Mitigating Adverse Job actions due to the COVID Crisis.
COVID isn’t just making patients ill, it is dramatically affecting the job market. A May 2020 article in Business Insider described how Google rescinded more than 2,000 job offers due to uncertainty from the coronavirus.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 either. 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. 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 six 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.
Beyond 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?
Next month, I’ll continue exploring ways to mitigate adverse job actions due to the coronavrus including how to address termination or rescission of a contract and proposed reduction in hours/wages.
- https://www.modernhealthcare.com/ nance/healthcare-loses-14-million-jobs-aprilunemployment-rate-hits-147