Provisions that impose duties or obligations as described in other documents are also troublesome. Courts enforce obligations imposed by other documents incorporated into a contract, even if a party did not possess the other document at the time he signed the contract. Never agree to obligations contained in a document you haven’t read.
Reasonable Termination
Except for duties imposed by law or contract, parties generally don’t have continuing obligations to each other. For example, most states presume employment is at-will: Either party can terminate the employment at any time, without notice, for any lawful reason. Thus, the manager at McDonald’s can terminate a cashier in the middle of a shift because he thinks the cashier is rude. The cashier can quit his position in the middle of a shift because he doesn’t like his job.
Contract obligations limiting the circumstances under which employment can terminate comprise a major exception to employment at will. For example, a physician might agree to provide 90 days’ notice before leaving his employment. While the physician might agree to this provision, certain circumstances should allow for immediate termination. This includes when the practice has financial issues (fails to pay the physician or enters bankruptcy), allows insurance to lapse, fails to provide adequate staff, improperly bills, or sells to another owner. A healthcare entity can also have legitimate reasons for immediately terminating a physician, such as loss or suspension of his medical license, hospital privileges, or DEA registration.
Provisions that allow termination for vague reasons such as “conduct detrimental to the practice” or “failure to provide services in a professional manner” are problematic. It wouldn’t be hard to manufacture an instance where a physician engaged in conduct detrimental to the practice. Being late for an appointment is detrimental to the practice but probably unavoidable in some circumstances.
Be wary of contractual provisions that give one party unilateral or unlimited discretion over a term.
Evaluate Survival Terms
Some relationships simply end, with the parties going their separate ways. But contracts often include obligations that survive termination. A party to a contract should always make sure to understand the scope and effect of any contractual provision that continues after the parties’ relationship has otherwise ended.
In physician contracts, the most prevalent survival provisions are non-compete clauses. Non-compete clauses provide a good model to discuss post-termination obligations. A standard non-compete clause might read like this:
Dr. Jones will not, in the three years immediately following termination of this agreement, practice medicine in any location within a three-mile radius of any location where he has provided services for P.C.
If Dr. Jones has performed surgery at both area hospitals while under contract, this clause could require him to pack up his stethoscope and leave town. When coupled with a provision allowing an injunction or liquidated damages, non-compete clauses are a big deal and give rise to lots of lawsuits. Even in circumstances where a non-compete clause is unenforceable, a party is unlikely to receive a favorable determination without substantial litigation. Negotiate a non-compete clause or other survival terms everyone can live with.
Understand Remedies
Lawyers use the term “remedy” to describe the recourse available when a party breaches an agreement. Remedies come in three basic forms:
- Compensatory damages;
- Liquidated damages; and
- Equitable relief.
Compensatory damages are monetary awards designed to compensate an injured party for actual loss. The party seeking compensatory damages must prove the nature of the injury and the amount of compensation that should be awarded.