3 Things to Consider in a Merger or Acquisition

Resolve

If you are an employed physician, a merger, acquisition, or other change in ownership structure can dramatically impact your employment.  Aside from personnel and management changes, you may see adjustments to your compensation structure, scheduling, work location, and more. These changes can happen suddenly, and possibly without your explicit consent. To limit these unexpected changes and protect your best interests, it helps to have the right contract terms in place beforehand. You also need to understand how your existing contract can be passed from one owner to another or be terminated. Here are the 3 main aspects of your contract to consider prior to and during a merger.

Contract Assignment

Physician employment contracts usually include terms regarding “assignment,” or how the contract can be transferred by either you or your employer to a new party. Generally, assignment terms heavily favor the employer, allowing them to pass your contract on to the new ownership following a merger or similar event. Conversely, the assignment clause will not allow you, the physician, to freely assign your contract to another person.

While it makes sense that you cannot simply pass your employment contract off to someone else, it should not be so easy for your employer to do so either. If your contract is assignable by your employer, try to ensure the agreement requires your employer to give advanced notice of assignment. Receiving 90 to 180 days’ notice will give you time to decide whether you want to be part of the new organization, terminate your existing contract, or negotiate a new contract (if provided by your employer).

Termination

While you are addressing assignment, also consider termination terms and what will happen if your contract is terminated by either you or your employer. A variety of scenarios could play out during a merger, depending on the contract’s assignment and termination language.

If your contract is assignable by your employer, they will either choose to assign the contract or terminate the existing agreement and offer a new, revised contract. If your contract is not assignable, the employer may ask for your consent to assign the contract anyway. Otherwise, the existing contract will again need to be terminated and replaced with a new contract.

If your employer chooses to terminate the contract in any of these situations, the new contract you receive will be up for negotiation. In these cases, you should absolutely review the new contract in full and negotiate if necessary. If your contract is not assignable and you haven’t given consent for your employer to assign the contract, they will almost certainly be in breach of contract for deciding to terminate.

Just as assignment terms should be clear, your contract should explicitly state how and when you or your employer can terminate the agreement. Vague terms that allow your employer to terminate the contract too easily or prevent you from exiting when needed could place you in an uncertain position when facing something like a merger. Also note how termination affects other pieces of your contract like bonuses, a non-compete, or malpractice tail coverage.

Changes to other contract terms

If a merger or acquisition results in contract re-negotiation, or your employer terminates your contract and serves you a new agreement, you need to be aware of which terms are changing and any obligations to your previous contract. New ownership can often mean adjustments to your compensation structure and other terms.

The new ownership could want to restructure your compensation, whether it be through reducing your salary or changing some bonus numbers. In any case, be prepared to negotiate the new numbers and be particularly critical of alterations to a production bonus. While a change in base salary can be obvious, a production bonus has more moving pieces which can be changed in subtle ways.

Also beware of changes to your work schedule and environment. Under a new contract, you may be asked to work a different schedule or share call in a new way. Sometimes, the new ownership might want you to work in separate locations as well. These changes can be dealbreakers if the new work hours don’t match your personal schedule or you are being asked to frequently travel to a different workplace.

Finally, ensure you know the consequences of terminating your existing contract, whether it is being replaced or you are leaving the position altogether. Especially if you have not been with your current employer for very long, you could have some repayment obligations for a signing bonus or stipend. Termination also means you could be without proper malpractice insurance coverage or see the effects of a non-compete clause come into play. These and many other contract terms should be considered before terminating a contract. Although, they will have nuances based on your unique situation.

Know the available options

Employment contracts are long, complex documents with many terms that could be affected by a merger or determine how a merger plays out for you. While plenty of terms could see changes or need to be negotiated, it is most important to understand the options available to both you and your employer. As previously stated, you want to limit contract edits that significantly alter your work situation and keep them from coming about unexpectedly. Knowing which terms to look for and negotiate ahead of time can save you time, money, and headaches when your employer decides to make a major change in ownership.

If you need assistance identifying problematic contract terms, negotiating a contract, or navigating an ownership change, Resolve can help. Resolve is the leading physician contract review and negotiation firm in the nation, and they see thousands of physician employment contracts each year. Get connected with a specialized attorney who will take your priorities into account, provide detailed compensation data, make suggestions, and even negotiate a contract on your behalf. The Oregon Medical Association has partnered with Resolve to offer members a 10% discount on any of Resolve’s services.