Even if Your Employment Contract is Great, it Sucks

As Private Practice Consultant for the ACA, of all the practice forms requested of me by members, the one I’m asked for above all others is an employment contract. Often, practice owners—both novice and experienced—are looking for something that will protect them from the myriad things that can go wrong when working closely with others. It’s an understandable request, but even a great employment contract sucks.

Over the years, I’ve used employment contracts that have ranged from 1 to 17 pages. They’ve included provisions for scheduled raises, intellectual property, non-disparagement, and so on. Agreements have specified what employer and employee will do, won’t do, can do, and when we’ll do (or not do) whatever. Lots of stuff. An early piece of advice I received was, “When a problem comes up with an employee, learn from that experience and revise the contract to account for it next time.”

For example, that time a counselor resigned before even seeing one client, after we spent time and money credentialing her. We added a provision that a counselor will need to reimburse “Company” for those costs.

Or, that time when we filled a counselor’s caseload and then she promptly quit and took her clients across the street, where she opened a competing practice. After that, we added a non-compete radius.

Or, that time a counselor decided that his commute was too long, quit and tried to box up his case files. We added more language that specified that case files belong to the practice, not the provider.

After 10ish years and hundreds of employees, our employment contracts have evolved. They’re longer (but not 17 pages, that’s too long), and they contain terms that have deterred some who might have taken advantage of a weaker contract. When recruiting, its given us more false negatives (that is, not hiring someone who would’ve been a good fit), and fewer false positives (hiring someone who turns out to be a poor fit), which is good. But a contract is still a poor tool.

Even with a “binding” agreement, a contract is almost never going to force somebody to do something they don’t want to do, especially when it’s an employer-employee relationship where laws heavily (and perhaps rightly) favor the employee. And especially not in healthcare-related fields, which are complicated and have many other factors at play that can overrule an employment agreement. Hence, if someone wants to cut their hours, demand more money, or quit altogether to work for the competition, there’s a good chance they’re going to be able to do it regardless of what their contract says.

If not a contact, then what?

If a contract, even a good one, is a poor tool, then what’s the answer?

To start, bring on decent, honest people, and be a decent, honest person yourself. Also, spend time to develop a full understanding of what a potential team-member is seeking. Make sure your incentives and your team-member’s incentives are aligned. The best “agreement” isn’t one on paper, it’s one the employer and employee have discussed and feel good about.

Be able to answer these questions:

• What does the potential employee most care about? Is it money, support services (like medical billing, scheduling), flexible work hours, size of office, being treated like a VIP, health or retirement benefits, having professional expenses paid for, promotion opportunities?
• Does the potential employee agree with the company’s mission and philosophy? If you cater to the wealthy, or the poor, are they on board with that? If you help abusers, are they okay with that? If you use behavioral therapy with kids, do they align with that?
• Does the potential employee know what you care most about? Is it volume? Is it tenure? Is it him/her being able to work independently, or being willing to participate with the rest of the team? Or some mixture of these?
• Do you both understand the financial realities of the practice, and does each party feel good about their contribution and reward? Moreover, is the arrangement set up so that both parties are likely to feel it is an equitable deal now, in a year, and in five years?

No Such Thing as an Iron Clad Agreement

The definition of an Ironclad contract is “an agreement that cannot be broken by any of the parties involved.” It’s precise, concrete, definite, strong, exact and binding. Carnegie Steel had perhaps the most infamous iron clad agreement. So, it’s shocking that it’s still thought of as unbreakable because when Andrew Carnegie had a conflict with one of his executives, Henry Clay Frick, it fell apart. Every agreement has a loophole: a poor sentence here, a missing initial there. And, more crucially, there are always factors outside the contact that come into play. For Carnegie, it was that enforcing the contract would change his tax position and cost him money. Per the agreement, Frick was to receive $4.9 million. He walked away with $31 million. Does that sound iron clad?

Let’s talk about other contracts: If a tenant signs a lease and later decides it’s unfair, he or she might become such a nuisance and ‘headache’ that the landlord might allow the tenant to ‘break’ the lease, just to be rid of them.

Contracts with builders are notorious for changing mid project. The scope of the work changes, and the price increases. Or the builders’ work isn’t exactly as agreed, but the bill is still due.

Back to employees: They must want to be on board even if there wasn’t a contract. In a worst-case scenario, if someone feels that she wants out of her agreement, she will find some way to break it. For example, she might find a loophole, or a law that overrules your agreement, or she might file a flimsy complaint with the department of labor against you to ethically justify her departure. These things happen all the time, and they can get ugly.

Whether it’s a customer, a tenant, a contractor, a team member, or another business—you can’t go into business with someone and expect that a contract is going to make things work out. It won’t.

Build Relationships

“More often than not people quit managers, not companies.” That sentence has been part of our business philosophy since we opened our doors. Focus on the relationship between you and your employees, that is the real answer. You can have the best employment contract, but if your relationship with your employees breaks down—it’s over.

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