An employment agreement shapes a physician’s compensation, schedule, malpractice coverage, and options for leaving, often for years. The Law Offices of Nathan Mubasher represents physicians only in these matters, not employers, hospitals, or medical groups. The office reviews and negotiates employment and independent contractor agreements on the physician’s behalf, and advises physicians on disputes that arise under them. This page outlines the California rules and contract terms that most often matter.
The American Medical Association’s Principles for Physician Employment (AMA Policy H-225.950) urge physicians and employers to get advice from lawyers experienced in healthcare and physician employment contracts when negotiating employment or peer review matters.
Who can employ a physician in California
California generally prohibits the corporate practice of medicine. Under Business and Professions Code sections 2400 and 2052, a lay corporation generally cannot employ physicians to practice medicine or control their medical judgment. As a result, physicians in California commonly work through:
- Professional medical corporations owned by licensed physicians (Corporations Code section 13400 and following, and Business and Professions Code section 2406)
- Medical groups whose physicians provide care, as independent contractors, through a nonprofit clinic (often called a medical foundation) that meets Health and Safety Code section 1206(l): at least 40 physicians in at least 10 board-certified specialties, at least two-thirds of whom practice full time at the clinic
- Entities the statute allows to employ physicians or charge for their services, such as medical school teaching clinics, certain nonprofit medical research clinics, licensed narcotic treatment programs, certain charitable pediatric hospitals, and federally certified critical access hospitals whose medical staff vote to approve the employment (Business and Professions Code section 2401)
- Independent practice associations and medical groups that contract with health plans
Knowing who the employer really is matters. It affects who controls clinical decisions, who owns the medical records, and which entity’s policies and bylaws apply.
Restrictive covenants and non-competes
California has a strong policy against non-compete agreements. Business and Professions Code section 16600 makes void most contracts that restrain anyone from engaging in a lawful profession. Section 16600.5 provides that a void non-compete is unenforceable regardless of where or when it was signed, bars employers from trying to enforce one, and lets employees sue, with attorney’s fees for a prevailing employee. Section 16600.1 required employers to notify current employees, and former employees employed after January 1, 2022, by February 14, 2024 that such clauses are void. Both took effect January 1, 2024. Narrow exceptions apply, for example in connection with the sale of a business or the dissolution of a partnership (sections 16601 and 16602).
Even without a valid non-compete, agreements may contain related terms worth negotiating, including:
- Non-solicitation clauses for patients or staff, which California courts have often held void under section 16600 (for example, AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923)
- Confidentiality and trade secret provisions
- Repayment of signing bonuses, relocation, or loan forgiveness if the physician leaves early
- Liquidated damages provisions
Compensation
Physician compensation is often a mix of base salary, productivity pay (frequently tied to work relative value units, or wRVUs), quality incentives, and stipends for call, administrative, or teaching duties. Key questions include:
- How productivity is measured and who controls the data
- Whether the base salary is guaranteed and for how long
- How compensation changes after the guarantee period
- Whether there is any repayment or reconciliation if targets are not met
- How call coverage is scheduled and paid
Compensation arrangements also have to comply with federal and California fraud-and-abuse laws, including the federal physician self-referral law (42 U.S.C. section 1395nn), the federal Anti-Kickback Statute (42 U.S.C. section 1320a-7b(b)), and California’s counterparts in Business and Professions Code sections 650 through 650.02. Compensation that varies with referrals, or that is above fair market value, can create risk for both sides.
Term and termination
Termination provisions often matter more than the opening offer. Review closely:
- Without-cause termination. How much notice either side must give, and whether the employer can pay in lieu of notice.
- For-cause termination. How “cause” is defined, whether there is a chance to cure, and who decides.
- Automatic termination. Many agreements end automatically if the physician loses privileges, a payer credential, or board certification, or if a license is restricted. Those clauses connect the contract directly to peer review and Medical Board proceedings.
- Post-termination duties. Patient notification, record access, and cooperation in pending claims.
Malpractice insurance and tail coverage
Many employers provide claims-made malpractice coverage, which covers claims made while the policy is in force. When the physician leaves, claims made later for care given during employment require extended reporting coverage, often called tail coverage, or prior-acts coverage from a new carrier. The agreement should say clearly who pays for tail coverage and whether that changes depending on who ends the relationship and why.
Employee or independent contractor
Some physicians are offered independent contractor agreements. Under Labor Code section 2783, physicians and surgeons are among the professions exempt from the ABC test, when performing professional or medical services for a health care entity, so classification is decided under the multi-factor Borello test. Classification affects taxes, benefits, insurance, and liability, and the agreement should match how the relationship actually works.
Disputes and dispute resolution
Many agreements require arbitration and specify governing law and venue. For employees who primarily live and work in California, Labor Code section 925 bars employers from requiring, as a condition of employment, an agreement to litigate or arbitrate a California claim outside California or to give up the protection of California law; such a provision is voidable by the employee. The rule does not apply when the employee was individually represented by counsel in negotiating those terms. When a dispute arises, the contract, the medical staff bylaws, and any licensing board issue may all be in play at once.
How the office helps
Nathan Mubasher reviews each agreement personally and acts only for the physician. The work can include a written review of key terms, a prioritized list of points to negotiate, direct negotiation with the employer or its counsel when the physician wants it, and advice on disputes over compensation, termination, or departure.
Frequently asked questions
Are non-compete clauses enforceable against physicians in California?
Generally, no. Business and Professions Code section 16600 makes most non-compete agreements void, and section 16600.5 makes them unenforceable regardless of where they were signed. Narrow exceptions exist, such as the sale of a practice. Other restrictive terms, like repayment obligations, can still have real effect.
Can a hospital employ me directly?
It depends on the hospital. California’s corporate practice of medicine rules generally prevent private lay entities from employing physicians. Business and Professions Code section 2401 allows employment by certain clinics, narcotic treatment programs, and charitable pediatric hospitals, and by federally certified critical access hospitals when the medical staff votes to approve the employment. Many hospital-affiliated physicians work for a professional medical corporation or a medical group that contracts with a medical foundation instead.
What is tail coverage and who pays for it?
Tail coverage extends a claims-made malpractice policy to claims reported after the policy ends, for care given while it was in force. Who pays is a negotiated term. The agreement should state it clearly, including whether it depends on who ends the relationship.
When should I have my contract reviewed?
Before you sign, and ideally before you accept the offer in writing. Early review leaves room to negotiate. It is also worth reviewing the agreement again before giving notice, so you understand notice periods, repayment terms, and tail coverage.
My agreement ends automatically if I lose privileges. What should I do?
Read that clause alongside the medical staff bylaws. If a peer review action is possible, get advice early, because a resignation or restriction can affect both your privileges and your employment and may be reportable.
Related pages
- Peer Review and Credentialing
- Medical Board of California Investigations
- Professional License Defense
- About Nathan Mubasher
- Professional License Defense in California: A Survival Guide for Physicians and Nurses
Talk with Nathan Mubasher
Call 1-800-691-2721 or request a confidential consultation. Each inquiry is reviewed directly by Attorney Nathan Mubasher. Submitting a request does not create an attorney-client relationship, so please do not send confidential documents until your matter has been accepted for review.
Attorney Advertising. Law Offices of Nathan Mubasher, 8583 Irvine Center Drive, Suite 35, Irvine, CA 92618. Responsible attorney: Nathan Mubasher. This page provides general information about California law, not legal advice for any specific situation. Reading it or contacting the office does not create an attorney-client relationship. Every matter is different, and no particular result can be guaranteed.