Texas Non-Compete Law Blog : Texas Non-Compete Lawyer & Attorney : Robert Wood of Fell & Wood Law Firm : Trade Secrets Law in Denton, TX

In our practice, we see many disputes between doctors and their employers from both sides of the fence.  Quite often these disputes are between practices or institutions and doctors who are just “hitting their stride,” developing loyal patients and looking at their practice options for the future.  At that point, both parties search for the contract they signed and put in a drawer a few years earlier and begin examining its arcane phrases with a scanning electron microscope.

The eventual terms of any agreement between a doctor and his or her employer depend on many factors, including the respective bargaining power of the parties.  We thought it would be helpful for you to have a road map of the terms you are likely to encounter in your first agreement.

Like any document prepared by a lawyer, there is some fine print at the end.  In the meantime, give some thought to these items (which by no means exhaust the important provisions of an employment agreement) before you make your first commitment as an employee:

How Long.   What is the duration – called the “term” –  of the contract?  This is the duration of your employer’s commitment to you, and yours to your employer.   Is it long enough to allow you to establish your practice?  Is it so long that you would be unfairly stuck with a fixed compensation structure while your practice grew?   Does the contract automatically renew at the end of the initial term and keep renewing (usually for a year at a time) unless one side cancels with notice (called an “evergreen clause”) – which can be both good or bad, depending on how the contract handles it?

How Much.   How is your compensation set?  Is it tied to performance?   If so, does the contract fairly allow you some influence on your performance goals and your employer’s support in meeting them?   This tends to be a business term heavily influenced by market factors, but you still need to ensure that your future employer gives you a fair shot to maximize your income. 

Review incentive compensation and bonuses.  When are they paid?  What offsets will the practice take for expenses (such as technicians and nursing staff)?  If you leave before you receive a bonus, are you entitled to a pro rata share of the bonus or incentive compensation?

Out-of-Pocket (or Purse).    You will have a lot of expenses.   Most employers pay or reimburse the basics, but consider some unusual expenses, such as costs associated with providing services at multiple locations, and don’t forget necessary certifications and continuing medical education.  Don’t assume that your employer will pay all expenses of you being a doctor – get it clear up front.

Vacation.   Is there a paid vacation policy?  What if you can't or don't choose to take all your paid vacation?  Will the days roll over to the next year, or can you cash out your unused days?

Sick Leave/Personal Time.    What does your employer provide if you are temporarily disabled due to injury or illness?  Does the agreement define the term "disability”?  If you are disabled, how long will you receive your base compensation?  If you have minimum collection requirements in your contract, can this be adjusted to take into consideration a decrease in productivity due to a temporary disability?

On Call Obligations.   Are your “on call” coverage obligations clearly spelled out?  Is call limited to specified locations?

If Your Contract Doesn't’t Go to Term.   Yes, it happens. That great relationship at the outset of your employment can sour for a multitude of unforeseeable reasons.  What are the conditions permitting either you or your employer to terminate the agreement before the end of its term?   The procedures are critical here.  This is a major source of litigation, as are: 

Noncompetition Agreements.  The hands-down winner in the I-guess-I-need-to-call-a-lawyer sweepstakes is the famous “covenant not to compete” provision, sometimes shortened to “noncompete.”  This is a provision that limits (but does not entirely prohibit) an employee’s ability to work elsewhere after the employment ends or is terminated.  Some doctors are under the misimpression that these provisions are not enforceable in Texas because they are anticompetitive.  Not true.  It is true that there are special conditions imposed upon them in Texas, but if those conditions are met, courts will enforce contract provisions that keep you from practicing within a certain geographical area for a certain period of time after your employment ends.  The good news is that there are ways to limit the effect of such provisions. 

Partnership.    If your employer is a medical practice, consider requiring a commitment on its part to consider you for partnership (or whatever form of ownership the practice uses) after a certain period of time.

Your Patients’ Records.   Your contract may end or your contract may be terminated prematurely.  Either way, if you have your own patients you are going to want their records.   You need to provide for that in the agreement.

The More Things Change.   With federal law and regulation changing rapidly with respect to matters such as recordkeeping, reimbursement, and even compensation itself, employers have begun inserting provisions permitting them to make unilateral changes to the contract to keep it in compliance with law.  Sounds reasonable, but you should have notice of the change and the opportunity for input (or the option to bail out).

Malpractice Insurance.  Yes, your employer will provide it, but it’s more complicated than that – what happens when your employment is over?  This issue is of particular importance with respect to your second employer and something called tail insurance.  Big-dollar item.

Dispute Resolution.  If you have a dispute over the terms of the employment agreement, how will it be resolved?   Frequently (and, in the case of hospitals, almost always) employment agreements provide for mandatory arbitration (that is, the parties cannot go to court; the dispute is heard by a non-judge with no jury).  Does the contract provide that both sides must conduct a face-to-face meeting before initiating legal proceedings?   Is there a provision requiring the loser to pay legal fees, and, if so, which side does it favor?

Two Sides to Every Story. We have focused here on things that the new doctor is going to want. Your employer is going to want some things, too, and it’s going to insist on them:   Getting and keeping your license; maintaining your privileges at hospitals; abiding by the rules and regulations of the practice or institution; complying with legal requirements; and many more.  Still, you want to make sure your employer doesn’t slip in anything unreasonable, or phrases it in such a way that it turns out to be at “gotcha” at some later date.

As noted, this list only hits the highlights. There are many other possible provisions the new employee should carefully heed.

 

www.felllawfirm.com

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Almost two years ago, in the Sheshunoff case, the Texas Supreme Court rejected the notion that an employer must provide the employee with confidential information at the precise moment the non-compete agreement is signed for the agreement to be enforceable. According to the court, it is not fatal to the agreement's enforceability if the information is actually provided sometime later.

But how exactly must the agreement be worded for it to be enforceable? A recent case out of the Corpus Christi Court of Appeals addresses that question. In Shoreline Gas, Inc. v. McGaughey, an at-will employee was bound by an agreement that contained promises by the employee (a) not to disclose the employer's confidential information and (b) not to engage in post-employment competition. 

Significantly, the agreement did not obligate the employer to provide confidential information to the employee. Nevertheless, the court found that the employer had in fact provided such information.

The court first held that the non-compete agreement was an enforceable unilateral contract. The court explained:

McGaughey's promise not to disclose Shoreline's confidential information, though not enforceable when made, constituted an offer for a unilateral contract which Shoreline had the option to accept. Shoreline accepted McGaughey's offer by performing—that is, by supplying McGaughey with confidential information—and so a unilateral contract was formed under which McGaughey became bound by his promise not to disclose that information.  . . . Under Sheshunoff, such a unilateral contract constitutes an "otherwise enforceable agreement" sufficient to support an accompanying non-compete covenant.

The court specifically addressed the employee's contention that the agreement was unenforceable because it did not contain a promise by the employer to provide the employee with confidential information:

McGaughey notes that, unlike in the present case, the Sheshunoff employment contract required the employer to provide to the employee with "access to certain confidential and proprietary information and materials belonging to Employer. . . ." Alex Sheshunoff Mgmt. Serv., L.P. v. Johnson, 209 S.W.3d 644, 647 (Tex. 2006). This promise was illusory, however, because the employer could avoid performance simply by terminating employment. Further, this promise was not of the type that could be considered an offer for a unilateral contract that could be accepted by the performance of the promise. Therefore, it could not have formed the basis of an "otherwise enforceable agreement" capable of sustaining a non-compete covenant. See Id. at 650.

Thus, according to the court of appeals in McGaughey, as long as the employer provides confidential information to the employee (even if the agreement does not contain a promise by the employer to do so), a unilateral contract is formed when the employer does so (with the employee's promise not to disclose the information constituting the other part of the unilateral contract). According to the court, this unilateral contract is an otherwise enforceable agreement sufficient to support a promise by the employee not to compete.

This holding should be examined in light of the following passages from Sheshunoff (with emphases supplied): 

If only one promise is illusory, a unilateral contract can still be formed; the non-illusory promise can serve as an offer, which the promisor who made the illusory promise can accept by performance. For example, suppose an employee promises not to disclose an employer's trade secrets and other proprietary information, if the employer gives the employee such specialized training and information during the employee's employment. If the employee merely sought a promise to perform from the employer, such a promise would be illusory because the employer could fire the employee and escape the obligation to perform. If, however, the employer accepts the employee's offer by performing, in other words by providing the training, a unilateral contract is created in which the employee is now bound by the employee's promise. The fact that the employer was not bound to perform because he could have fired the employee is irrelevant; if he has performed, he has accepted the employee's offer and created a binding unilateral contract . . . .

*           *           *

We agree with Light's recitation of basic contract law in footnote six that "[i]f only one promise is illusory, a unilateral contract can still be formed; the non-illusory promise can serve as an offer, which the promisor who made the illusory promise can accept by performance." Upon further review of the Act and its history, however, we disagree with footnote six insofar as it precludes a unilateral contract made enforceable by performance from ever complying with the Act because it was not enforceable at the time it was made.

*           *           *

We now conclude, contrary to Light, that the covenant need only be "ancillary to or part of" the agreement at the time the agreement is made. Accordingly, a unilateral contract formed when the employer performs a promise that was illusory when made can satisfy the requirements of the Act.

*           *           *

But if, as in the pending case, the employer's consideration is provided by performance and becomes non-illusory at that point, and the agreement in issue is otherwise enforceable under the Act, we see no reason to hold that the covenant fails.

A few observations:

1. Sheshunoff addressed a non-compete agreement containing a promise by the employer to provide confidential information to the employee, and the opinion speaks of the employer's "promise"—although the promise was "illusory" when made, because the employee could have been fired in the interim—becoming enforceable upon the information being conveyed. Thus, Sheshunoff can be seen as assuming that the employer must promise to provide the confidential information, even if the promise is "illusory" at the time it is made.
2. The court in McGaughey construes Sheshunoff as only requiring the employer to provide confidential information; the contract need not contain an explicit promise to provide confidential information.
3. Obviously, in drafting new agreements, the safest course remains to include language by which the employer explicitly promises to provide confidential information to the employee.

www.felllawfirm.com

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