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How Employment Contracts Are Impacted by COVID-19

How Employment Contracts Are Impacted by COVID-19
Hendershot Cowart, P.C.

The coronavirus pandemic has had broad implications on nearly every facet of our lives, and especially on employment. With unprecedented disruptions, closures, and sweeping regulatory changes, employers have been forced to make difficult decisions about their workforce and the contractual relationships they currently have or create with employees – as well as those they will create in the future.

Though every situation is unique, many employment decisions made in the COVID-19 era implicate written employment contracts or collective bargaining agreements, and require employers to carefully consider circumstances and industry-specific guidance which are constantly changing.

To ensure employment contracts are structured, evaluated, and enforced correctly at these critical junctures, and to effectively handle or mitigate risks for employment disputes, employers and professionals can turn to Hendershot Cowart, P.C.

Our award-winning trial attorneys have the insight to help clients address a range of employment matters, and protect themselves as they wade into uncertain futures. This includes the many contractual implications created by COVID-19, including:

  • Modifications to existing employment agreements
  • Unilateral employment decisions
  • Termination of employment
  • Employee compensation
  • Physician employment contracts
  • Non-competition agreements
  • Non-solicitation agreements

Modifying An Employment Contract

Employment agreements are legally binding contracts which govern the relationships between employees (including executives) and their employers. Usually created during pre-employment negotiations, these agreements define material terms of employment, including duration, duties, and compensation (which incorporates salary, benefits, and bonuses).

If both parties agree to do so, they may modify an employment contract. These changes may be temporary or permanent, and can be tailored to address the specific industries, changes in work, and reactive efforts associated with the pandemic at hand.

In industries such as health care, for example, physicians may seek advantageous modifications to restrictive covenants in their employment agreements in exchange for taking on more dangerous duties while treating COVID-19 patients. Alternatively, an employee may agree to temporary changes that reduce their work schedules during “lean” times.

Regardless of what new arrangements may entail, any amendment or modification of an employment agreement should clearly define new terms and whether original terms will resume at any point in the future, or persist for the duration of the contract.

Our employment contract team at Hendershot Cowart, P.C. can assist employers across many industries in evaluating their available options to negotiate new contractual terms in existing employment agreements.

Unilateral Employment Decisions

When parties cannot agree to amend employment agreements, the original terms of a contract will typically remain in effect. Unilateral changes are not generally binding, and employers should be careful of breaching terms contained in an employment agreement when making such decisions. If an employer decides to furlough an employee without pay, reduce pay, or terminate their employment during a period when the prevailing employment contract guarantees a worker employment or a minimum salary, it may constitute a breach of contract.

Of course, there may be exceptions depending on language contained in the specific agreement, or state law. For example, employers are generally able to withdraw or revoke an offer letter or employment agreement before it is accepted unless the offer is irrevocable, which is rare in employment contracts.

Termination of Employment

Texas is an employment “at-will” state, meaning employers can terminate employees at will, without cause, and for any reason (apart from protected discriminatory reasons). Employees also have the right to quit their jobs at any time for any reason.

While Texas Courts have held that employment relationships are, by default, at-will (Montgomery County Hospital Dist. v. Brown), some employment arrangements, including many physician employment contracts, are subject to specific contractual terms rather than being entirely “at will.”

Employment contracts are subject to the principles of contract law, and as such, performance of the contract can be delayed, suspended, or terminated if the contract makes express provision for such employment actions. In the absence of such provisions, employers should exercise caution when considering any unilateral employment decision that could constitute a breach of contract, or violate local, state, or federal protections for employees.

That includes COVID-19 protections for family medical leave, as well as the Families First Coronavirus Response Act (FFCRA), which allows qualifying employees at businesses with less than 500 employees to take up to 80 hours of emergency sick leave if they:

  • Are subject to a local, state, or federal quarantine or isolation order, or are caring for someone subject to an order;
  • Have been advised by a health care provider to self-quarantine, or are caring for someone who has been advised to self-quarantine;
  • Are experiencing COVID-19 symptoms and are seeking a medical diagnosis;
  • Must care for their child due to closures of school or day care, or because their childcare provider is unavailable, due to COVID-19;
  • Are experiencing another substantially similar condition, as specified by the HHS.

Physician Employment Agreements

Operational disruptions created by COVID-19 have forced many hospitals, practices, and health systems to make strategic and difficult decisions about their workforce. In addition to what can be high-risk work environments, many in health care have faced immediate financial losses and future financial uncertainty caused by restrictions on high-margin elective procedures, social distancing orders, workplace safety obligations, and other pandemic-related hardships.

Even as states begin to lift restrictions on elective procedures, with limitations, it will be some time before facilities see a return to pre-pandemic numbers for revenue. These economic realities have affected all aspects of physician and provider practices, and have trickled down to the individual physician level in many ways. Providers in physician networks whose compensation agreements are tied directly to productivity, such as those based on WRVUs, will be hit particularly hard in terms of loss of income.

At Hendershot Cowart, P.C., we have worked with many health care clients and employed physicians who have been impacted by large changes in their payment and employment arrangements, including those considering or facing:

  • Pay cuts / salary reductions
  • Loss of bonuses / bonus withholding
  • Use of leave or PTO
  • Resident start date delays
  • Redeployment
  • Furlough / termination

While language contained in physician employment agreements varies, decisions being made unilaterally by health care employers may violate contractual terms, and potentially provide employees with opportunities to seek legal remedy, damages, or terms more favorable to them in negotiations.

A force majeure provision could allow employers to excuse nonperformance of a contract, but such provisions are rare in physician agreements. Without a force majeure clause, employers may turn to common law claims of impossibility, impracticability, or frustration, but such claims also have limitations or high standards unlikely to be satisfied.

Another risky strategy is to terminate employees with cause, which some health care employers, Big Law firms, and other professional practices have been attempting with physicians, associates, and staff. Terminating without cause typically requires employers to give 60-90 days’ notice, during which employers and employees may negotiate contractual changes. Employers who choose to terminate physicians with cause may run risks for wrongful termination actions.

Unfortunately, there’s no one-size-fits all solution to address physician compensation and employment issues. These matters are complex, highly regulated, and unique to each organization and situation. The degree of specificity contained in these agreements will ultimately determine an employer’s ability to change a physician’s duties, assignments, or compensation. As such, health care employers and employees with potential cases should seek personalized assistance from attorneys experienced in health and medical law.

Proven Counsel For Employment Contracts Amid COVID-19

At Hendershot Cowart, P.C., our award-winning attorneys are available to assist clients with a range of employment matters, including:

  • Contract drafting, review, and negotiation
  • Employment dispute resolution and litigation
  • Temporary employment agreements / limiting the duration of contract amendments
  • Negotiating postponements of payments instead of eliminating pay entirely
  • Physician / Executive compensation evaluations and arrangement structuring
  • Contract enforcement and breach of contract

Have questions about employment agreements and COVID-19? Call Hendershot Cowart, P.C. to speak with an attorney. Our firm serves clients across Houston, the state of Texas, and beyond.

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