When the time comes to sell your practice, a buyer will want to know whether your associate veterinarians have written employment agreements.
Managing your veterinary practice can be overwhelming, but protecting your business is of the utmost importance. That’s why having a solid employment agreement with an associate veterinarian — one delineating pay and responsibilities — is critical. For an employment agreement to be enforceable, what need to exist are a clear job offer, an acceptance of the offer, specific compensation and a meeting of the minds on all the terms.
A written agreement often chooses between two types of employment: at-will and contract. At-will gives employers the most flexibility in deciding if or when to terminate an employee as the agreement lacks a guaranteed length. A contract agreement typically shows a specific employment period, such as one year.
The agreements often follow a structure: the term, the work schedule, duties and responsibilities, compensation, and restrictive covenants. Let’s go over each.
Regardless of whether the agreement is at-will or contract, each classification brings trade-offs.
At-will allows the employer to terminate the employee for just about any reason, including business needs and disciplinary action. However, that flexibility can create challenges in aligning employee incentives with business objectives.
Contrast this to an employment contract. As an employer, you generally dictate the job length, which can range from one year to as many as five years. The employer generally may not terminate the agreement early except for cause or a breach, which removes a degree of flexibility but improves the employer’s ability to create measurable incentive structures, such as production-based raises or bonuses.
Choosing at-will or a contract term depends on your objectives.
You need to articulate the employee’s work schedule. There is no one-size-fits-all approach. The schedule can be general, such as at the employer’s discretion, or specific, like Mondays from 9 a.m. to 5 p.m., Tuesdays from 11 a.m. to 3 p.m., etc.
The key is to balance flexibility with the ability to hold employees accountable. The more specific the schedule, the clearer the expectations and standards. Locking in shifts, however, might require later amendments as needs evolve.
This section provides the basis for employment. The practice owner or manager can define the scope of the work and the expectations. Do you expect the employee to perform administrative duties? Will she oversee other team members? Employers often include other expectations in this section — for example, continuing education requirements and lecturing or speaking responsibilities. Like with the schedule, the language needs to be flexible enough to allow for changes as the practice’s needs evolve.
One trend is to classify employed veterinarians as independent contractors despite the doctors having duties consistent with bona fide employees. Misclassification can lead to serious repercussions. Many employers wrongfully classify people as independent contractors because of financial breaks involving payroll taxes, unemployment and employee benefits, and workers’ compensation.
Stringent requirements must be met when classifying an employee as an independent contractor. Most veterinary employees do not meet these criteria. Veterinary employees are subject to employment taxes and must be covered by a practice’s workers’ compensation policy, while independent contractors have no such requirements. Independent contractors are responsible for their employment taxes and insurance.
If used correctly, independent contractors can help grow a veterinary practice. However, employers need to be cautious as the IRS frequently audits small businesses.
Most employees measure their progress and effectiveness in their profession by how they are compensated. Therefore, employers should analyze their business goals and the employee’s duties. Standard compensation approaches include a flat annual salary, an annual salary plus a discretionary bonus and production-based pay. If an employer offers fringe benefits such as a 401-k plan, health insurance or expense reimbursement, they need to be part of this section.
One of the most integral sections of the employment agreement involves restrictive covenants. These often take the form of non-compete, non-solicitation and non-disclosure provisions. Each prohibits a specific action.
A non-competition clause prohibits an employee from engaging in similar work somewhere else as an employee, practice owner, consultant or independent contractor.
A non-solicitation clause prevents a former employee from soliciting your clients or employees. Buttressing a non-solicitation clause with a non-disclosure clause can be beneficial.
A non-disclosure clause prevents a former employee from using or disclosing the practice’s confidential information, such as client lists, marketing strategies and fee schedules.
When the time comes to sell your practice, a buyer will want to know whether your associate veterinarians have written employment agreements. If structured correctly, the agreements can mitigate substantial risks to your business.
Legal Lingo columnist Peter H. Tanella chairs Mandelbaum Salsburg P.C.’s Veterinary Law and Corporate Law groups. He is a transactional attorney who represents veterinarians in all phases of their careers. He can be reached at [email protected].