“Does a repayment obligation in an employment contract become invalid if there is no ‘survival clause?'”
Published on September 1st, 2012 by Alan L Sklover
Question: I am a physician, and have an employment contract with a hospital. It is extremely one-sided on the hospital’s side, and I was not represented by an attorney when I signed it.
The employment contract says “If the employee does not remain employed for the entire three-year term of the contract, he must repay to the hospital (i) his signing bonus, (ii) his relocation reimbursement received, and (iii) the costs of a continuing malpractice (so-called “tail” coverage) policy.” Either party can terminate the employment contract without “cause” if they give the other 90 days advance notice. The hospital has terminated my employment without “cause,” and is now demanding I pay it $50,000 for the reimbursement provisions I mentioned above.
The employment contract does not have what people call a “survival clause” that says, in effect, certain of the obligations of the contract – like the reimbursement clause – continue in effect even after the employment is over.
Can I defeat the hospital’s demand for repayment of $50,000 due to the absence of a “survival clause?”
Answer: Dear Mike: I must admit it: I particularly enjoy questions about employment contracts. In law school, my “Contracts Law” professor was my favorite, and I was actually a bit sad when the course was over. Here are my thoughts:
1. First and foremost, because I am not licensed in Kentucky, and because I have not read every single word of your employment contract, my answer is surely limited. To my mind, for a doctor to give a good diagnosis, he or she must know both (a) the medicine, and (b) the patient. Likewise, for an attorney to give a good opinion, he or she must know both (a) the law, and (b) the facts. Since I am not admitted to practice law in Kentucky, I can’t comment on Kentucky law, except I can say what I have experienced over 30+ years as to laws of most states and countries. Likewise, I have not read every single word of your employment contract, and to “diagnose” your situation I really would have to do that. So, bear those facts in mind.
2. Just as an aside, the facts that (a) your employment contract is one-sided, and that (b) you didn’t have an attorney look it over, will not help you at this time. In your note to me, you mentioned that your contract was one-sided, and you did not have an attorney look it over for you. In my experience, 90% of employment contracts are, in fact, one-sided on behalf of the employer, and maybe 98% of employees don’t bother having an attorney review the employment contract they have. They just want the job so badly, they will sign almost anything.
It might be different if you were illiterate, legally incompetent, or indigent, but you are none of those, and your earlier failure to get a clear picture or a fair shake generally will not help you now.
While I don’t like to see people spend money on anything, including lawyers, without good reason, I always recommend that employment contracts be reviewed by an experienced employment law attorney before signing. I have never understood why people sign things as important as employment contracts they don’t fully understand. That is not only my view, but the view of the law and the Courts, as well.
3. When a contract “expires” or is “terminated,” it is treated as if it had “died,” and all of its obligations are presumed over and done. There are two ways a contract can run its course, that is, have its life be over: (i) by expiration, that is, a three-year contract is “over” after three years, or (ii) by termination, which means one of the two parties ended it before it “expired.” I liken “expiration” of a contract to “dying a natural death of old age,” and I liken “termination” to being “put to sleep,” without necessarily any suggestion of impropriety or bad faith.
4. However, by use of words that express, one way or another, “This obligation continues in force after the contract dies,” an obligation can be made to overcome the presumption of invalidity, and instead “survive” contract expiration or termination. There are two basic ways the parties to a contract can make one or more of the contract’s obligations “survive” contract expiration of termination.
First, the parties can do so by the words that are part of how the obligation, itself, is written. Here is an example: “Upon the expiration or termination of this contract, within ten days Mary must return to the Company the Company laptop she uses.” That obligation, by its very own words, arises only after the contract expires or is terminated. Those words, themselves, exhibit an intention by both parties that Mary’s obligation to return the Company’s laptop “survives” the contract’s being either expired or is terminated. I believe that it is likely that in this is the way your obligation to repay the Company for sign-on bonus, relocation expenses and tail insurance policy is worded, or something quite close to it.
Second, the parties can use a “survival” clause, which is a clause separate from the words of the obligation, itself, but refers to the obligation and says it “survives.” Here is an example of a “survival clause” in a contract: “The parties agree that the obligations in Paragraphs 4, 8 and 11 shall survive the expiration or termination of the contract.” Though your employment contract does not have such a “survival” clause, I think your repayment obligations still survive the contract because of the words within them.
5. But, wait: “Hope is Not Lost!” for you. Upon careful examination of your email, something you have written makes me feel you may yet be free from the $50,000 repayment obligation, and that is that the hospital has terminated your employment “without cause.”
Like people, words and contracts are not perfect. Sometimes what is written and what words are used make no (or little) sense. When that happens, Courts will take a deeper look at what was written, and consider whether it was probably poorly drafted, or mistakenly agreed to by one or both parties.
For this reason, in my 30+ years in employment law, I have several times seen the following to be a winning argument for someone in your repayment predicament:
“The parties must have meant that, if the doctor leaves voluntarily, he or she must repay. Or if he or she is fired for bad conduct, he or she must repay. But for the hospital to have the right to terminate at any time, for no good reason, and still make the doctor pay $50,000 makes absolutely no sense, and simply cannot have been what the parties intended. Either it was an error of drafting, or a mutual mistake, or there was not a true ‘meeting of the minds’ on this. Otherwise it is nothing less than an undeserved punishment.”
Even the words you sent to me sound like they were meant to make you liable for repayment only if you depart voluntarily. I refer to the words “If the employee does not remain . . .” These suggest quite strongly to me that it does not mean “If the hospital decides, on a whim, that the employee cannot remain, even if he or she wants to.” Instead, it sounds most like “If the employee, on his or her own, decides not to remain.”
Doctor, in your circumstances, this is what I believe will give you a very good chance to avoid repayment where you have done nothing to be, in effect, “punished.” No guarantees, mind you, but still a very good chance of winning, and what I view to be the fairest and most just result of the events.
Repayment obligations are, in fact, quite common, but I say this with great sincerity: It is exceedingly rare that a repayment obligation is sought to be enforced where the employer decided to terminate the employment without “cause,” that is, where the employee did nothing wrong. Exceedingly rare, and highly doubtful in your case.
6. My strong recommendation is that you start by sending a respectful letter to the hospital Trustees (each one a separate copy) and lay out what you have told me, and what I have expressed above. It is in this context that your “I had no attorney” argument may, in fact, “carry some water.” I know that the medical profession is now big business, and getting more profit-oriented every day. Still, it is difficult for me to believe that a hospital Board will not likely call off the hospital’s accountants and attorneys once they are aware of what really happened.
In addition, if you have to go to Court to fight this – and I recommend you do so if you do not prevail at the Board of Trustees level – it would be helpful to point out that you tried to resolve this amicably and respectfully, only to be turned down with what is close to an irrational view and a lack of common sense.
7. If this does not work, another approach might be worth considering: Compromise or Mediation. You may not know it, doctor, but all Courts strongly encourage litigants to resolve through compromise. And almost all lawsuits are settled; very, very few ever go to a jury. No matter who “wins,” both sides will have to waste an awful lot of money paying lawyers. You might consider mentioning this reality, that is, “Does it make sense to pay $100,000 to a law firm in order to collect $50,000 from a doctor? And even then, you may lose.”
If all else fails, consider offering the hospital a compromise. You might also consider asking the hospital or its Board of Trustees to appoint a Clergy Person to act as a “mediator” to avoid public embarrassment, legal expense, and considerable distraction to all, and bring a semblance of fairness, rationality and perspective to what has transpired.
This all reminds me of a Yiddish saying, “A thin settlement is better than a fat lawsuit.”
Mike, thanks for writing in. I hope I was not too wordy, but as I told you, I particularly enjoy contract negotiation and contract dispute resolution. It has been a part of all civilized societies for thousands of years. If this has been helpful, I ask you for one small favor: please tell two people about our blogsite. We yearn to help all those we can.
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If you agreed to repay your former employer (a) tuition reimbursement, (b) relocation expenses, (c) a sign-on bonus, or even (d) a short-term loan, you may be able to have that obligation waived and forgiven. To obtain a copy of our Model Memo entitled “Model Letter for Repayment Obligation Forgiveness – with 18 Great Reasons,” just [click here.] “What to Say, and How to Say It.™” – Delivered by Email – Instantly!
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