Physician Options When Offered Salary Reduction Due to COVID

Since COVID-19 began physicians, like all health care workers, have faced unprecedented challenges. Being offered a salary reduction is one of them. Many of these physicians have the same story with most employers offering them a temporary 10% salary reduction through the end of 2020. Some employers, however, have offered entirely new Employment Agreements with substantially different compensation systems. (These new agreements either reduce base compensation drastically or shift the entire compensation structure to a production-based system. If there’s a long-term reduction in volume which necessitates the employer create future compensation reductions; a pure production-based compensation system clearly would negatively affect the physician’s overall compensation.

This is all dependent upon:

  • The specialty the physician is in and it’s been negatively affected by Covid-19.
  • Where they practice geographically
  • How COVID-19 has impacted the region and the number of Covid-19 patients it has.  (This may have caused short-term cancellations of elective surgeries and other related procedures).

The most frequent question our attorney’s are asked, should a physician unilaterally accept a salary reduction or are there other options?

Physician Without Cause Termination

Every Physician Employment Agreement (Agreement) contains a without cause termination clause. Without cause termination allows either party to terminate the Agreement for any reason with some notice to the other party. 60 to 90 days notice is the industry standard. So, if the physician refuses to accept the salary reduction, one option for the employer would be to simply exercise the without cause termination clause and terminate the Agreement. This is the likeliest scenario if the physician refuses to accept the salary reduction.

The downside for the physician, if the employer exercises the without cause termination clause, is that all restrictive covenants (non-compete, non-solicit) will still apply in this situation. Additionally, any repayment obligations (signing bonus or relocation assistance) will still likely be enforced. There is nothing a physician can do to stop their employer from exercising without cause termination.

Employment Agreement Compensation Amendment

Physicians who desire to stay with their current employer, but not accept a long-term salary reduction, can agree to an amendment. This amendment may contain a salary reduction for a limited period.  This gives the employer short-term cost relief, but limits the amount of time the physician receives a reduced salary.

Peer Pressure by other Medical Staff Members

The final tactic utilized by employers is pressuring the physician into taking a salary reduction by using intimidation. Employers tell the physician they’re a bad colleague if they refuse a pay cut when other physicians have agreed without trepidation. The appearance of being a “bad teammate” applies pressure to physicians who are reluctant to agree to a compensation reduction. This is an effective management tactic which each individual physician must consider.

Overall, there isn’t much a physician can do if their employer offers a unilateral compensation reduction if the employer if willing to terminate the Agreement.  However, physicians who work in specialties difficult to staff or in undeserved areas difficult to attract new physicians have a much better likelihood of refusing a unilateral pay cut and may not be terminated. As with any physician contract negotiation, leverage is everything.

Contact an Attorney

If you’re a physician with questions about your options or your contract, contact us today or schedule a consultation.