© 2017 The Texas Lawbook.
By Janet Elliott (AUSTIN) – In a case closely watched by Texas employers, the Texas Supreme Court Friday reaffirmed the principle of “at-will” employment, upholding a hospital’s right to terminate the contract of a cardiovascular surgeon whose practice was operating at a loss.
The Supreme Court said the hospital and the entities associated with it were entitled to summary judgment on breach of contract and tortious interference claims brought by the surgeon, Dr. Henry Andrew Hansen II.
The court, in an opinion by Justice Paul Green, said the employer was not required to prove why it terminated the contract “without cause” and that the relevant provisions of the contract were not ambiguous. It also held that the doctor had presented no evidence of willful or intentional interference against the hospital and its chief executive officer. Finally, the court said that the hospital’s employment consulting subsidiary was justified in its actions because it was required to evaluate and provide advice on the employment of physicians.
The ruling reverses a controversial 2014 decision by Corpus Christi’s 13th Court of Appeals that had raised the concerns of Texas attorney general and business groups about the continued viability of the state’s longstanding at-will employment traditions. On the other side, the Texas Medical Association and two individual physicians had warned that ruling against Hansen would constrain state prohibitions against the corporate practice of medicine by allowing corporate greed to outweigh a physician’s judgment.
The case stems from an employment contract between Dr. Hansen and the College Station Medical Center. In 2007 the hospital’s CEO Thomas Jackson wanted to hire a board-certified cardiovascular surgeon and Hansen was ready to relocate his practice from Lubbock to College Station.
Acting as an intermediary, Jackson negotiated the terms of Hansen’s employment contract with Regional Employee Assistance Program, a nonprofit corporation certified by the Texas Medical Board to employ physicians at the hospital. The five-year contract could be terminated only for cause during the first three years. After that, either party could terminate the contract without cause with 60 days notice if Hansen’s annual practice losses exceeded $500,000 at the end of years three, four or five.
A month into the contract, Community Health Systems acquired the hospital and the nonprofit. A subsidiary, Community Health Systems Professional Services Corporation (PSC), provided advice on physician employment and termination decisions.
After a successful first year, Hansen’s surgeries began to decline significantly due to personal disagreements with two local cardiologists who were his primary source of patient referrals. Hansen said the disputes were a “turf battle” and at one point refused to accept their referrals until they issued a public affirmation of his surgery skills.
Citing losses close to $1 million a year, PSC recommended that Hansen’s contract be terminated “without cause” at the end of the third contract year because the doctor’s $750,000 salary was disproportionate to the number of procedures he performed.
Hansen was notified on June 1, 2010 that his contract would be terminated without cause in 60 days. He sued numerous parties for claims including breach of contract and tortious interference.
Stethoscopes and Salaries
The case had attracted strong interest from amici with at least seven letters or briefs filed.
Texas Assistant Solicitor General Eric White said the court of appeals was wrong to require trial over grounds for termination under a contract that contained a “without cause” termination provision. “Such a rule would invite unnecessary litigation and inject unpredictability into employment decisions,” White said.
The Texas Medical Association, in a brief by Donald Wilcox, said due process protections for physicians employed by nonprofit health corporations should not be waived by a contract because they “are necessary to ensure that the only thing that steers stethoscopes is science – not salaries.”
Relying on the contract’s wording, the Supreme Court rejected Hansen’s argument that the nonprofit corporation did not follow procedures for a “without cause” termination. Green said the nonprofit conclusively established that Hansen’s third-year annual practice losses exceeded $500,000. Green also said the court of appeals’ decision conflicts with longstanding precedent that a party does not need “grounds” to terminate such a contract.
Kent Sullivan, a partner at Jackson Walker, represented PSC. Robert E. Bell, a partner at Serpe Jones, represented the hospital and nonprofit employment corporation. Robert Duncan, of counsel at Crenshaw, Dupree & Milam represented Hansen.
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