Can an employer avoid paying wages when its funding source fails? Skolnick v. Exodus Healthcare Explained

In Skolnick v. Exodus Healthcare Network, the Utah Court of Appeals addressed whether an employer’s obligation to pay an employee’s salary becomes conditional when the employer’s funding source fails to provide expected payments.

Background and Facts

Dr. Sara Skolnick, an obstetrician-gynecologist, entered into an employment agreement with Exodus Healthcare Network. Under a parallel recruitment agreement, Jordan Valley Medical Center agreed to make guaranteed monthly payments to Skolnick, which she would then pass along to Exodus to fund her salary and benefits. This tripartite arrangement was designed to comply with federal Stark Law provisions governing physician-hospital financial relationships.

After Skolnick announced her resignation, the hospital stopped making the guaranteed payments, and Exodus ceased paying Skolnick’s salary. However, Skolnick continued working until Exodus terminated her employment. She never received compensation for services rendered between November 22, 2014 and January 13, 2015.

Key Legal Issues

The primary issue was whether Exodus’s obligation to pay Skolnick was a conditional promise dependent on receiving hospital payments or an unconditional covenant to pay for services rendered. The court also addressed the proper application of Utah Rule of Civil Procedure 73 regarding attorney fee motions.

Court’s Analysis and Holding

The court distinguished between covenants (promises representing the core bargained-for exchange) and conditions precedent (uncertain events that must occur before contractual performance becomes due). The employment agreement’s Section 3.2 stated that Exodus “shall pay” Skolnick monthly base compensation—language creating a mandatory, unconditional obligation.

While the contract contained some conditional language elsewhere, the court found this did not transform Exodus’s payment obligation into a condition precedent. The parties knew how to draft conditional language when they intended it, as demonstrated by other contract provisions. The court affirmed summary judgment for Skolnick on the breach of contract claim.

However, the court reversed the attorney fee award, finding that the district court erroneously applied Rule 73’s seven-day response period instead of Rule 7’s fourteen-day period when Skolnick filed a separate motion for attorney fees.

Practice Implications

This decision reinforces that employment contracts creating salary obligations will typically be enforced as unconditional covenants unless clearly drafted as conditional promises. Employers cannot avoid paying wages simply because their expected funding sources fail to materialize. The case also highlights the importance of carefully navigating procedural rules when seeking attorney fees—practitioners must choose between Rule 73’s expedited procedure (seven days to respond) and filing a motion under Rule 7 (fourteen days to respond).