Letters of Intent to Trap Unwary Physicians

The following article is courtesy of Dennis Hursh, author of The Final Hurdle – A Physician’s Guide to Negotiating a Fair Employment Agreement. Dennis is an attorney who focuses on review and negotiation of physician employment agreements.

The contracting process for a physician employment agreement sometimes (but not always) begins with a letter of intent, so it makes sense for you to be aware of a common trap that many physicians find themselves in after they sign a letter of intent.

A letter of intent (“LOI”) is simply a very brief summary of the main terms of what the parties assume will be in a binding physician employment agreement. The purpose of an LOI is to make sure that the both parties are “on the same page” as far as the major terms of the agreement they hope to form.

For example, in a physician employment agreement, if you expect to be paid $300,000 a year but the employer is expecting to pay $200,000 a year, there probably isn’t any value in continuing negotiations. A letter of intent can save a lot of pain and aggravation (not to mention attorney’s fees) by avoiding negotiations that are not likely to lead to a signed deal.

Since the purpose of a LOI in physician employment agreements is just to determine if further negotiations are in order, the provisions in a LOI are generally not legally binding. Accordingly, it is very common for physicians to treat a LOI as an unimportant formality. Having been told that the document is not legally binding, they sign the LOI even though it contains some terms that they hope to negotiate.

You must remember that the purpose of a LOI is to make sure that you and your potential employer are on the same page with respect to the major terms of the physician employment agreement you hope to conclude. Although there will be many terms and conditions of the final agreement that the parties will negotiate, you should assume that anything you agree to in the LOI is “off the table”. Accordingly, do not sign a letter of intent unless you are completely comfortable with the compensation and other material terms set forth in the LOI. Legally binding or not, make sure you aren’t “agreeing” to something that you don’t want in the final agreement.

Footnotes, References, and Resources

(1) Some provisions of the LOI are typically legally binding. Specifically, the LOI will most likely provide that each party is responsible for its own attorney’s fees, that the negotiations will remain confidential, and that the physician will negotiate exclusively with this employer for some period of time. These provisions generally are legally binding. In other words, even if you do not sign a physician employment agreement, you are still bound to pay your own attorney’s fees and keep the terms of the negotiations confidential.

(2) For additional information about physician employment agreements, see www.TheFinalHurdle.com and The Physician Contract Blog.