the last way for a contract to terminate is by mutual agreement. Suppose there is no mutual agreement listed in the contract. Theoretically, the party should still be able to say, alright, we can wash our hands of this and move on.

If It’s Not Listed, Give Without Cause Termination

Suppose they don’t list mutual agreement as one of the ways for contract termination. In that case, you could give without cause termination notice, work out your days and leave. The employer could say, I know you must provide notice, but we’re not going to enforce that. Then you can move on. What are some reasons for the contract by agreement? Several things like it could be a bad cultural fit. Although you get a good assessment of your ability to fit in during the interview process, the reality is simply different. And then the employer can feel the same way and say, look, it’s just not a good match. Let’s wash your hands of the contract. We can both move forward. We’re not going to require you to work anymore. 

Another possible scenario is if the contract requires 60 days’ notice and the employer doesn’t agree to the termination. Still, they decided to reduce the notice required. Most professionals without contracts are expected to give two weeks’ notice to finish their work and leave. The employer may no longer require the 60 days notice. But they still require you to do at least 14 days and allow them time to find a replacement. Or figure out where to divert your work to someone else.

Yes, you can mutually agree to terminate a contract with the employer if they are willing to do so. Though people rarely use this termination process. Assumably, nine 9 out of 10 people terminate a contract without cause. That’s how the employment relationship would end. But if it’s not working out for both sides who feel it’s better to move on, that doesn’t happen often. Meanwhile, if both parties were okay with it, you could do it that way.

Can You Write an Email to Terminate an Agreement? 

In short, you probably shouldn’t, and your employment contract probably prohibits it. In any contract, it’s going to state how you can terminate a contract. It could be for cause, without cause, mutual termination, or maybe the initial term ends. But in most cases, I mean parties can terminate most contracts via without-cause termination. Where either party can perform the contract termination at any time with a certain amount of notice to the other. 

For most employment contracts, around 30 to 90 days is an average amount. Suppose you are an employee, and for whatever reason, you don’t want to work for the employer anymore. In that case, you need to follow the terms of that without-cause termination notice. And it always needs to be written. It’s going to state it must be written. And it will also say if it’s a 60-day without cause termination, you must provide it 60 days prior. You work out those next 60 days, and the contract terminates after the 60 days are over. You’re free to move on to where you want to go, considering whether there’s a non-compete or a non-solicit. But we’re not going to get into that today. 

Look at the Notice Section

Now, the most crucial part regarding this topic is called notice or notices. It’s usually toward the back of the employment contract. It will state to whom and how you need to provide the contract termination notice if there is communication. Also that you have to provide in writing a certified letter, overnight, hand delivery of whatever termination notice you’ll provide. And that would then be considered adequate notice. 

Very few contracts allow email as an effective notice medium. Let’s say you wrote an email telling the other party. “Here’s my without cause termination notice, I have 60 days, X will be my last work day, appreciate the opportunity.” If the email is not an effective communication medium within that notice section, that won’t be considered. And then, the employer could make you work for another 60 days until you provide real effective notice. So, that’s the most critical part. Always look in the notices section and determine if an email is a proper way to terminate the contract. I can tell you if I review a hundred contracts, 98 of them will not include email or fax. You also certainly can’t just verbally tell your employer you’re leaving. It must be in writing. And most often, it has to be sent either by certified mail or hand-delivered. 

Whether you work for a small practice or a giant conglomerate with locations in every state. It’ll be impossible to hand-deliver the notice if you must provide it to the headquarters halfway across the country. So, to be safe for the most part, you need to write the letter. You’ll have to print it out and send it via certified mail to whoever they must send it to. Usually, it’s one or two. You must send it to the owner if it’s a smaller practice. If it’s a big conglomerate, you have to send it to your boss plus the legal department of the company. 

Provide Proper Notice to Your Company

You’ll be safe if you look through how much notice you have to provide effectively. I have a couple of scenarios, and people have called me after the fact. They’ll say, “I sent an email to my boss, and I told them I was going to terminate the contract. But they didn’t say anything, and I assumed my contract would end on a specific date. Now, the employer was mad that I was leaving. They were ticked off.” So, what they did was sit on it for 45 days. Then 15 days before the physician thought he would be leaving, they said, “You didn’t provide us with adequate notice. Email is not an effective form of communication for that. You owe us another 60 days until you give us actual notice, meaning a written letter sent via certified mail.”

And so, the physician had already lined up another job. He had a start date in mind. He had to go back to the new employer and apologize for delaying his start date by almost two months. And that was a tough pill to swallow for him. So, if you follow the terms of the notice section, you should be okay.

Can an Employee Terminate a Contract at Any Time?

Can an employee terminate an employment contract at any time? The short answer is probably. However, it’s going to depend upon the language in the contract. Ways that people can terminate a contract: one, if there’s a fixed term, meaning a one-year, two-year, or three-year contract. Here, there’s no language that states the contract automatically renews. At the end of that fixed term, if neither party is going to sign another contract, the contract terminates. Both parties can move on, that’s it. That’s one way professionals can terminate a contract. Two, through mutual agreements. Maybe it’s not working out. Both parties are like, you know what? Let’s move on. You can mutually agree to terminate the agreement. Three, for cause. In any employment contract, there will be a section called termination. In that section, it’s going to state how parties can terminate the contract.

Breach in Agreements

Without cause termination is going to be, if one party breaches the contract in some way, how can the other party terminate the contract for the breach? In most of the for-cause termination clauses, it will state, if one party believes the other party is in breach, they must give them written notice. And then that party usually has a period to fix the violation. We called that a cure period. Usually, it would be somewhere between 15 to 30 days. Maybe the employee wasn’t getting paid a bonus that the employer promised. The employee lets the employer know: you’re in breach of contract. You have 15 days to pay me my bonus, or I can terminate the contract immediately. If the employer does pay the bonus, they can no longer terminate for cause. And they could go to the last way of ending the contract, which is without cause.

Contract Termination Notice Period

In every work contract, this is very important. There should be a “without cause” termination. Either party can terminate the agreement anytime, for any reason, with a certain amount of notice to the other party. Usually, that notice period is between 30 and 90 days. Why is this important? Suppose an employee takes a job, and the employer lies to them. In that case, if they’re on production-based compensation from collections, commission, percentage, encounters, and healthcare RVUs, it doesn’t matter. Suppose someone comes in and they’re given no guaranteed base, daily rate, or guarantees at all. Or the volume is not nearly what they expected it to be or what the employer said it would be. And they don’t have a way to get out of a contract without cause. They can stick themselves in that job for whatever the length of the term is. That’s not something you want. 

You always want the ability to get out of the contract with a certain amount of notice in the scenario where the job isn’t what you expected. Maybe your boss is a terrible manager, or they’re placing you in a territory or location you don’t want to be in. I mean, hopefully, you can work those things out in advance of signing the employment contract. Sometimes you don’t. Sometimes the employer just straight-up lies to the employee and says, oh yes, all these things are going to be there, and they’re not. Without cause is the way that an employee can insulate themselves from being stuck in a terrible situation for extended periods without any sort of recourse.

Before Terminating Your Contract

So, can an employee terminate a contract at any time? If they have without cause termination, keep in mind that they must work the entire notice period. Like I said before, if it’s 30 days, give notice, work 30 days, and leave. Suppose you leave before the end of the notice period. In that case, the employer could theoretically have damages and sue you for lost profits, recruiting, replacement, etc. Suppose you have a notice requirement in your contract. You want to make sure you give the proper amount, work it out, move on and find a new job.