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Indemnity clauses in employment contracts

13 November 2020

Dr Tim Cookson, Medicolegal Consultant at Medical Protection, advises you to keep a close eye on your employment contract


Wait – don’t quickly move on to the next article. It could be an expensive move if you do.

I appreciate that reading about clauses in employment contracts could be better for getting you to sleep than any of the available sedatives on the market. Reading the contracts themselves is a pretty soporific exercise, so I will be concise.

If your contract has the ‘wrong’ wording, and your employer suffers some kind of financial harm as a result of your actions, you personally would be responsible for that loss and you would not be able to request assistance from Medical Protection. Medical Protection indemnity protects you as an individual; it does not protect third parties, such as your employer.

The type of clause you may encounter in an employment contract will have wording similar to:

You accept liability, and will reimburse the (employer), for any loss, expense, damages or compensation which the practice incurs or is required to pay (including without limitation any legal fees or amount paid by way of settlement) in relation to any claim, which is threatened, notified or commenced against the (employer) and which:

(a) arises directly or indirectly out of any act or omission by you in the course of your employment; and

(b) alleges a breach of any duty owed by the practice or you in contract or tort.

If you sign such a contract, Medical Protection would be unable to assist with reimbursing your employer.

The good news is that virtually all medical employers will accept an alternative wording such as:

The doctor (employee) will, during the term of this agreement, have and maintain professional liability cover from a recognised medical defence organisation or insurer. The doctor (contractor or employee) will, on request, provide evidence of his or her defence organisation membership or insurance cover.

Why might an employer have a clause like the example given above? Generally speaking, these contracts have been drawn up by lawyers who may be unfamiliar with the medical indemnity scene and may be more used to contracts for sub-contractors on building sites, for example such as the renovators of Notre Dame. The costs of reimbursement in that scenario do not bear thinking about. Some practices may also access generic employment contract templates from an uninformed source. Also, in the absence of a specific provision in an agreement an employer is liable for all acts and omissions of an employee when they are acting in the reasonable performance of their duties.

Fortunately, most District Health Boards (DHBs) are aware of this and the contracts are not problematic. However, we have experienced one DHB who refused to accept the suggested alternative wording, and as a result did not employ a much-needed locum. The phrase cutting off one’s nose to spite one’s face comes to mind. This is very unusual.

Employed GPs are more likely to run into these contracts, however Medical Protection is not aware of any practice that has not been happy to change the wording.

What is the risk if you have already signed such a contract? Given the medicolegal environment in New Zealand, it is unlikely that a claim would be made against a practice for which you would be liable. However, although the risk is low, the cost could be high. It is a bit like walking across a narrow plank over a big drop – the chances of falling are small, but the consequences are not.

For those of you who now have a sinking feeling and are scrabbling about looking for your contracts, it is not too late. You are entitled to have your contract amended and should negotiate with your employer. Medical Protection is happy to discuss this issue with any employer who is unwilling to change a problematic contract wording, on behalf of members.

In summary, try to keep your eyes open as you are reading your employment contract and if you have any concerns about the indemnity clause, contact Medical Protection or your indemnity provider for assistance. You can also find further information in our factsheet.