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Ensuring a return on your professional investment: The importance of a contract (part 1)

Cleveland, Kimberly A., Esq, MSN, RN, C-MBC; Knoblauch, Diane J., Esq, MSN, RN

doi: 10.1097/01.NPR.0000545003.53382.d8
Department: Legal File

Kimberly A. Cleveland is a lecturer at Kent State University, College of Nursing, Kent, Ohio, and an attorney at Law Offices of Kimberly A. Cleveland, Canal Fulton, Ohio.

Diane J. Knoblauch is an attorney at Knoblauch Law Offices, Blissfield, Mich., and Toledo, Ohio. Ms. Knoblauch also practices as a clinical nurse at the University of Michigan (Michigan Medicine) Surgical Intensive Care Unit, Ann Arbor, Mich.

The authors have disclosed no financial relationships related to this article.

Disclaimer. No Legal Advice Intended. The contents of this article are intended to convey general information only and not to provide legal advice or opinions regarding your specific situation or your set of facts. Nothing in this column is a solicitation or an offer to represent you, and nothing in this article is intended to create an attorney–client relationship.

This is the first of a two-part article to assist NPs in protecting their employment interests through a proper contract. This article focuses on the requirements for valid contract formation by explaining the elements, issues, and potential pitfalls. The article uses a case scenario to demonstrate how a pleasant conversation in the work environment can create expectations that may well not arise to the level of a contract.

NPs can be employed by an organization as either employees at will or by contract. Many times, NP certification marks the first time a nurse needs to consider negotiating and working under an employment contract.1,2 Trying to determine when to enter into a contract, whether a contract has been offered for what the law calls “consideration,” and whether the terms and conditions of the contract are in the NP's best interest can be complicated.3 Likewise, it may also be the first time that an NP considers hiring an attorney.

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The importance of consulting an attorney

Many NPs struggle with repayment of student loans and other personal debts following graduation. Faced with these debts, they may question whether paying an attorney to assist with reviewing and negotiating their employment contract is necessary when form contracts are available from a variety of sources through websites or texts. There are a number of reasons why it is important to consult an attorney in your jurisdiction early in the process of forming a new professional relationship that will be defined by the employment contract.4 The most important reason arises from the importance of protecting the investment made in NP certification and licensure.1

Many NPs have never considered that they have the freedom to enter into a contract and the power to have that contract enforced by law. With the right to a contract comes the legal obligation to perform according to the terms and conditions of that contract.

As such, it is imperative that the NP understands not only the intent of the contract but the specifics of the contract, including the terms of art (ordinary words that have taken on special meaning). The attorney not only provides legal advice but can help the NP navigate the early turbulent waters and avoid expensive negative transactions that can ruin a practice position and relationship.3

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A closer look at contracts

“[A] contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.”5 A contract is an agreement between two or more parties.6 An NP can enter into a contract with physicians, professional groups, hospitals, organizations, or clinics.

Business entities, such as corporations, have the same power as individuals to enter into binding contracts.7 This is important because the physician who approaches a new provider may not be extending a contract on behalf of himself or herself. Instead, the physician may be extending a contract on behalf of the professional practice wherein the physician has the authority to extend an offer binding to the legal entity.8 Identifying parties to the contract and their authorized agents is imperative in negotiating enforceable contract terms and conditions.1,5,8,9

Contracts can be expressed or implied, the implication and interpretation of which are determined by the actions of the parties and the words used by the parties.5,10-12 Because healthcare is so highly regulated, written employment and service contracts seek to identify the rights and responsibilities of the parties to the contract. Relying on the memory of a verbal agreement can quickly disintegrate into a situation that may leave all parties vulnerable.3,13

For a contract to be found enforceable in court, proper contract formation must occur. This requires several elements, the first of which is that each party has the capacity to contract. This means that each party is of legal age, has mental capacity, is not under the influence of drugs or alcohol, has not been adjudicated incompetent, and has the authority to bind a party to the contract.14 The elements of contract formation require an offer, acceptance, consideration, and mutual assent.5,13,15-21

The offer is a manifestation of willingness to enter into a bargain so that another person understands that his or her agreement to that bargain is invited and will conclude the process.15 An offer clearly states a willingness to enter into a contract and is specific enough to lead a neutral third party to understand the agreement and be able to accept it.15,19

It is not enough that someone expresses an opinion or prediction; provides a statement of intention, hope, or desire; provides mere estimates; or invites someone to make an offer.22,23 In addition, preliminary negotiations are usually not specific enough and will not be enforced.24

The offer stays open for the stated period of time before expiration.25 If there is no stated expiration, the offer is open until it is actually withdrawn or until a reasonable time has passed without acceptance.25,26 Offers become void when they are scheduled to expire, are withdrawn prior to acceptance, are expressly rejected, or are rejected through a counteroffer.26

The acceptance of an offer converts the offer to a contractual obligation.26 To accept an offer, the offeree (the NP) must know of the offer, intend to accept the offer, and communicate acceptance of the offer to the offeror (employer).15,17,19,22,26 The offer can be accepted in writing, through verbal acceptance, or by performing acts required as conditions of the offer.17 A contract is formed when both parties accept the same terms based on the plain meaning of the words.13,21

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Mutual assent and consideration

Mutual assent, or a meeting of the minds, is not achieved by a mere statement such as “I want to work for you.” Mutual assent requires that all important details be worked out and that they do not exist merely as concepts. This means that the terms and conditions are sufficiently clear so that an objective observer would understand the terms and conditions solely based on the written contract.11 Neither party may rely upon a subjective view of the terms.28

If material terms are omitted, indefinite, or ambiguous, a court may find there is no mutual assent.28 In interpreting a contract, a court will not allow outside evidence to add or change the terms of a clear and unambiguous contract.30 However, if there is ambiguity, outside evidence may be considered.28-30

“Consideration” is what each party receives in the contract. Consideration is essential to demonstrate that a contract is formed.20 Consideration requires that each party give something and each party receive something of value from the contract.20 If there is no consideration, the contract will fail as a matter of law.20

For example, a physician group provides a salary and malpractice coverage to the NP. The NP agrees to provide 40 hours of professional time each week; the NP sees patients and agrees not to compete within a specified distance of the professional group during employment for a period of time following employment. Changes in terms made by one party without consideration to the other party may invalidate a contract, particularly when the parties do not agree to the change in writing. It is important to understand what each party gives and receives when entering into a contract.

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Case scenario

Consider this scenario regarding formation of an employment contract. Ms. M is an NP student precepting with Mr. S, a CNP, in a surgical practice. Dr. A, a physician and partner in the practice, knows that the practice wants to add another NP. Dr. A discusses this with Mr. S and encourages him to speak with Ms. M about a position with the surgical practice. Mr. S speaks with Ms. M and discloses that the practice will be hiring another NP.

Mr. S and Ms. M discuss salary, benefits, and standard care arrangements based on Mr. S's contract. Ms. M shares with Mr. S that she has interviewed with three other professional groups and received two job offers. Ms. M notes that the terms of Mr. S's contract are better than those she has been considering. Ms. M assumes that she will be offered a contract similar to Mr. S.

Has a contract been offered? If so, who had the authority to extend the offer? What are the specifics of the contract? Answer: there is no offer. Ms. M does not know who has the authority to make an offer on behalf of the practice, but Mr. S certainly does not. Although these words indicate a wish or intention, they do not provide an express offer. No specifics regarding salary or benefits have been addressed, and nothing has been committed to writing. There is no contract.

The next day, Dr. A sees Ms. M between patients at the computer kiosk and tells Ms. M that she would be very pleased if Ms. M came to work with her practice. Dr. A further states that Ms. M will be able to review the contract when she returns next week.

Is this an offer? No. Critical terms necessary for a contract have not been identified. Has Ms. M been offered a contract? Should she consider these discussions with Mr. S and Dr. A as the formation of a contract for purposes of employment and rely on the discussions? No. Ms. M does not know who has the authority to make the offer. There is no written offer identifying specific terms and conditions, and the parties have not agreed on any terms.

Information has been provided, specific terms have been reviewed, and Ms. M is waiting for the contract to confirm everything, correct? Maybe, but Ms. M assumed that her contract would be similar to Mr. S's contract, which is irrelevant to Ms. M's situation. It is not wise to make assumptions in this situation.

Was there acceptance? No. An ambiguous situation was left on the table when Ms. M failed to clarify the process after she received the proposed contract. In this situation, it is not clear that Dr. A has the authority on behalf of the practice to make any independent hiring decisions. Generally, there are clearly delineated roles within a practice regarding who has the authority to hire and fire on behalf of the practice (for example, a practice manager). In the absence of clear lines of authority, the NP is advised to proceed with caution.

What will happen if Ms. M turns down the other job offers and decides to accept the position offered by Dr. A? This is Ms. M's problem: There was no offer of employment, and no terms were identified, discussed, or agreed upon. There was/is no contract. Ms. M needs to identify her position in considering employment. Will she need to interview with other partners? Is the contract contingent on her passing her certification exam? With whom will Ms. M negotiate contract terms? Does she have the right experience? Consider also the fact that Dr. A is not a party to the contract; the practice is the other party, and Ms. M has had no interaction with the partner responsible for hiring and firing.

Although Dr. A is a partner, it is not clear by her status or communications that she can act as an agent for the practice to extend this contract. As such, Ms. M should ask for the name of the contact person she would be working with to negotiate and discuss the terms of the contract. The only logical assumption that can be made here is that Dr. A will advocate for Ms. M to be offered a contract.

Mr. S is not a partner, and while Mr. S's evaluation and reference on Ms. M's behalf may be beneficial to the group in making a decision of employment, the decision to extend the offer must come from the person with authority to extend that offer on behalf of the practice. No information shared by Mr. S will help Ms. M in this situation. The partners may choose to offer a smaller salary or different benefits, which is within their contracting rights, especially given the fact that Ms. M has less experience than Mr. S and the practice has changed since Mr. S was hired more than 5 years ago. At this point, there is simply no offer, so there can be no acceptance or consideration.

Should Ms. M rely on these discussions and feel comfortable turning down the two other offers? No. Ms. M should not rely on this conversation for anything other than the opportunity to explore another employment opportunity. This scenario demonstrates why it is important for NPs to understand contract basics. While it is generally correct that a contract can be verbal or written, employment contracts are customarily written due to the complexity of the specific terms and the interface with other legal issues (for example, billing, credentialing, and professional liability).

It is necessary to show that an enforceable contract has been formed before any action is taken. Here, the only meeting of the minds is that Dr. A and Ms. M are both interested in coming to terms on a contract. The specifics of that arrangement have not been discussed or negotiated.

If Ms. M chooses to turn down her other offers at this point and pursue this contract exclusively, she leaves herself vulnerable and potentially without a job. Dr. A may not have the capacity to bind the group, and Ms. M may not meet all the requirements for the position. The group may not be in a financial situation to offer full-time employment at the same salary that Mr. S is receiving.

Ms. M does not have an enforceable contract because there is not a valid offer or acceptance, there is not a meeting of the minds on the specifics, and there is no consideration given on either side. There is still a lot of work to do to determine if this will be the right fit for Ms. M and the group.

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Conclusion

How should the NP proceed in a situation where the NP is precepting with a group and wishes to pursue employment opportunities? Communicating clearly is the first step in establishing a successful professional relationship and negotiating an enforceable contract. The NP needs to ask whether the relationship will be governed by an employment contract or if he or she will be considered an employee at will.

NPs should identify who is responsible for hiring and whether that person is also responsible for contract negotiations. It is advised to request a job description and a copy of the group's typical contract. NPs should take time to discuss the arrangements outside the clinical area with the individual who is responsible for negotiating and executing the contract. The contents of discussions should be reflected in a contract prepared by an attorney for one party and reviewed by the attorney for the opposite party.

The terms should be clear and complete. Any ambiguous term should be clarified so as to leave no room for subjective interpretation. Negotiation should continue until all important terms are agreed upon and memorialized in the written contract. NPs are being aggressively recruited. It is to the NP's advantage to require relatively quick responses to any counteroffer made.

This article has discussed the fundamentals of a contract. The next article will discuss the terms to consider when negotiating an employment contract.

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REFERENCES

1. Buppert C. Nurse Practitioner's Business Practice and Legal Guide. 6th ed. Burlington, MA: Jones & Bartlett Learning; 2018.
2. Dillon D, Hoyson PM. Beginning employment: a guide for the new nurse practitioner. JNP. 2014;10(1):55–59.
3. Danna D, Porche D. Employment contract. JNP. 2009;5(10):781–782.
4. Sweeney JF. The art of the deal: negotiating employment contracts. Med Econ. 2016;93(4):70–71.
5. Restatement (Second) of Contracts. 2nd Edition. Philadelphia, PA: American Law Institute; 1981: §2–5.
6. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: § 3.1.
8. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: § 1.6.
9. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: § 1.7.
10. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: § 1.19.
11. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §24.1.
12. Restatement Contracts. Philadelphia, PA: American Law Institute; 1928:§ 226.
13. Roberts MJ. Plain talk about employment contracts. Nurse Pract. 2010;35(10):12–13.
14. Restatement (Second) of Contracts. 2nd Edition. Philadelphia, PA: American Law Institute; 1981: §§ 12–16.
15. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §1.11.
16. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §2.10.
    17. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §2.11.
    18. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §3.1.
      19. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §3.2.
      20. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §5.1.
      21. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §6.1.
      22. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §1.15.
      23. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §1.16.
      24. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §2.1.
      25. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §2.16.
      26. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §2.14.
      27. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §2.18.
        28. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §24.5.
        29. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §24.6.
          30. Murray T, Corbin AL, Perillo JM, Murray JE Jr. Corbin on Contracts. New York, NY: LexisNexis; 1998: §24.1.
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