In a recent decision of the United States Court of Appeals for the Seventh Circuit, Assaf v. Trinity Med. Ctr., the Court upheld the ability of a physician whose employment agreement was improperly terminated by a hospital to recover lost professional fees as part of the damages for the hospital's breach. The case dealt with an unusual fact situation, one in which an employer-hospital reneged on an agreement with a formerly employed physician to settle a previously filed action seeking damages for the hospital's breach of the physician's employment agreement. Despite its atypical nature, this case serves as a reminder to hospitals that wish to terminate an agreement to employ a physician that they may incur damages in excess of the compensation payable to the formerly employed physician for the remaining term of the employment agreement.
The Court upheld the physician's right to seek damages for breach of the settlement agreement of the breach of contract action. Under the terms of the settlement agreement, which Dr. Assaf negotiated directly with the CEO of Trinity Medical Center without the knowledge of or input from either party's legal counsel, the hospital was required to reemploy the terminated physician for a two-year time period at a specified salary. By failing to reemploy the physician for the full time period specified in the settlement agreement, the hospital breached the settlement agreement, which breach itself created a right in favour of the physician to seek damages. The Court found that damages for this breach should include lost professional fees not received by Dr. Assaf during the period of time that the hospital should have employed the physician but did not do so.
This case serves as a reminder that damages recoverable by a physician whose employment agreement is terminated improperly by an employer-hospital may exceed the amounts otherwise payable to the terminated physician for the remaining period of the terminated employment agreement. As a result, employer hospitals should consider including liquidated damages clauses in employment agreements with physicians to eliminate damages of this type. For employment agreements that do not have clauses of this type, hospitals that employ physicians should discuss with counsel what their potential exposure is for improper termination of any employment agreement prior to terminating the physician-employee.
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