A well prepared associate agreement (whether in the form of an employment agreement or an independent contractor agreement) is an important document for any dental practice. Our professionals prepare associate agreements for practice owners, and also review these agreements for associates working for practices. Our lawyers regularly advise clients on restrictive covenants and issues related to these provisions, which are among the most important provisions in these agreements.
From an employer’s perspective, an enforceable restrictive covenant can be a vital tool in protecting the practice’s goodwill. Additionally, an enforceable restrictive covenant can be imperative when it comes time to sell the dental practice. The enforceability of a restrictive covenant is often an issue of reasonableness and, more specifically, whether the covenant is reasonably necessary to protect the practice. However, in some states, the timing of when the agreement was signed can impact its enforceability. In addition, whether the agreement and/or the restrictive covenants contained in the agreement can be assigned will depend on state law and the specific language contained in the agreement. We will focus on negotiating a restrictive covenant that will protect your practice and be enforceable in your jurisdiction.
When representing an associate, the details of restrictive covenants are important since such covenants impact the associate’s ability to practice dentistry should the practice owner and associate part ways under certain circumstances. In most situations, the associate’s bargaining power is limited, especially when it comes to negotiating restrictive covenants in any meaningful way. Nonetheless, it is still important for an associate to understand what he or she is agreeing to and to confirm that the associate agreement reflects the agreement between the parties and, moreover, that it is consistent with the associate’s goals and expectations.
While the practice owner and associate may think that the most important issue in the employment relationship is compensation and benefits, it is not. The most important issue is the restrictive covenant, which protects confidential information consisting of patients and referral source lists, noncompetition within a geographic radius or attached map, and, for a period of time (one to three years), nonsolicitation of patients and/or referral sources, and nonsolicitation of services of staff.
For those associates working in corporate practices, do not agree to geographic restrictions for multiple or future locations, especially if you are a specialist working at multiple facilities. In addition, associates should not agree to outrageous liquidated damage provisions.If the associate grew up in the geographic area or resides where the practice is located, a buyout of the restrictive covenant is an effective tool. Otherwise, the associate will be reluctant or unwilling to agree to a meaningful restriction.
The associate will prefer a six-month exclusion before the restrictive covenant begins, although the non-solicitation of patients, referral sources, and staff should always be in effect immediately. I don’t think it matters provided that the restrictive covenants are initially included in the employment agreement.
Those patients directly referred to the practice by the associate, as well as the associate’s friends and family (collectively the “associate’s patients”), should be excluded from the restrictive covenant provisions. The associate’s patients are designated as a schedule to the employment agreement on an ongoing basis and can be computer generated or handwritten. Should the associate’s employment terminate, those charts and records of the associate’s patients remain the former associate’s property.
Associate Pay & Benefits
As to compensation, I suggest the greater of a dollar amount per month for full-time (or an hourly rate for part-time) or a percentage of adjusted production. The differential may be “trued-up” or calculated on a quarterly basis to reduce peaks and valleys of pay versus production. The “greater of” sum may last for a limited period of time (six months to one year). Adjusted production means the associate’s production reduced by discounts, reduced fees, insurance and other write-offs, laboratory remakes, and uncollectable accounts. While compensation as a percentage of collections is common, I prefer adjusted production because the associate cannot control the collection policy of the practice. On the other hand, some specialists are paid a monthly base salary and not a percentage, often with bonuses.
Should the associate accept a draw that must be repaid against future compensation, the associate should not be required to repay this sum should the employment terminate. While there are wide swings in compensation and collection percentages, the most common that I see is 30% for general dentists, including hygiene examinations, and 35%-plus for specialists, in addition to benefits, direct business expenses, and insurances for full-time associates. These percentages exclude any reduction of dental laboratory costs in general practices. To the extent that there is a reduction, the percentage is increased and the formula should be adjusted production or collections, less the lab percentage, multiplied by the commission percentage.
It is essential that any associate carry professional liability insurance with specified coverage limits. The question is, who pays the cost? For full-time associates, it is usually the practice. To the extent reasonably permitted by the carrier, the associate’s policy should cover the practice as a “named” insured.