How to Mitigate Job Loss Due to Coronavirus

COVID isn’t just making patients ill, it is dramatically affecting the job market. The incidence of job loss due to coronavirus is increasing significantly. A May 2020 article in Business Insider described how Google rescinded more than 2,000 job offers due to uncertainty from the coronavirus. Google and other companies including Yelp, Glassdoor, and the National Institutes of Health have canceled internship programs due to COVID. Healthcare organizations aren’t immune to COVID’s effects. Envision Healthcare (owned by private equity group Kohlberg, Kravis Roberts & Co [KKR]) was rumored to be considering filing for bankruptcy in April but then KKR purchased Borden Dairy for $340 million in June. Team Health (owned by private equity firm Blackstone) is reportedly cutting physician staffing and replacing some physicians with midlevel providers (while Blackstone is at the same time spending $4.7 billion to purchase Ancestry.com). Hospitals have also been hard hit by the coronavirus pandemic. A February 2020 study by the Chartis Center for Rural Health showed that 453 of the nation’s rural hospitals were at risk for closure before the coronavirus pandemic began and the factor most likely to herald hospital closure is declining revenue. April 2020 emergency department visits dropped 42% when compared to April 2019 and 71% of Americans are afraid of visiting doctors or hospitals due to the pandemic. As a result, the healthcare industry overall lost 1.4 million jobs in April 2020. Stories of physicians being terminated or laid off in what was supposed to be a “recession-proof” profession are commonplace. Below are just a few of many examples provided to the author.

• In November 2019, one graduating resident signed a contract with a national contract management group to work as a travel physician and turned down several other job offers. Less than two months before the scheduled start date, the resident was notified that due to decreased patient volumes the contract start date would be delayed for at least 6 months. She was able to find an alternate position but is currently trying to mitigate the purchase contract on her current home.
• A graduating resident signed a contract in December 2019 to begin a job in July 2020. He had sold his house and was closing on a new house near his new job. Due to plummeting patient volumes, the group exercised a contract option to rescind the agreement without cause 90 days before he was set to begin. He is currently attempting to find alternate employment.
• One locum tenens physician was offered bonuses to help cover urgent staffing needs in a rural hospital. The day before leaving for the assignment, the hospital found “alternate staffing” and all the physician’s shifts were canceled. Because of this last-minute cancellation, the physician was unable to find other shifts for the month and lost more than $20,000 in expected income.

With the economic downturn causing many adverse contract actions, the question many physicians are asking is “can they do that”?

Is It Legal To Rescind An Employment Agreement?

The simple answer whether an employment agreement can be rescinded is “it depends.”

Contract language usually contains two types of termination provisions: “for cause” and “without cause”. Termination “without cause” allows either party to terminate the agreement for any reason with a certain amount of advance written notice (usually 90 days). For example, if a physician decides to move to another state, the required written notice would be given and the physician would continue providing services through the end of the notice period before leaving. Termination “for cause” means that one party has done something to breach the contract or has committed some other transgression specified as a reason for which the contract can be terminated without advance notice. “For cause” termination is immediate and will likely result in a physician being removed from all future scheduled shifts. Unfortunately, many physicians agree to vague “for cause” language that subjects them to termination for almost any reason. One commonly used “for cause” termination clause allows a group to immediately terminate a physician’s contract “if requested by the hospital administration.” The problem with such language is that a hospital can make such a request for any reason. Other vague language might allow a physician’s contract to be terminated if the “physician’s continued employment is in any way detrimental to the interests of the group/hospital.” Monetary losses during economic downturns might be used as an excuse to fulfill this requirement.

The “boilerplate” language at the end of a contract may also provide a means for a hospital or group to terminate a physician’s contract. A “force majeure” clause may allow either party to terminate the agreement if some unforeseen and extraordinary event (such as war, a tornado, or possibly a global pandemic) makes it impossible to fulfill the terms of the agreement. The COVID crisis probably would not be sufficient to allow a force majeure clause to be enforced, but ultimately that is a decision a court would have to make.

In addition to specific contract terms, several general contractual legal theories can also be used to terminate a contractual agreement. Contracts that are illegal or that are based on fraud, duress, unconscionability, mistake, or misrepresentation are generally unenforceable. In some cases, changes in circumstances or impracticability may be sufficient cause to nullify a contract. For example, a contract to purchase a building would be void based on impracticability if the building burned down. In theory, hospitals could argue that a global pandemic and the resulting decrease in patient volumes was a change in circumstances significant enough to make adhering to a physician’s contract impractical.

From a physician’s perspective, the legal theory of promissory estoppel may create liability for an employer that withdraws an employment agreement. Under promissory estoppel, if one party makes a promise to another party and, in reliance on that promise, the other party acts to its detriment, a court may decide that justice requires the party making the promise to compensate the other party for its losses. For example, suppose a physician receives an offer of employment and, in reliance on that offer, the physician quits his current job and purchases a new home in a faraway state. If the employer then rescinds the job offer, the physician would likely have to sell the home he just purchased and lose several months of income finding another job. A court might find that the only way to avoid an injustice to the physician is to enforce the original contract or to require the employer to compensate the physician for his losses.

If a hospital or group wants to modify, rescind, or terminate a contract, how should physicians respond?

Addressing A Proposed Reduction in Hours or Wages Due to Coronavirus

As hospitals struggle with declining patient volumes, they may request that physicians agree to reduce their hourly rates or agree to reduced staffing in the emergency departments. While agreeing to such concessions will help the hospital meet its budget and may show that the physician is being a “team player,” physicians are not required to agree to any contract modifications.

If a physician does not agree to an employer’s proposed contract modifications, the employer has several options:

• The employer may choose to impose the modifications without the physician’s consent. This could make the employer liable for breach of contract. A lawsuit would be required to enforce the physician’s rights, although complaints to the state or federal organizations such as the hospital licensing board, hospital association, or the state medical association may give the employer reason to reconsider a blatant contract breach.
• The employer could terminate the contract immediately if it alleges that criteria allowing “for cause” termination have been met. Keep in mind that contracts often contain vague language permitting employers to easily invoke “for cause” terminations. However, every contract also contains an implied covenant of “good faith and fair dealing,” so an employer’s decision to terminate a contract “for cause” shortly after the physician’s refusal to agree to a contract modification would probably not be viewed favorably by a court.
• The employer may provide written notice of its intent to terminate the contract without cause. If an employer wanted to act in bad faith, since most contracts don’t contain a minimum number of shifts for which a physician must be scheduled, the employer could then reduce (or eliminate) the number of shifts available to the physician prior to the termination date. Again, constructive contract termination by failing to schedule a physician for any shifts would probably not be considered as “good faith and fair dealing” by a court.

If a physician does agree to a voluntary reduction in pay or hours, then the employer would forward a written addendum to the agreement specifying the agreed-upon reductions. Keep in mind that proposed reductions are always negotiable and there is strength when negotiating in groups. If the parties agree to modify the contract, the changes should ideally specify a timeframe (such as 3-4 months) or list criteria (such as returning to > 80% pre-COVID ED volumes for 2 consecutive months) that would cause the pay/hours to revert to “normal.” The parties could then revisit the issue after 3-4 months if patient volumes have not increased.

How to Address Job Loss or Rescission of a Contract Due to Coronavirus

Contract termination presents few options for mitigation. If a physician’s contract is terminated, the physician needs to find another job. However, there are a few issues to consider when faced with a contract termination.

Is a contract rescission really just a change in the start date?

As with one of the case scenarios described above, a decision to rescind a contract may amount to just a delay in the contract start date. The promise of a future position with an organization may entice a physician to wait for the job to materialize. However, if a company has no work available now, recurrent waves of coronavirus and unpredictable future patient volumes may result in no job availability in the future. When presented with the option of delaying a start date, it may be wise to seek other positions rather than waiting for a future job to materialize.

Did a contract breach occur?

Just because an employer terminated an agreement doesn’t mean the employer did so legally. Violating the terms of an agreement is a contract breach and can amount to hundreds of thousands of dollars in damages. While seeking alternate employment, having an attorney review the circumstances of the contract termination may also help a physician to eventually recoup losses from a potential contract breach. Depending upon the circumstances, breach of contract, bad faith, promissory estoppel, or even fraud are all possible legal actions that could be initiated.

Nullify noncompete clauses

Noncompete clauses are not enforceable against emergency physicians in many states as a matter of law. If an employer terminates a contract because of COVID-related issues, the employer should have no business interest in preventing the physician from working in the same area. Any restrictive covenants contained within a terminated employment agreement should be nullified. Get such guarantees in writing.

Avoid working with disreputable hospitals and staffing companies

As occurred with one of the physicians in the examples above, some temporary staffing companies will terminate scheduled shifts/contracts with little or no notice. Some hospitals schedule temporary physicians as “insurance” for shift coverage and then cancel the shifts with short notice if a lower-paid alternative staffing solution can be found. Read through temporary staffing contracts carefully and do not agree to arbitrary shift termination. If you have been the victim of sudden shift cancellation, report the incident to the National Association of Locum Tenens Organizations (www.nalto.org). Cancel contracts with staffing companies or hospitals that engage in this conduct.

General Recommendations To Mitigate Job Loss Due to Coronavirus

ALWAYS have staff privileges at more than one facility

There is no legitimate business reason why groups or hospitals should demand that physicians have staff privileges at only one hospital. If a physician is on staff at one facility and that facility reduces the physician’s hours or wages, the physician has no ability to mitigate a loss in income by picking up shifts at other facilities. Worse, if the physician’s contract is terminated, he would have to find another job, possibly obtain licensure in another state, go through hospital credentialing, and go without several months’ pay while waiting to obtain hospital privileges. I have seen emergency privileges get pushed through in a couple of weeks, but I have also seen hospital privileging take more than 9 months. Being on staff at multiple facilities makes it much easier for a physician to mitigate adverse job actions at one facility.

Have an emergency fund

According to the Pew Research Center, less than half of all adults have an emergency fund that would last for three months. Creating a readily available emergency fund for circumstances such as job loss or major illness is important. Set aside enough money to cover one month’s expenses and then build upon that savings. Recommendations from financial professionals range from having funds to cover between 3 months and 6 months of expenses.

Consider student loan forbearance

Student loan payments amount to a large monthly expense. President Trump signed an executive order extending temporary cessation of payments and waiver of all interest on student loans held by the Department of Education until December 31, 2020. Private student loans are not subject to this order. This executive order will free up student loan money to temporarily be used for other purposes. However, when the order expires, loan payments will resume. If financial difficulty continues after the order expires, lenders offer loan forbearance which will stop payments on loans for several months. Contact your student loan lender for further information.

Apply for unemployment (if eligible)

Unemployment benefits don’t amount to a lot of money, but the income provided is better than no income at all. Each state has different rules regarding unemployment benefits. Doing a web search using the term “how to apply for unemployment in [your state]” will provide more information. Note that independent contractors and locum tenens physicians are probably not eligible for unemployment benefits.

Consider other sources of income

Branch out. Physicians can write books, review medical records, work administratively, provide expert witness services, invent medical products, work independently with companies, open a specialty clinic, perform telehealth visits, or can branch out into other entrepreneurial ventures. The sky is the limit!

Conclusion

Despite the spending habits of some healthcare-related venture capital firms, coronavirus has caused a significant financial rift in the healthcare industry. Understanding how to review and enforce language in your employment contract may help you to navigate adverse employment actions or potential job loss, but having a contingency plan and considering alternate sources of income during a crisis will help ensure financial stability.

For more articles on contract-related issues, check out the contracts section of this site.