Contracts 101

Vol. 16 •Issue 6 • Page 22
Legal Spotlight

Contracts 101

A well-crafted employment contract is crucial to the welfare of any hospital-based clinical imaging practice. Learn some key drafting principles to enhance your group’s agreements.

You probably haven’t given much thought to the employment contract you signed when you entered your group practice. Perhaps the agreement was presented as a mere formality, or you have a verbal understanding rather than a written agreement. While other issues in your group may seem to take precedence, your contract merits consideration before any employment dispute arises.

Although each group presents unique circumstances, all groups should consider several basic contractual principles. Keep in mind, however, that the points detailed in this article don’t constitute legal advice. Your group should consult its attorney for legal guidance regarding a specific contract issue.

Get it in writing

Every member of your group should have a contract in writing. Contracts are a necessary means of defining the expectations and obligations of group membership and of providing a remedy in the case of nonperformance or breach of contractual obligation. Contracts can be implemented in two basic forms: verbal and written. Verbal contracts may seem more convenient and less intimidating to navigate, particularly from the perspective of a new group member or a group that is particularly eager to recruit a new member. However, a legal principle known as the Statute of Frauds requires contracts to be written in certain circumstances, such as for agreements that can’t be performed within one year. Moreover, enforcing a contract requires a determination of the parties’ intent, which generally is derived from the clarity of contractual terms. Should a dispute arise over the terms of an oral agreement, a third party such as a judge must distinguish between different interpretations or memories of the contract terms to extrapolate the parties’ intent. This process renders the terms of an oral agreement vulnerable to misinterpretation and unenforceability.

Written contracts mitigate those risks by memorializing the promises between the parties. For that reason, they’re preferable to verbal agreements from an enforcement perspective. Written agreements also offer benefits from a business or practical perspective, as they formalize the parties’ specific commitments to the practice.

Basic contract protections

Although this article can’t anticipate all protections to include in a group’s contracts,1 consider the following basic protections.

  • Full-time medical employment with the group. A group member’s contract should clarify that the imaging professional is being engaged in the full-time practice of medicine as an employee of the practice. Accordingly, all patients of a group member are deemed patients of the practice, and the group should retain all rights to bill for services rendered and should own any records and other materials relating to its patients, to the extent legally permissible and appropriate. Furthermore, all income earned by the imaging professional from lectures, medical-legal work, royalties, etc., should inure to the practice, with exceptions that the group may designate at its discretion. The imaging professional’s employment status has significant legal implications. For example, a full-time employment provision enables the group to control the means and manner of the imaging professional’s employment and precludes improper assertions of partnership status. Moreover, federal anti-discrimination laws generally only apply to employees as opposed to independent contractors or partners.
  • Covenant not to compete. Covenants not to compete generally prohibit an imaging professional from engaging in the same or similar activities as the group for a specific period of time and with respect to a specific geographic area that is coextensive with the group’s practice. State laws determine the enforceability of these provisions. However, most courts tend to invoke a general standard of reasonableness, which considers whether the noncompete provision imposes a restraint that exceeds what is needed to protect the practice. Typically, this analysis considers the scope of duties, the duration of the prohibition, the geographic area affected and the public interest. A covenant perceived as inflicting undue hardship on the imaging professional or the general public may be considered unreasonable. In that case, some states may permit a court to modify the noncompete agreement to make it more reasonable, whereas other states may require courts to invalidate it. Not surprisingly, noncompete covenants tend to be the most common source of litigation between imaging professionals and their practices.
  • Termination with and without cause. A contract may designate certain circumstances that warrant a group member’s automatic termination. For example, the employment relationship may terminate immediately upon the death of the imaging professional; the dissolution of the practice; or the suspension, revocation or cancellation of the imaging professional’s license or hospital staff privileges. The group may choose to designate additional causes of immediate termination, such as a member’s loss of participant status in the Medicare program or Drug Enforcement Administration certificate—the federal registration to administer, prescribe or dispense controlled substances—or other types of illegal, unprofessional or unethical conduct.

    Conversely, a termination-without-cause provision enables a practice to end its relationship with a member without providing a formal reason. Generally, courts are reluctant to intervene unless antidiscrimination laws apply. Thus, a termination-without-cause provision may enable a group to terminate a member on any basis except race, religion or other protected classes under federal or state law.

    To leverage a termination-without-cause provision, a group should include it in the contracts of all members, regardless of their relative seniority. Implementation of the provision should require a general practice consensus without involving the imaging professional whose employment is at issue. Finally, although it is customary to provide a reasonable time frame between the notice and effective date of termination, a group should establish a process to execute this provision as quickly as possible to protect the integrity of the practice and the terminated professional.

  • Termination of hospital privileges. To minimize your litigation risk, have a clear process for terminating the imaging professional’s hospital privileges at the conclusion of employment with the practice, whether by termination or retirement. For example, a contract may include a power of attorney enabling the group’s president or designee to execute a resignation from the group’s various hospital staffs on behalf of the terminated imaging professional. Although cotermination of an imaging professional’s group and hospital rights benefits the practice, it may affect the professional’s right to a fair hearing. Furthermore, hospital-based groups must consult the hospital’s policies and procedures to ensure that they can be reconciled with those of the practice.
  • Protection against sale or repossession of group assets. Groups may impose contractual restrictions on the sale or transfer of group assets. These restrictions are especially useful in the event of a group member’s death, divorce, bankruptcy or dissociation from the practice. The group’s attorney should ensure that the restrictions are incorporated into the legal documents establishing the practice as a formal business entity, in addition to any references included in the members’ employment agreements.

    Obligations and limitations

    The Parol Evidence Rule is the legal principle that, once parties have a final written agreement, courts generally won’t consider evidence of prior or contemporaneous agreements that weren’t incorporated into the final agreement. Typically, this rule is reflected in an integration clause—a provision in the agreement that requires the parties’ acknowledgment that no oral or other written understandings, arrangements or agreements exist between the parties regarding the imaging professional’s employment. Thus, the executed written agreement must capture all terms of employment to ensure that group members appreciate the extent of their practice obligations.

    Consistency and clarity

    Your contract should set clear, consistent standards. Although a group’s policies and procedures should be outlined in a separate document, an employment agreement is useful for enforcing consistency in certain work-related behavior among all practice members. As such, a group should be wary of setting precedents with ad hoc policies or exceptions to its standards. To the extent possible, specific conflicts—such as examples of unprofessional or unethical conduct—should be anticipated in a group’s policies and procedures to ensure that they’ll be handled consistently for all members under similar circumstances. Penalties involving time (e.g., extended call periods or abbreviated vacations) and money (e.g., financial penalties commensurate with the violation’s nature and scope) tend to be the most common and effective means of addressing violations of group policies or procedures, whereas contractual breaches may result in termination of group employment or legal recourse, pursuant to the contract’s termination provision.

    Contract reviews, updates

    Your contract should designate a clear process for modifying or amending the terms of the agreement. Generally, modifications should be implemented through a written document signed by all parties to the agreement. The group or an individual member may initiate modifications, depending on the circumstances. However, you should maintain a standard modification procedure to avoid the perception of disparate treatment of practice members.

    All standards for group behavior, whether expressed in an employment contract or in policies and procedures, must be consistent with applicable state and federal laws. An experienced attorney should address these compliance issues–ideally, before any disputes arise. Because laws evolve over time, your attorney should review your group’s contracts on a regular basis (e.g., annually, if not biannually) to accommodate any changes. Your practice leaders also should review the group’s contracts on a similar schedule to ensure that the terms remain appropriate for the current culture of the practice.

    These principles reinforce the basic tenet that a group’s contracts are intended to protect the group’s best interests. The interests of individual members may be compromised—or even sacrificed–to that end. As such, your contract should clearly define the group’s obligations and expectations through the provisions discussed herein, along with other provisions that cater to your practice’s specific needs and interests. In turn, your group’s leaders and the group’s attorney must work collaboratively to enforce these contractual obligations and expectations in a consistent manner to maximize the practice’s productivity and viability.

    The author wishes to acknowledge the contributions of Lawrence R. Muroff, MD, FACR, and Peter G. Lesburg, JD, MBA.


    1. For a broader discussion of contractual types and key provisions, and contractual breaches and remedies, consult the following: Muroff, J.A., & Muroff, L.R. (2004). Contracts in radiology practices: Contract types and key provisions. J Am Coll Radiol, 1, 459-66; and Muroff, J.A., & Muroff, L.R. (2004). Contracts in radiology practices: Breaches and remedies. J Am Coll Radiol, 1, 553-58.

    Julie Muroff, JD, is a health care attorney practicing in the Washington, D.C., metro area. Prior to joining the National Institutes of Health Branch of the Office of the General Counsel of the U.S. Department of Health and Human Services, Muroff was in private practice in Washington, D.C., and in Tampa, Fla. The views expressed herein are the author’s alone and do not necessarily represent the views of the U.S. government or any agency thereof.