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Veterinary Forum February 2007 (Vol 24, No 2)

Business Skills: Associate employment contracts: part 1

by Edward J. Guiducci, Esq

    Editor's Note: An important part of maintaining a long-term relationship with associate veterinarians is to have a fairly negotiated employment contract. In this two-part article, our consultant attorney, Ed Guiducci, outlines the steps involved in creating a fair and lasting agreement. — Steven Fisher, DVM, Column Editor

    A basic understanding of the important terms used in an associate employment contract and the techniques needed to negotiate that contract is critical for every practice owner, manager, and associate. In most cases, being aware of potential problems can eliminate or re­duce the risk for any misunderstanding or ambiguity that could end a relationship between practice owners and an as­so­ciate.

    Important contract terminology

    Some important terms relating to business issues should be included in a written contract. In most cases, an associate should be hired as an employee and not as an independent contractor. Many veterinarians prefer to treat associates as independent contractors to avoid the need to withhold taxes. Whether the associate is an employee or an independent contractor for tax purposes is based on the Internal Revenue Service (IRS) Code, and the designation of independent contractor may be improper. Therefore, it is important for the owner to seek tax advice from a qualified tax accountant before treating an associate as an independent contractor.

    In addition, some veterinarians are unwilling to classify associates as employees in case the rela­tionship has to be terminated. If the terminated associate is an employee, he or she can file a claim for unemployment compensation. The owner needs to examine individual state laws to determine whether the practice is protected against unemployment claims if an employee is terminated during an established "orientation" or "probationary period." Assuming that state law permits "trial periods" for the purpose of withholding un­employment benefits and the associate employment contract provides a probationary period, the practice may be protected within the trial period and the concern about employment versus contractor status can be eliminated.

    Although unemployment compensation can be avoided if an associate is classified as an independent contractor, that does not prevent a disgruntled employee from making discrimination claims. Most state and federal discrimination laws are not based on the worker being classified as an employee versus an independent contractor.

    Put the agreement in writing

    It is good business practice to put any important verbal agreement in writing. An associate employment contract is no exception and should be written and signed by both parties. This is true regardless of whether the associate is classified as an employee or an independent contractor.

    All too frequently, veterinarians believe there is no need for a written agreement or contract because they have never had one in the past. Some veterinarians find a written contract unnecessary because they are honest, honorable individuals, and it complicates a straightforward relationship. The flaw in this logic is that two people may interpret and remember details differently.

    This problem can become serious if it involves terms of a verbal agreement relating to compensation or other significant issues. When this happens, the party who feels he or she has been misled (normally the associate) may start questioning whether the other party is being honest or is trying to take advantage of a situation. The effect of such a scenario is that the parties who once believed the other to be honest begin to question each other's character.

    This problem easily can be avoided by having a well-drafted agreement. A poorly drafted contract that fails to address important issues is often no better than a verbal agreement because ambiguity about important issues can occur. Often the parties who draft the contract — frequently attorneys — will have ambiguous or missing sections construed in a light more favorable to a given party.

    Contract negotiation goals

    The goal of negotiating an associate veterinarian contract is to achieve a satisfactory result without damaging the relationship between the owner and the associate. The inherent problem in these negotiations is the potential for conflicting goals. The goal of the owner is to include contract terms that protect the practice. This is in sharp contrast to the goal of the associate veterinarian, who is interested in contract terms that maximize earning potential and flexibility if the relationship fails. There is a point in the negotiation of an associate contract when these equally compelling goals conflict. The owner can take several steps to minimize the potential damage to the relationship during negotiations:

    • Negotiate at a neutral site — Conduct the negotiations in a neutral place where there is no perceived power position. This tends to put the associate veterinarian at ease.
    • Describe expectations — The owner should describe his or her expectations at the start of negotiations. For example, if the owner intends to have a nonsolicitation provision and covenant not to compete, it is important to raise this point early on.
    • Discuss compensation — The owner needs to discuss compensation with the associate veterinarian early in the process.

    The owner also needs to give the associate veterinarian enough time to understand fully what is being proposed. The associate veterinarian may not have previously dealt with employment contracts and may be uncomfortable about the entire process.

    Click here to see Part 2 (March 2007).

    NEXT: Clinical Report: "Update on pain management"

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