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Veterinary Forum March 2007 (Vol 24, No 3)

Business Skills: Associate employment contracts: part 2

by Edward J. Guiducci, Esq

    Editor's Note: Part 1 (February 2007) of this two-part presentation reviewed issues surrounding employee versus independent contractor and verbal versus written agreements.—Stephen Fisher, DVM, Column Editor

    Contract points

    When does an associate's employment begin and end? Most contracts can be terminated by either party and for any reason on a basis of 30-, 60- or 90-day notification. In addition, there should be a section covering what happens if the associate dies, becomes disabled, loses his or her license to practice veterinary medicine in the state or similar scenarios.

    The contract should define the associate's work schedule, duties and responsibilities. However, there may be conflicting opinions: The owner may want a broad, flexible definition of duties, whereas the associate may want to narrowly define job duties to prevent management from changing them.

    The compensation structure needs to be determined on a practice-wide basis. Will all associates be compensated with a fixed annual salary, per diem or hourly rate percentage of personal production or a combination of fixed annual salary with a bonus determined by personal production? The industry standard for compensation is a total compensation package not to exceed 25% of the associate's personal production.

    Many owners are opposed to implementing a personal production compensation structure because they are concerned about veterinarians "grabbing" higher-producing procedures instead of following procedures based on the division of work. Although this does happen occasionally, personal production compensation structures are usually effective if the definition of personal production is understood by all parties and they clearly understand the rules regarding the division of work.

    In addition to the personal compensation package, practices provide employee benefits, such as health insurance, malpractice insurance, paid leave for sick and vacation days, paid professional leave for attending continuing education programs and license and association membership fees. The benefits offered vary considerably from practice to practice, depending on the terms of the associate's compensation.

    Covenant not to compete

    A covenant not to compete clause prohibits a terminated associate from working at or owning a competing practice within a specified geographic area for a set time. Nonsolicitation provisions prohibit an associate from soliciting clients or coworkers, regardless of where the former associate is practicing.

    Under most states' laws, covenant not to compete clauses are enforceable only if they are reasonable regarding both the geographic location where the associate is prohibited from practicing and the length of time. The covenant not to compete cannot be too broad in defining the area for which the associate is prohibited from competing. Courts commonly will consider the area around the practice that draws patients, regardless of whether that area is considered "reasonable."

    The reasonableness in the length of time attached to a covenant not to compete clause also is a concern in most courts. Ultimately, determination of reasonable geographic and time restrictions depends on the location of the practice and the facts related to each transaction. Certain states, including California, prohibit noncompetition agreements in associate (nonowner) contracts.

    It is important to remember that most courts measure the geographic radius as a bird flies as opposed to measuring the radius based on the driving distance to a particular competing location. This rule is relevant when an owner attempts to enforce a covenant not to compete against a former employee who has set up a practice in a location close to the outside distance of the covenant. In this scenario, one or both parties may measure the distance by driving between the employer's location and the employee's new location.

    In addition, if a court determines that the covenant not to compete is unreasonable, the judge may void the entire contract or judicially modify the length of time or geographic location to make it reasonable. Courts around the country differ on their preference when faced with this issue.

    Additional contract content

    Most associate contracts contain a clause stating that all client and patient records are owned by the employer. Although this clause appears to protect the employer from losing clients, the protection is illusory: A client has the right to request copies of records and transfer the animal's treatment to another veterinarian. If the employment contract does not contain an enforceable covenant not to compete prohibiting the associate from practicing within a reasonable area, this clause will offer little or no protection for the practice owner.

    Under most states' laws, an associate can solicit the clients with whom he or she has became acquainted while employed unless bound by an associate agreement or contract that prohibits soliciting. This is equally true for an associate who ­solicits coworkers and other employees of the veterinary practice.

    An employment contract should contain language permitting the prevailing party in a dispute to recover attorney fees if forced to file a lawsuit. Most states require an attorney fees provision in the contract stipulating that the enforcing party is entitled to recover the sums paid to ­attorneys as part of a lawsuit.

    An associate typically has access to certain business information that the practice wants to protect. When an employment contract is terminated, the practice owner will want the right to prevent the associate from using this business information, which is protected under most states' laws if it can be classified as a trade secret. Employment contracts should, therefore, contain broad language prohibiting the associate from using the owner's trade secrets. However, for a hiring veterinarian to protect trade secrets, the records and information must meet the definition of a trade secret under each state's laws, and specific steps must be followed to protect the trade secret. Courts focus on a variety of factors in determining whether a trade secret exists. Some of the more common factors that determine a trade secret are:

    • How widely the information is known outside the particular practice.
    • How widely the information is known by employees and others involved in the practice.The steps that have been taken to guard the secrecy of business information.
    • The value of the information, and the cost or effort that would be required to duplicate the information or have it acquired by a third party.

    Some common examples of business information that may constitute a trade secret in a veterinary office include client lists, patient charts and marketing strategies.

    The contract must provide that the veterinary practice is entitled to assign the contract to a new purchaser or new entity. This is important to the practice owner if he or she decides or needs to sell or restructure the business. The value of a veterinary practice can be adversely affected if key employee veterinarians cannot be prohibited from competing with the practice after the acquisition.

    Closing advice

    Entering into an associate employment contract is an important decision that could have serious effects on all parties. Because no one can predict with any certainty that the as­sociate relationship will be successful, it is important to have a well-drafted contract to protect the interests of both the ­associate and the veterinary practice.

    NEXT: Clinical Report: "Drug compounding: a precarious practice"

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