Understand What You Wish For: Ownership Options As Part Of Your Employment Agreement Negotiations
Often, physician employment agreements refer to the potential of an employed physician acquiring an ownership interest in the employer’s business if certain conditions are met. As an example, a condition may include a requirement of working for the practice for a certain amount of time or achieving satisfactory results on performance reviews before qualifying for potential ownership. Unfortunately, in too many instances due to very subjective language, the employee never actually becomes eligible for ownership. If owning part of a practice could be a material reason for you to accept a position please read further.
Here is an example of an ownership option that cannot be enforced: “If Employee remains in the employ of the corporation for ___ years and if Employer in its sole discretion wishes to offer ownership to Employee it may do so subject to a transaction that is separate from this Agreement.” Compare this to an example of an ownership option that is clearer and can more easily be enforced: “If Employee remains in the employ of the Corporation for ___ years, Employee shall be entitled to purchase an ownership interest in the Corporation in an amount of ownership equal to the other owners.”
Decide how important it is for you to become an owner while negotiating an employment agreement. To some, for their own personal reasons such as moving and building a career, this is very important. To others it is a “take it or leave it.” In our view, if it is on the table, you should take it because if the contract is constructed correctly you can leave it later.
If an employer promises you ownership it must be in writing. Otherwise, you do not have a legally binding and enforceable agreement.
True options to purchase include specific language. For example, after “X” amount of years, the Physician shall have the option to purchase an ownership interest in the practice. In our experience, these true options are less common than others. Most options to purchase are vague and include discretionary and subjective language. For example, if the Physician meets the Practice’s expectations, in Practice’s sole discretion, then the Physician may be presented with an ownership option. This language is discretionary and unenforceable for the physician.
Keep in mind that if you are working for a practice over several years as an employee, you are helping to build equity for the practice. Thus, the fruits of your labor will be part of the value.
Remember, you are not forced to use an option to purchase even if you have one. If the agreement is construed properly, you can walk away from that opportunity.
As always, we recommend having your contract reviewed by an experienced health care attorney.
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