It’s easy to make a short list of the important clauses in a physician employment contract. These are clauses involving economic rights and basic duties. Salary, incentive bonus, call responsibilities, signing bonus, relocation allowance, expense reimbursement, malpractice coverage, buy-in option – the list goes on. But the most important clause in an employment contract, hands down, is one you will usually find in the very back of the agreement, buried among the clauses that attorneys and clients alike usually refer to as “boilerplate” and often (to their detriment) treat as insignificant “legalese.”
What clause is that? It’s the integration clause. Here's how it typically reads:
This Agreement constitutes the entire agreement between Employer and Physician with respect to matters relating to Physician's employment, and it supersedes all previous oral or written communications, representations or agreements between the parties.
It’s usually that simple. Its effect, however, can be profound. Sometimes called the “entire agreement” or "merger" clause, its purpose is to preclude either party – employer and employee alike – from relying on any promise, understanding or representation which the other party may have made in the course of negotiating the contract, unless that promise, understanding or representation is, in fact, included in the contract.
So what about the oral assurance that the hospital’s CMO made to you that physicians in your specialty who are employed by the hospital are only expected to cover call every fifth weekend? What about the practice group manager’s statement that scheduling vacations among the groups employed physicians is never a problem? What about that promise which was made to you in an email when you were first considering the position that you would be considered for partnership after two years of employment? What about various representations and promises that were made in the letter of intent? Were all of them faithfully incorporated into the definitive contract? If not, then these things will be without any legal effect, thanks to the integration clause.
The purpose of an integration clause is to take advantage of a legal doctrine of contract interpretation commonly referred to as the “four corners” rule. Under the “four corners” rule, a court will determine the meaning of a written contract solely by reference to the text of the contract itself, without relying on other evidence. So-called “extrinsic evidence” of what the contract is supposed to mean – or what the contract is supposed to have said – will not be considered by the court at all. This would include documents such as letters of intent, term sheets, emails and text messages exchanged between the employer and employee before the contract was signed, as well as oral statements that the parties may have made to each other during that time, as recounted by witnesses.
Thus, if the employer fails to live up to any promise that it made before the contract was signed that is outside the “four corners” of the contract, and that contract contains integration clause, then that promise is of no further legal effect. You will not be able to terminate the agreement for breach if that promise is subsequently not honored (which it may well not be). If you were relying on any extra-contractual representations about (for example) the employer’s financial condition or patient volume, then you will not be able to terminate the agreement for breach if these representations turn out not to have been true when they were made. Plus, the presence of an integration clause may frustrate – or at the very least complicate – your ability to bring a fraudulent inducement claim or defense against your employer for that reason. (But not, however, in Maryland, where the presence of an integration clause in a contract cannot be used to defeat a fraudulent inducement claim relating to that contract. See Greenfield v. Heckenbach, 797 A.2d 63, 144 Md. App. 108 (2002)).
The point here is not to persuade you to try to negotiate the integration clause out of the contract. You’ll never be able to do that. The point instead is to encourage you to review the contract carefully before you sign it, and make sure that all promises, understandings and factual premises that you are relying on in entering into the contract – and certainly all that are contained in a letter of intent or term sheet which preceded the contract – are clearly reflected in writing in the contract. And if you are relying on prospective employer’s oral assurances of good faith and fair dealing in the future, and statements to the effect of, “you’re just going to have to trust us about this,” think again: A court will only enforce the literal provisions of a fully integrated, written contract. You will only get one bite at the apple.
The Law Office of David M. Briglia represents physicians, physician assistants, nurse practitioners and other professionals in the healthcare industry in the negotiation of employment contracts, separation agreements, practice buy-ins and partnership and shareholder agreements, and in litigation involving employment and contract disputes in Maryland and Washington D.C. The article above is for informational purposes only, and cannot be relied upon as legal advice.