Tips on Negotiating a Sound Physician Agreement

August 18, 2011 by · Leave a Comment 

By Adil Daudi, Esq.

I was recently invited to speak at the Michigan State University Radiology Department, in front of their Residents, on a topic that is very much overlooked by new physicians, or even experienced physicians: Understanding their employment agreement.

StethiscopeMore and more physicians entering into their profession are ignoring some of basic concepts that come with their agreement. However, there is always one clause that is never ignored – their salary. While the complexity and details of a contract can vary with depending on the employer and location, certain clauses must always be addressed. This article will illustrate the three (3) primary areas of concern that every physician, whether new or experienced, should take into consideration when negotiating their Physician Employment Agreement.

Non-Compete Agreements:

A non-compete agreement is a restriction placed on you that bars you from practicing with competitors within a specific geographic area and within a specific period of time. Two factors that should be considered: (a) Whether the state you are working in enforces non-compete agreements (Michigan does as of 1987); and (b) if your state does, are the restrictions placed on you reasonable.

In order to determine reasonableness, courts have laid out three (3) elements: (1) Geographic area; (2) Duration; and (3) Market Description.

Geographic area: In Michigan, courts have established that a 50-mile radius is deemed reasonable. Therefore, if you are terminated from your employment and you are seeking employment, anything within 50-miles from your previous employer will be unacceptable.

Duration: Case law has also established that anywhere between 18-24 months is considered a reasonable timeframe; meaning, you are prohibited from working within the guidelines for at least 18-24 months.

Market Description: It is always important to read and understand exactly what your Employer is restricting you from. If the contract states you are prohibited from practicing in the field of medicine upon the termination of this contract (and you are a radiologist), then clearly that will not be accepted as a reasonable restriction and would not be enforced. However, if it states that you are not allowed to practice in the field of radiology within the stated guidelines, than courts can consider that as reasonable.

Duties/Responsibilities

For no apparent reason, Employers tend to be lazy when it comes to defining and explaining what your job actually entails. Through my experience, I have noticed that the majority of contracts will define duties as “what is reasonably conducted in the (insert field) profession.”

It is always advised to question the employer and receive a thorough explanation on what “reasonable” actually means. There could be several implications, and more often than not, no two people will carry the same definition and meaning to the word. I always advise my clients to ensure you have a detailed understanding as to what is expected of you when you enter into your profession, and stay clear from ambiguity.

Fringe Benefits

Your employment agreement should always indicate exactly what benefits you are to receive. Furthermore, keep in mind that the variety and flexibility in your benefits will depend on the type of practice you are in. If you find yourself in a smaller practice, you may be able to negotiate a more individualized package. However, in larger practices you will more likely have a uniform program covering all employees; thus, less room for negotiating.

The following are the more common benefits that tend to be addressed the most during negotiations:

Insurance: Always make sure to ask what types of insurance you are being offered; whether it is health, dental, life, or disability. Health insurance is traditionally the most common of the four, however depending on the size of your company, employers do still offer life and disability.

Vacation: It is inevitable that you will receive vacation days, however what you may not know is whether you are permitted from carrying over those days to the following year. Furthermore, is Continuing Medical Education (CME) time included as part of your vacation days, or are they in addition to them?

Malpractice Insurance: No matter how perfect of a physician you are, or consider yourself to be, having malpractice insurance is vital. More importantly, knowing which type you have can be equally as vital. There are primarily two types of malpractice coverage that an employer can offer:

Occurrence. The physician is covered for malpractice that occurs during the period that the policy was in force, regardless of when the claim is filed.

Claims. The physician is covered for claims filed during the coverage period regardless of when the malpractice occurred.

More often than not, because of the expensive premiums associated with occurrence based coverage, you will find yourself in a claims based insurance coverage. Therefore, it is imperative that you inquire into the purchase of a “tail” policy, which covers claims that can be filed after your coverage period ends.

Whether you are a newbie or an experienced physician, always remember that employers always have their own best interest in mind. Therefore, it is important to never simply browse over your contract without giving it the attention it truly deserves. I advise every physician I have encountered, always seek the opinion and advice of a trusted professional who can provide you with a sound analysis and possibly assist you during your negotiating phase. Remember, as a physician, the large salary and healthy lifestyle is expected, but to live a peaceful life, it is the parameters of your contract, the additional clauses that make the difference.

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Corporate Employment Structure: A Way for Doctors to Reduce Income Taxes and Save Thousands…

July 14, 2011 by · Leave a Comment 

By Adil Daudi, Esq.

Whether you are a physician with a wealth of experience, or a new resident paying your dues, establishing and incorporating a structure to help lessen your income taxes is a concept widely accepted and beneficial to all. If you are currently employed within a Medical Office that also employs additional physicians, chances are you are not being given the opportunity to reduce your income taxes to the optimum level, meaning you are losing out on the opportunity to save hundreds, if not thousands of dollars in income taxes.

This concept, which is commonly referred to as the “Corporate Employment Structure,” (“CES”) is a concept that is not being utilized by many physicians, and that is partly because of the unfamiliarity with the topic. In this newsletter, physicians will learn the benefits of a CES and how it can be implemented as their current method of agreement.

What is the Corporate Employment Structure?

The CES is a very simple concept that requires limited additional documents to set up, but saves you thousands of dollars.

Under your current structure where your employment agreement is between your Medical Company (MC) and yourself, individually, the MC provides you with a W-2 salary, which you receive and deposit into your account. Therefore, if you decide you would like to implement a plan that helps reduce your income, your only option would be to seek approval from your MC. By seeking MC’s approval you will more or less be given the response you expect – “No”

The CES will help avoid you encountering such a problem, because under the CES, your company would be the one to implement your income reduction plans. Under the CES, you would be required to create a new Professional Corporation (PC) or a Professional Limited Liability Company (PLLC) for the purpose of having it employed by your MC. The CES is where your current employment agreement with your MC would convert your personal name with your PC.

Therefore, instead of your MC providing you personally with an income, your MC would instead provide it to your PC, who would in turn write a check out to you.

Once your PC receives the money, you have the authority and control, as the owner, of deciding when and how that money will be used. The special benefit received through the CES is that it gives you the ability to write-off various expenses that would otherwise not be allowed.

These expenses can vary depending on how you have your PC structured. Nevertheless, some of the more common expenditures that are typically considered written-off are: cell phones, mileage, food, or possibly vehicle lease payments. Moreover, you will have the flexibility of writing off additional major expenses such as insurance premiums, e.g. Disability Insurance, Long-Term Care Insurance. The advantage of a CES is that you would be able to implement your own tax reduction plans without the need of receiving your MC’s approval.

How do you set up a CES?

A common misconception with a CES is that many physicians feel it is too burdensome to set up. This could be true if the physicians attempted the set up process on their own, or had an inexperienced attorney guiding them.

With the proper help and guidance from your trusted advisors, there is no reason why this process should be difficult or complicated. As long as you follow the simple four-step process, your path to saving money should be ready in no time.

The Four-Step Process

Follow these four steps to ensure you have properly created your CES:

Creating a new company: If you are debating between a Professional Corporation (PC) or a Professional Limited Liability Company (PLLC), it is important to keep in mind that depending on how your PC is structured, there would not be a difference. However, it is advised to consult with an attorney to explain how to have a PC properly structured.

Cancel current employment agreement: Once your new Company is formed, your next step would be  to contact your MC and inform them (assuming you have already received their approval for allowing such a structure to take place) that your PC/PLLC has been created and you need to cancel the current employment agreement.

Creating new agreements: Once you have informed your MC about the cancellation, you must   move forward with drafting the new employment agreement between your MC and your PC/PLLC. Very simply, this will involve the MC changing your personal name to your PC/PLLC name.

Save money: At this point you are ready to receive your income from your PC/PLLC and begin to write-off whichever expenses you want through your company.

If you find yourself in an employment position that restricts your ability to reduce your income taxes, then a CES may be your gateway to saving money. Although an effective plan that helps physicians preserve their hard-earned wealth, it is still a plan that has yet to be fully utilized. Take advantage and see the savings grow!

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at adil@josephlaw.net or (517) 381-2663.

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