Read Your Contract Before You Spend That Sign On Bonus

You just signed your employment agreement and are excited to know that you were offered a generous sign on bonus that will be paid to you shortly.  Now you are thinking it is time to reward yourself for completing the interview process, negotiating a fair package, and signing your employment agreement.  You are thinking about going on an exotic vacation, buying a car, or maybe even putting a down payment on a new home.

But before you spend your sign on bonus – carefully read the details your contract!

Often, there are strings attached to the payment of your bonus.  It is customary for employers to incentivize new employees to remain employed for an initial term of employment of, for example, two years. They require the pay back of the bonus if the employee does not remain employed for duration of the initial term.  To illustrate, if an employee is no longer employed after an initial term of two years, the contract may state that the employee is required repay that bonus in its entirety.  This payback obligation is called a “clawback”, and the employee must repay that amount within a certain number of days after the employee’s departure.

So, you may want to keep that sign on bonus in your bank account until you remain employed for the initial term, or else remember to save money later to pay that clawback if you intend on leaving before the end of the initial term.

Is there anything you can do to avoid paying the clawback?  Not after the contract is signed.  So, your best strategy is to address it while you are negotiating your contract and before you sign it.  Some negotiation strategies include the following:

1. Ask that the clawback language be deleted in its entirety. This is a very aggressive request but can be worthwhile if the employer agrees to it.
2. Ask that you only be required to pay a pro rata portion of the clawback. For example, if your initial term of employment is for two years and you leave after one year, then ask that you only be required to pay 50% of the clawback.  This is a more reasonable request to make to the employer.
3. Ask that you only be required to pay the clawback if you are terminated with cause or if you terminate without cause. If you terminate without cause, then your employment termination was within your control so arguably, you should be obligated to pay the clawback.  But, if you were terminated by the employer without cause, then your employment termination was outside your control and thus, you shouldn’t be obligated to pay the clawback in this circumstance.  Similarly, if you terminate your contract for cause then you did so because the employer breached the contract and therefore, you shouldn’t be required to pay the clawback if they committed misconduct.  And if your employer terminated you with cause, it would be difficult for you to argue you shouldn’t be required to pay the clawback where your termination was the result of your own misconduct.

Note that clawbacks are sometimes also present in relocation expense reimbursements that an employer may offer you.  For example, if your employer reimbursed you for relocating you from a different area of the country, then the employer may require you to pay that reimbursement amount back upon your cessation of employment within the initial term.

The Physician Contract Lawyer will review your current contract to determine if your sign on bonus or relocation reimbursement contains a clawback, and can then propose suggested revisions to the provisions to make them more physician-friendly.  The Physician Contract Lawyer can then negotiate these provisions with your employer to a form that is agreeable to both parties.  You will then have more clarity as to whether you want to in fact spend your sign on bonus on a vacation or buy that new car.