Veterinary – Strategies For Success library

Associateship to Buy in: The Importance of Written Agreements - Part 2

by Maddox and Josselson | 07/02/2009 | Legal & Business Planning , Vet

In Part 1 of our two-part series on written associate-doctor agreements, we outlined four important reasons why both parties require the protection of written documentation.  Here we outline 12 key points that should be addressed in every properly drafted associate-doctor agreement to help prevent later disputes.

Status of associate doctor.

Choosing to treat the associate as an employee or as an independent contractor has divergent consequences. Current California case law and recent Internal Revenue Service rulings have made it increasingly difficult to characterize associate doctors as independent contractors rather than as employees. However, great familiarity with the present status of the law in this area and proper documentation of the criteria needed to establish an independent contractor relationship can cause the owner to be successful in establishing such a business relationship. While an in-depth review of independent contractors and employees is beyond the scope of this article, the right to control and direct the individual who performs the services not only as to the result to be accomplished, but also as to the details and means by which that result is accomplished, is an indication of an employee relationship.

Schedule and location of services.

The agreement should explicitly state the number of days per week of work, the hours that the veterinary office is open, and the associate’s responsibilities, if any, for weekday and weekend emergency coverage. If the owner has multiple offices, the agreement should also indicate if the associate has any responsibility to be available to render veterinary services at the satellite office locations as well.

Malpractice insurance.

The agreement should explicitly state the obligation by both parties to maintain malpractice insurance, the limits of such coverage, and any unusual or special provisions.

Duties by owner and associate.

The agreement should specify the associate’s duties with regard to the rendering of veterinary services as well as the associate’s duty, if any, to become involved in administration and management concerns. The owner’s duties should be clearly set forth including, but not limited to, any promises of patient distribution and providing assistants or business office staff to perform billing and collection services.

Compensation to associate.

The agreement should carefully define the method by which the associate is to be paid. For example, as previously discussed in Part 1, there are numerous variations of compensation including a flat per-day salary, a percentage of the associate’s daily gross production, or a percentage of the associate’s monthly collections. The frequency with which the associate shall be paid must be stated as well as any financial responsibility by the associate for laboratory fees or defective work. Any bonus provisions as well as the means by which such bonus is to be computed should also be clearly drafted.

Business related expenses.

The agreement should detail what business related expenses are the sole responsibility of the associate and which expenses are to be paid for or reimbursed to the associate by the owner. Professional license fees and association membership fees, automobile expenses, entertainment and promotion expenses, continuing education expenses, malpractice insurance, health, disability income and life insurance are expenses which should be addressed in this agreement.

Client charts and records.

Many health care professionals have the incorrect perception that they can "own" client charts and records. Except for confidential and proprietary data, the doctor is solely a custodian of the information acquired during the course of the doctor-client relationship and, therefore, has no ownership of such information. The agreement should clearly state, however, that all patient and/or client information is confidential and may not be used by the associate for any purpose inconsistent with or in breach of any of the provisions of the agreement. (See point #9, Confidentiality and Trade Secrets, below.)

Covenants not to compete.

Most associate agreements have clauses in them stating that the associate may not compete with the owner subsequent to termination of the relationship for a particular period of time and within a certain geographic area. California Business and Professions Code Section 16600 states that agreements which restrict a doctor’s ability to practice medicine are void with a few limited exceptions. Such exceptions, however, pertain only to the transfer of goodwill based upon the sale of the practice. They do not permit restricting an associate from practicing medicine subsequent to the associate’s departure from the practice. California is a jurisdiction which prohibits such covenants restricting associate doctors, and many other states (such as Arizona, Colorado, Nevada, Texas and Washington) allow such restrictions to be legal and enforceable.

Confidentiality and trade secrets.

The agreement should address what information in the veterinary practice is deemed to be confidential, trade secrets or proprietary to the owner and may not, therefore, be appropriated by the associate for his or her own benefit and the owner’s detriment. The wrongful use or misappropriation of such information (for example, patients’ health histories, insurance carriers, parties financially responsible for clients’ obligations, phone numbers and addresses of both clients’ home and office) could give rise to liability.

Associate’s right to buy in.

The agreement must clearly and unambiguously state whether the associate’s right to buy in constitutes an option to purchase or a first right of refusal. Our law offices continually review agreements which are ambiguous regarding the associate’s right to buy in. An option to purchase gives the associate an unfettered right to purchase the owner’s practice at any time during the specified period regardless of the existence of other parties’ offers. A first right of refusal, by contrast, only gives the associate the right to purchase the practice after a third party has tendered an offer or the owner wishes to sell his or her practice and must, therefore, first offer the practice to the associate prior to offering it to third parties. This section of the associate agreement must be well drafted because of the potential great amount of money involved in the purchase of the practice, the method of appraisal of the practice, the time at which the practice is to be valued (for example, at the time that the associate commences working for the owner or after a certain period of time that the associate has been employed), and the owner’s responsibility, if any, to help finance the purchase price.

The most important issue to be aware of is that the associate’s desire to purchase at a future point in time is often the impetus for his or her joining the owner’s practice. There can be substantial bitter feelings and risk of litigation if the associate has invested considerable time in the relationship, and the opportunity to purchase the owner’s practice is never offered to the associate or is unilaterally revoked by the owner.

Indemnification.

The agreement should address each doctor’s responsibility to the other should one party be held responsible for (i) any malpractice liability resulting from the treatment of patients by the other doctor, or (ii) any non-malpractice liability resulting from negligent acts by the other doctor.

Attorneys’ fees.

California law generally precludes the recovery of attorneys’ fees by a prevailing party in a lawsuit should a party be forced to resort to litigation to redress a grievance. California Code of Civil Procedure Section 1021 does permit, however, parties to agree contractually to recover their attorneys’ fees if they are forced to file suit because of the other party’s breach of the agreement. Such attorneys’ fees clauses are important in those cases where the damages incurred by one party are small (for example, less than $5,000), and the legal fees to be incurred to protect the injured doctor could equal or exceed the potential recovery. Such clauses would, therefore, assist the injured doctor in recovering both his or her damages and out-of-pocket costs spent on attorneys’ fees.

Conclusion

Written agreements of any kind (and especially written associateship agreements) always create a "win-win" opportunity for the parties involved. When the associate and owner are given the opportunity to express his or her goals and expectations regarding the associate relationship, the likelihood of that goal or expectation being met is heightened by the parties discussing it and reaching a conclusion. And the best way of reaching a conclusion is to have the parties resolve it in writing by recognizing the great number of possible issues, simple and complex, that exist in the owner-associate relationship.

Investing a little time and money by seeking the counsel of an experienced attorney before you hire an associate or commit to work in an owner’s veterinary practice will help ensure a far more successful business endeavor.

_{Law Offices of Barry H. Josselson, A Professional Law Corporation, 2009. Republished with permission from Law Offices of Barry H. Josselson.}

_{Statements of opinion not necessarily endorsed by the American Animal Hospital Association or any of its subsidiaries, counsels, commissions, or agencies.}

 

A. Lee Maddox, DDS, Attorney at Law, advises dentists throughout California on dental legal and business matters. Dr. Maddox received his DDS degree and certificate in endodontics from the University of Southern California, and his J.D. degree from Whittier College of Law, Costa Mesa, California. Dr. Maddox has lectured internationally on major innovations in the field of endodontics during the last ten years. He currently authors articles for professional journals such as the California Dental Association Journal and Dental Economics. Dr. Maddox can be reached at Lmaddox@cadentallaw.com or 888-685-8100. Barry Josselson's law firm is devoted exclusively to the representation of dentists and their dental legal and business matters. His law offices are located in the cities of Orange, San Diego, Walnut Creek, and Sacramento, California. Mr. Josselson currently serves as an instructor in the UCLA School of Dentistry Graduate Practice Residency program, and guest lectures at the UNLV School of Dental Medicine and the UC San Francisco, USC, and Loma Linda Schools of Dentistry. Mr. Josselson can be reached at 800-300-3525 or via e-mail at bhjlaw@sbcglobal.net. You may also visit his website at www.josselson.com or www.dentallawfirm.com.