1. Doctors entering into a new practice will almost invariably need to sign a contract which sets out the terms of engagement.  There may be other legal issues as well, particularly when the doctor is joining as a principal.  Here are some points that both sides should consider before anything is signed.

 

What is the nature of the engagement?

 

2. The nature of the parties' respective rights and obligations will depend on whether there is an employment relationship, an independent contract, a partnership or a company.

 

Employment

 

3. Employees have certain rights and protections under the Employment Ordinance (Cap. 57), although they are not extensive.  For example, employees accrue sickness leave and annual leave, and have limited protection from unreasonable or unlawful dismissal.

 

4. Employees also owe their employer implied duties, including a duty of fidelity and good faith, and both sides owe each other a duty of mutual trust and confidence.  Employees must also comply with lawful directions from their employer.  Employment is normally exclusive to one employer.  Employees are also entitled to minimum MPF contributions from their employer.

 

Independent contractor

 

5. An independent contractor (often referred to as a consultant) is not an employee and does not enjoy any of the protections afforded to employees - the rights and obligations between the parties are strictly contractual.  Independent contractor arrangements are therefore more suited to doctors who work in multiple practices (such as specialists or locums).

 

6. The question of whether someone is an employer or an independent contractor is a question of substance, not form, and there have been cases where the courts have held than an independent contractor was actually an employee.

 

Partnership

 

7. A doctor joining a practice as a principal may be a described as a 'partner'.  This might mean literally a partner in a partnership, which would mean that all of the partners share the profits and are jointly responsible for any liabilities.  The partner will also normally be required to contribute capital to the business.  In this case there should be a partnership agreement which sets out the terms on which the partners will operate (e.g. how profits and expenses will be divided, how decisions are made, and how partners can be admitted and removed).

 

8. It is increasingly common for practices to be run through a company, in which case the 'partners' will directors and shareholders of the company.  There should be a shareholders' agreement which regulates how the company will operate.  Doctors should review this carefully, as many shareholders' agreements are poorly drafted and do not deal with issues such as disagreement between the shareholders.  Doctors should also review the company's articles of association (which may not always be consistent with the shareholders' agreement). 

 

9. The principals are also likely to also be employees of the company (and will therefore have an employment contract as well).

 

What is required before commencing practice?

 

10. The contract terms will usually require the doctor to start on a particular date. Doctors are advised to be realistic about the commencement date and have their practising certificates and/or professional indemnity plans renewed and updated if necessary before commencing practice.

 

What are the doctor's duties?

 

11. The parties should be clear as to what the doctor is expected to do, which may range from attending to patients requiring attention in the doctor’s specialisation to management duties and overseeing the practice.  If there is no exclusivity of service, then this should be expressly provided for in the contract, together with the terms and conditions.  Similarly, should a doctor wish to have any other outside professional activities, they should ensure that these are made known and preferably included in the contract to avoid future dispute as to whether the activity was approved. They should also ask that the activity be added to the contract as an exception.  This is even where the activity is on a pro bono basis.

 

12. Doctors should also be aware of any non-medical services that they may be required to provide under the employment contract. Moreover, if the contract contains an expected productivity or express workload to be carried out by a doctor, they should clarify whether such a condition would carry adverse implications.

 

What liabilities are there, and what is the professional indemnity position?

 

13. Employees are entitled to indemnity from their employer for any acts committed in the course of their employment.

 

14. Independent contractors are normally individually liable for any act or omission. Their contract may also include a provision which requires the independent contractor to indemnify the practice for any act, omission, negligence, misconduct or wrongful act.

 

15. The liability of a 'partner' will depend on whether the practice is run by a partnership or a limited company.  A partner's liability is unlimited.  Directors are not normally directly liable to third parties.

 

 

16. Regardless of the nature of the engagement, doctors should maintain their own professional indemnity insurance to protect themselves from any possible claims.

 

What is are the compensation arrangements?

 

17. The contract should specifically state how much and how often a doctor will be paid for the services they render.  In an employment contract, base salary will most commonly be expressed as an annual or monthly base salary.  The stated salary amounts are always gross amounts therefore the net amounts to be received by an employee will always be net of the monthly MPF contributions.

 

18. Some contracts will state a doctor's salary and/or bonus as a formula. It is crucial that the formula is clear and unambiguous.  Doctors are advised to clarify any uncertainties in this formula. If necessary, doctors should ask their employers to run a sample calculation and apply the formula by example. It is necessary to know exactly how the medical institution plans to allocate the practice's expenses to their doctors as it is directly correlated to how a doctor is remunerated for his/her services. Additionally, doctors should also take note of the arrangement of the pay out of such a scheme in the case of termination.

 

19. Payments under an independent contractor arrangement (which may also include a formula) should be similarly clear and unambiguous.

 

Is there a promise of equity?

 

20. An employment contract may include an offer to give the doctor a share of the equity in the practice at some point.  Typically, these provisions are not very specific as employer does not want to commit to giving the doctor a stake in the business until they have proven themselves. Most likely, the employment contract will say the doctor will be considered subject to some performance-based conditions.  It is vital that the terms upon which equity will be given are clear.  For example, whether there is a buy-in and if so, how much.

 

21. Becoming an equity owner will also involve becoming a party to a partnership agreement or shareholders' agreement, and may involve assuming individual liability for the practice (see above).

 

What are the termination provisions?

 

22. The contract will usually provide for the notice period a party needs to give to the other when terminating the contract.  Doctors are advised to be aware of the length of such a period as they may not be able to leave the practice quickly (e.g. if there is a breakdown in the relationship).

 

23. Additionally, the contract may also specify situations the contract can be terminated with immediate effect.  Employees can be dismissed immediately for serious misconduct, and an independent contractor contract may have similar provisions.

 

24. Doctors are advised to review the termination provisions carefully and take out any items that are subjective or arbitrary, leaving only the truly egregious acts, such as the loss of licence or misconduct as justifying "for cause" termination.

 

What are the restrictions on practice after termination?

 

25. It is common for contracts (including partnership agreements and shareholders' agreements) to include restrictions on the right to practice with a competitor after the doctor leaves the practice.  There may also be restrictions on soliciting patients and /or other members of the practice.

 

26. These restrictions must be reasonable as to their geographic scope, duration and restricted activity or they will not be enforceable.  Typically, the geographic scope of a non-compete clause in a doctor's employment contract is described as a radius from a location.  Primary care practices will generally use a smaller radius than a specialty practice.  The duration of these restrictions can be quite long (sometimes as much as 2 years), but the longer the restriction the more likely it will be unenforceable.  The non-compete clause should also be very specific as to the type of medical specialty a doctor is restricted from practising during the period of restriction.

 

Careful consideration should be given to whether a restrictive covenant is necessary or reasonable.  Practices which seek to impose excessively onerous restrictions may find that the doctor can simply ignore them; doctors who sign contracts with onerous restrictions may find themselves unable to practice (at least in the desired location) for an extended period after leaving, or in a mess dispute over the enforceability of the restrictions.

 

 

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