Excerpted from The Biggest Legal Mistakes Physicians Make: And How to Avoid Them

Edited by Steven Babitsky, Esq. and James J. Mangraviti, Esq. (©2005 SEAK, Inc.)

Download Free 646 Page E-book: The Biggest Legal Mistakes Physicians Make and How to Avoid Them

Executive Summary

Physicians’ offices are subject to the same employment issues as other businesses. Doctors pride themselves on being professionals and tend to forget or to delegate the business matters to their office managers without providing oversight. As a result, making any of the following mistakes can be costly in terms of liability, disruption of the practice, and legal fees.

Mistake 1            Not Checking References

Physicians often forget to check references for new employees, which can lead to malpractice liability for an incompetent doctor, nurse, or other professional. Likewise, a physician could be susceptible to a claim of negligent hiring or negligent retention for several reasons, including when an employee has left another job due to incompetence or for bad conduct that might be repeated in the physician’s office, when an employee has been disciplined by a state or licensing entity, when an employee has not met continuing education requirements, and when an employee is posing as a doctor or other medical professional but does not have the requisite education or licenses. It is often beneficial for the physician to hire a referencing business to do the background checks, since such businesses have access to the necessary databases and are experienced in asking the right questions and following up to get a true picture of the applicant.

Action Step    Physicians should not hire anyone without checking references. Also, they should make sure any employee who deals with money is bonded or at least bondable.

Mistake 2      Failing to Have Job Descriptions

Among the many different job positions in a doctor’s office, some may overlap or employees may undertake actions or conduct procedures for which they are not licensed. Having a written job description covering the essential functions of the position and the lines of authority ensures that all employees know what they should be doing and to whom they report. Essential functions are those that if they were not done, the job could not be accomplished.

Action Step     Physicians should draft job descriptions taking care to include the essential duties of each job, mark these duties as essential in the job description, and review the descriptions with employees.

Mistake 3       Not Having an Arbitration Agreement

Since the U.S. Supreme Court allowed mandatory arbitration agreements, the number of businesses using them has increased dramatically. Litigating employment disputes can be very costly. Arbitration is a less formal and typically quicker way to resolve these disputes. The agreement should set forth the procedure to be used and include processes for discovery of the employer’s relevant records. Without the ability to discover relevant employment information, the agreement is subject to challenge as patently unfair and thus unenforceable. Some states also require the employee to initial the arbitration provisions if they are included in a larger document, such as an employment contract or a noncompete agreement.

Action Step  Employers should have all employees sign agreements to arbitrate all disputes using the employment protocols developed by the American Arbitration Association or other major provider of alternate dispute resolution services.Employees should examine arbitration provisions carefully as soon as an issue arises to determine if they are valid and binding.

Mistake4    Not Having Noncompete and Nonsolicitation Agreements

While an employer can’t unreasonably restrict an employee’s right to work, it can require an employee to sign reasonable covenants not to compete and nonsolicitation agreements so that the employee doesn’t take patients or other employees with them when he or she leaves. State laws differ on these agreements, but in general, they must be reasonable in time limit, geography, and scope. In addition, some states construe these types of contracts very strictly and will not “blue pencil” the document (i.e., change certain parts to make it valid). In these states, because the agreements are either valid or invalid, portions of the agreement cannot be enforced unless the whole document is valid. In other states, a court will rewrite the agreement to make it enforceable. These provisions may be more restrictive and strictly enforced against a partner or co-owner leaving or selling his or her practice.

Action Step            Physicians should have their employment or business counsel draft or review these types of agreements in accordance with state laws before the agreements are signed.

Mistake 5            Letting Employment Taxes Slide

Employment taxes do not belong to the physician practice and cannot be appropriated for other needs. There is a 100% penalty for failing to pay employment taxes, and physician employers or their officers can be held individually liable for them.

Action Step  Physicians should get their accountant, bookkeeper, or payroll service to handle their taxes and reporting requirements. Having a professional handle these matters is far better than trying to handle them alone or ignoring them altogether.

Mistake 6       Not Having an Employee Handbook

The chance of incurring liability for disparate treatment or other forms of discrimination is greatly reduced if employees know the rules and that they will be enforced. An employee handbook should cover such matters as annual, sick, and personal leave, hours of work, overtime, discrimination and harassment policies, disciplinary and grievance procedures, and benefits and eligibility requirements for benefits. It should also include a statement that the handbook does not create a contract for employment and that the employee acknowledges that he or she is an employee at will subject to any state or federal laws. Some states have restrictions on employment at will.

Action Step    Employers should determine what their policies should be and draft an employee handbook or ask an employment attorney to do so. Each employee should be given a copy of the handbook and instructions to read it and ask questions if anything in it is not clear. Employers should be sure to get a signed, dated receipt for the handbook, certifying that the employee has read it and was provided the opportunity to ask questions. Employees should be sure to read the handbook and ask questions if anything is not clear.

Mistake 7     Not Protecting or Disclosing Trade Secrets

Most employees in a doctor’s office are aware of the restrictions on disclosure of patient information; however many employees do not realize they are entrusted with trade secrets that include financial data, financial plans, or a list of actual or potential patients or suppliers that is not commonly known by or available to the public. This information derives economic value, actual or potential, from not being generally known and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use. In addition, it is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. In many states an employee who discloses trade secrets can be subject to an injunction and liable for damages.

Action Step     Physicians should check the state law regarding trade secrets and include a trade secrets provision in their employee handbook. Liability for disseminating trade secrets can result in an injunction, damages, and/or a lawsuit against both the employee and the new employer.

Mistake 8        Neglecting the Unemployment Hearing or Appeals Process

Generally, an employee who resigns is not entitled to unemployment insurance payments. The same is true for employees who are fired “for cause” (e.g., theft, violation of written policy, or violation of other work rules). However, employees terminated for incompetence are not necessarily disqualified from collecting unemployment insurance. Neither the employee who was fired and who applies for unemployment compensation nor the employer should neglect the hearing or the appeals process. The employer will have the burden of proving that the terminated employee is not entitled to collect unemployment. It should be noted that statements made under oath in an unemployment proceeding may be used in a subsequent lawsuit regarding the termination. Also, a court finding in an unemployment case will have a preclusive effect in a separate federal action between the parties. Like a discrimination case, even if the claim is not identical, one cannot relitigate an issue that has been judicially decided.

Action Step     A physician who decides to terminate the relationship with an employee should consider offering that employee the option of resigning. A physician who is an employee should avoid a hearing on unemployment if there is a good federal lawsuit.

Mistake 9      Not Paying Overtime

Time and a half must be paid to all workers who earn $455 or less a week and work in excess of 40 hours a week unless they are specifically exempt. Doctors are exempt. Registered nurses who earn in excess of $455 a week salary and are licensed by the state nursing board also are exempt. Registered nurses who are paid on an hourly basis and licensed practical nurses are not exempt. Other categories of employees who do not possess advanced knowledge in a field of science customarily acquired by a prolonged course of specialized intellectual instruction also are exempt. The burden of proof in an overtime case is on the employer to produce records that demonstrate the number of hours worked by the nonexempt employee. Employers that do not pay overtime are subject to suit going back two or three years if the violation is willful. There is no voluntary work; if one is a nonexempt employee and the employer “suffered or permitted” the overtime to be worked, the employee must be paid overtime.

Action Step  Physicians should keep good records and should not require employees to record on their time sheet that they worked no more than 40 hours in a week if that is not true.

Mistake 10     Not Providing Evaluations and Feedback on Performance

Evaluating an employee and providing feedback on performance are crucial to both employee and employer but are often overlooked in a small office. Although it is a difficult process, all employees are entitled to know how they are doing on a job. In addition, periodic evaluations help avoid the scenario in which an employee is surprised when the employer terminates him or her for poor performance. In fact, regular employer feedback often determines the difference between employees who look to sue and those who accept the fact that they have strengths and weaknesses and that their job might not be right for them. Giving employees who are to be terminated for poor performance (not insubordination or because the employee can do the job but won’t) the choice to resign or be fired will often make the difference in whether or not the employee gets another job.

Action Step  Physicians should evaluate employees in quarterly or semi-annual meetings, or at least once a year, to

assess performance and help improve performance if needed, and use a standard evaluation format. Between formal evaluations, physicians should document specific performance problems (including dates of specific incidents and the names of other people involved), have the employee sign the documentation to show he or she has seen it (even if the employee disagrees with the documentation), and place the documentation in the employee’s personnel file.


There are many state and federal laws that affect employment. Either as an employee or an employer, steps should be taken to understand applicable rights and obligations. It is up to each physician to make informed choices in the employment arena that will have a significant effect on his or her professional and economic life.

Additional Resources

  • The Employment Law Information Network, www.elinfonet.com
  • The Physicians News Digest, www.physiciansnews.com
  • U.S. Department of Labor, www.dol.gov
  • U.S. Equal Employment Opportunity Council, www.eeoc.gov 

Written by:

Joyce F. Glucksman, Esq.

Peer reviewed by:

Julie M. Weiner, Esq.

Download Free 646 Page E-book: The Biggest Legal Mistakes Physicians Make and How to Avoid Them