A practice terminates a partner’s employment without cause, exactly as the employment agreement permits. Then it discovers what the partnership agreement, drafted eight years earlier by different counsel, does not contain: any provision making termination of employment a buy-out trigger. The practice now hosts a 25 percent owner who sees no patients, draws no salary, attends every partner meeting, and votes on everyone’s compensation. She has no reason to hurry, because the only path off the cap table is a negotiated buyout at whatever her attorney can extract. Clinically departed, contractually undead.
That failure has one cause: two documents that were never read against each other, or one document doing the work of two. Conflating the partnership agreement with the employment agreement—or simply never executing the second—is among the most common structural errors in medical partnerships, and it is entirely avoidable.
The distinction is clean once stated. A partner occupies two relationships with the practice simultaneously. She is an owner, and she is an employee. The partnership agreement governs the owner: ownership percentages and what they entitle her to, governance and voting, distributions of profit, capital obligations, transfer restrictions, buy-in and buy-out, and the mechanics of exit. The employment agreement governs the employee: salary and incentive compensation, clinical duties and sites, call obligations, schedule, benefits, malpractice coverage, notice periods, and the grounds and process for termination. Two legally distinct documents, two different sets of obligations, one physician standing in both.
Compensation is where the seam matters most, and where practices most often get the placement backward. Each partner’s individual compensation terms—the base, the formula’s variables as applied to her, the payment cadence, the benefits—belong in her employment agreement, where they can be amended without reopening the practice’s constitution. The methodology itself, and the vote required to change it, belong in the partnership agreement at the supermajority tier described in article 6, so that no future simple majority can reprice a colleague’s economics. Put the formula only in the partnership agreement and every annual adjustment becomes a constitutional amendment. Put it only in the employment agreement and a shifting majority can rewrite the rules of the practice one contract at a time.
What makes the pairing work is the linkage, and two sentences carry most of it. The partnership agreement provides that termination of employment, for any reason, is a mandatory buy-out trigger, with terms varying by exit type. The employment agreement cross-references that provision by name. Those two sentences, sitting in different drafts written by different lawyers in different years, are where most zombie-partner cases begin—and where they are prevented for the cost of an afternoon.
The machinery, properly linked, produces something remarkable: an uneventful departure. Dr. Bennett, a 20 percent partner in a five-pediatrician practice, resigns to follow a spouse’s relocation. Her employment agreement supplies the worker-side mechanics—120 days’ notice, the final productivity reconciliation paid within 60 days, the paid-time-off payout at its cap, tail coverage purchased by the practice with the premium offset against amounts owed, and charts closed within 14 days of her last clinic day. Her buyout runs under the partnership agreement. The equity trigger fires on her final employment day. The formula value comes from the annual valuation all partners signed seven months earlier: $2.2 million practice value, her interest $440,000, paid as a five-year promissory note at stated interest with offsets for the tail premium and a $12,000 outstanding travel advance. Her non-solicitation obligation activates at the non-competitive tier the agreement assigns to a relocation exit, and her patient notification letters mail on the practice’s schedule. The entire exit is administered by the practice manager and one attorney letter. Every number came from a provision drafted years before anyone knew whose departure it would price.
Note what that example shows about timing. Both documents fire off a single shared date—the final employment day—but they fire at different moments and on different schedules, which is precisely why they have to be drafted, and audited, together. Three provisions keep them aligned. An order-of-precedence clause states which document controls where the two conflict, and on which subjects. An amendment clause requires that any change to one triggers a review of the other, so a compensation amendment cannot silently contradict the distribution provisions. And an annual consistency check—one agenda item at the practice’s yearly governance review—confirms that the cross-references still point at provisions that still exist.
Building the employment side is not guesswork. The physician employment contract runs to roughly 61 provisions across 13 domains, of which about 21 carry high risk because they concentrate real dollars or real freedom: the identity of the legal employer, the enumeration of duties, schedule and location, call, base compensation and whether it is a salary or a draw, the incentive formula and its protection against measurement disruption, the malpractice structure and who buys tail coverage, the termination grounds and notice, and the covenants.
Two of those deserve a word here. The partnership track, where the practice is recruiting on the promise of ownership, belongs in the employment agreement in writing—the criteria, the timeline, the decision process, the vote, and what happens when the answer is not yet. “Partnership will be discussed after two years” promises a conversation, not a partnership. And the restrictive covenants belong in both documents rather than one. A covenant given as a condition of employment and a covenant given in connection with the purchase or sale of an ownership interest are evaluated differently across many jurisdictions, and state law on physician non-competes varies widely and continues to change. A practice with the covenant properly placed in both documents, with the partnership version expressly tied to the equity transaction, has two arguments where a practice with one document has one. Which of them holds in any given state is a question for healthcare counsel, answered before signature rather than after resignation.
Red flags. Only one document exists—typically the partnership agreement, which lacks every employment specific. Compensation described in emails and offer letters rather than in an executed agreement. No defined process for amending either document, so they drift apart year by year. Non-compete provisions buried in the partnership agreement and nowhere else. And no provision making termination of employment a buy-out trigger, which is the specific omission that manufactures an owner nobody can remove.
Two documents, two relationships, one date. A practice that drafts only one of them has written half a goodbye.
Yes, where the partnership agreement lacks a provision making termination of employment a buy-out trigger. The practice then hosts an owner who sees no patients, draws no salary, attends every partner meeting, and votes on everyone's compensation, with no path off the cap table except a negotiated buyout. Two linked sentences prevent that outcome.
The partnership agreement governs the owner: ownership percentages and what they entitle her to, governance and voting, profit distributions, capital obligations, transfer restrictions, buy-in and buy-out, and exit mechanics. The employment agreement governs the employee: salary and incentive compensation, clinical duties and sites, call, schedule, benefits, malpractice coverage, notice periods, and the grounds and process for termination.
In both documents. A covenant given as a condition of employment and a covenant given in connection with the purchase or sale of an ownership interest are evaluated differently across many jurisdictions. A practice with the covenant in both, the partnership version expressly tied to the equity transaction, has two arguments where a practice with one has one.
The Partnership Agreement Analyzer scores an existing agreement against the framework this series is built on — or schedule a discovery call to work through it with PMI. The full framework, with the arithmetic, lives in the textbook Pediatric Practice Management: The Fundamentals.