psychotherapist employment contract

How to construct the best possible psychotherapist employment contract

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Most mental health practices develop a psychotherapist employment contract. However, before hiring an attorney, let’s think about what you want that contract to do for you. And to clarify, this document will not give you every phrase. Instead, it will give you an overview of subjects you might wish to include in your agreement. 

Do you need an employment contract?

Before getting too far into this, consider whether there are reasons not to have an employment contract. The short answer is “Yes.” Many agencies would prefer an “at-will” employment agreement, the default option in most states. Specifically,

“At-will employment describes a working environment in which employers are free to terminate employees at any time, without cause, explanation, or prior warning, provided it does not violate state and federal anti-discrimination laws. Similarly, employees can quit a job at any time without reason or notice.”

Indeed: At-will employment: What is this exactly?, Feb 22, 2021. 

Therefore, there are times when an at-will employment agreement is perfect. The arrangement is simple and straightforward, with little room for misunderstanding. 

On the other hand, I would argue that a psychotherapist employment contract is often the way to go with clinicians. A good contract can help shape the expectations for what you want an ideal employer/employee relationship to look like. Typically, contractual arrangements are beneficial for both employers and employees. Indeed, the contract can add much more clarity about guidelines and consequences.

Working with an attorney

In most cases, you will want to hire an attorney to help you craft the contract. Why? State law and local tradition influence most contract law. However, there are many online sample contracts that give you a beginning. Yet, you will doubtless develop some unique aspects of your agreement.

For instance, when I was creating my first contract, I brought a draft I had picked up along the way to the attorney. In other words, it was a starting point and gave the attorney some idea of what I wanted. 

As you read this post, make a list of features you like. Then subsequently, work on the language you prefer. Certainly, the more work you have done ahead of time, the less the attorney will cost. After all, they charge by the minute, so any advance work you do saves you money.

Selecting an attorney

For example, over my forty-year career, I used four different attorneys to work on employment contracts. Each had a different style. Furthermore, they each emphasized different factors. In some ways, this article summarizes our work. 

At different times, I used different approaches in selecting an attorney. My first attorney was someone I met at my church. He was a comfortable choice and did a great job. 

But as I went along, I had interactions with an attorney who contracted with a local hospital that had a large mental health unit. I switched to him. He tightened and shortened the contract. Subsequently, when he retired, he handed me off to his associate. And then the fourth was recommended by my financial planner. I liked them all, and they each did an excellent job helping me when I faced challenges. 

One part of ownership I had not anticipated was the need for legal support as employment or ethical decisions presented themselves. I always appreciated that I was not alone in sorting out challenging choices.

So how do you find good attorney references? As I said, there any many possibilities. One of the best is to collect the names of possible attorneys from your accounting people. They tend to interact with attorneys and are always looking for resources. Then interview two or three. Typically, you will have a sense of who you prefer. 

The actual psychotherapist employment contract

Let’s look at components of a psychotherapist employment contract to consider what might be helpful and essential. 

Preamble: Define your mission

The contract spells out the legal name and the mission of your organization. Furthermore, the agreement presents a summary of the services your organization provides. And it outlines what you want the employees to do. This brief overview is called the preamble in most contracts.

Broad terms of your contract

Typically, the following section outlines the contract’s term and specifies a renewal period and what happens if the contract is not officially renewed. Next, a brief summary of how to calculate compensation is defined. Often there are exhibits at the end of an agreement detailing how to calculate wages.  

Also, in this section, the contract should spell out what and when benefits kick in. This section included when employees became eligible for health insurance benefits, retirement programs, continuing education reimbursement, a “claims-made” professional liability insurance policy, and any other benefits part of the arrangement. (See  Survey results: Therapist wages and benefits from 40 practices for more on what benefits practice are including in their contracts.)

Obligations of employee

One of the main reasons for developing an employment contract is to clarify expectations for the employee. This list might include obligations such as:

  • Maintain an unlimited license to practice in one’s field
  • Stipulate that the employee is qualified to provide mental health services according to the professional standards and applicable laws
  • Satisfy the qualifications for insurability set by the organization’s professional liability insurance carrier
  • Comply with the organization’s policies, procedure, and professional standards
  • Engage in marketing and development of the organization
  • Comply with EAP and managed care credentialing requirements
  • A commitment to keep private any info not generally known to the public
  • An agreement that one cannot use work products from the organization without written permission
  • A commitment to maintain accurate and thorough documentation and patient treatment records with proper coding 
  • Complete all forms required by the organization

In my view, the above is essential to list out. 

Other expectations in the psychotherapist employment contract

There were a few other expectations to include. For example, the employee should don’t be permitted to enter into this agreement if:

  • Doing so would violate an existing restrictive covenant

And they must:

  • Provide written documentation of licensure and show that any renewal is valid.
  • Disclose any professional liability or pending lawsuit or claims which names the therapist

The contract also should spell out that the organization is responsible for billing and collecting for employee’s services.

Terms of termination

The psychotherapist employment contract can end in several ways. The agreement ends if:

  • The employee retires, dies, or becomes permanently disabled
  • The therapist is convicted of a felonyloses his/her ability to apply for or maintain licensure, commits a willful and serious violation of the organization’s policy, or is disqualified by any of the organization’s third-party contractors. 
  • An employee’s practice standards are below the organization’s practice standards.
  • The therapist violates the in-term restrictive covenant without written consent. [See below on restrictive covenants.]
  • Either party terminates the agreement with a 60-day written notice. [Some use a 30-day or 90-day notice but one seems too short and the other too long.]

The agreement should also specify what happens to the money collected after termination. Specify how long and at what rate does compensation continue. Paying wages on the straggling payments that come in for four to six months after termination seems adequate. Violations of the contract should result in no payments after termination. 


Concluding every contract is a signature page which both parties sign and date.

Special notes on who owns the records

One common topic included in a contract specifies who owns the patient records during and after employment. Generally, due to the liability that an organization is carrying, records remain the organization’s property. Often your state’s Mental Health Code defines the rules regarding the length of time to maintain records. There are differences in how long one must keep children’s records vs. adult records in my state. Additionally, therapists are typically entitled to a copy of their client records if they request them in writing post-termination. 

Special notes on restrictive covenants

There are many long and heated discussions about restrictive covenants. As for me, I believe in having a restrictive covenant. Doing so outlines the organization’s “protectable interests” and the monetary value of those interests. These are complicated legal issues and not for the faint of heart. 

In my case, I chose to include a restrictive covenant because I wanted the contract to express what a good departure meant, i.e., respecting the organization’s efforts to build the departing employee’s caseload by not directly competing after termination. Furthermore, a restrictive covenant protects the interests of existing employees who remain in the organization. With a restrictive covenant in place, recently departed former colleagues are prohibited from poaching cases from those who continued to work with us. 

The real test, of course, is what the owner(s) do when an employee chooses to ignore the restrictive covenant provisions. Is the owner willing to spend money to enforce the covenant? My view is, don’t put it in the contract if you are not going to follow through. 

However, I know these are complicated issues. Certainly, there is room for different decisions. The above is just where I came out. 

What is a restrictive covenant? 

In general, there a few aspects to a restrictive covenant. 

  • In-term restrictions prohibit providing professional clinical services without written consent during the time of employment in a way that is competitive.
  • Post-termination restrictions spell out that for x-time (12 months, perhaps?), following termination or expiration, the therapist shall not provide services within an x-mile radius (depends on local tradition and population densities) of the organization’s practice sites. 
  • Non-solicitation clauses limit the solicitation of clients, staff, or referrers for x-months.

In my view, all three types of restrictions should be included in contracts.

I also encourage including a buy-out of the restrictive covenant. In other words, if the departing employee pays x% of an employee’s gross receipts for the previous year, they were free of the restrictive covenant. This approach gave people an option for immediately practicing in the service area upon termination. Furthermore, it spells out the monetary value of the restrictive covenant.

Final Thoughts

In conclusion, a good contract lays out the guard rails for the relationship each employee has with the organization. By far, the majority of those who join and leave will do the process well. Unfortunately, not all will honor the terms of the agreement. When any terms of the contract are ignored, your attorney will help you determine your best responses. I say this to remind you that the more you can think through what you are willing to enforce, the better. 

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