John Grant considers the need for practice owners to have written agreements and properly drawn legal documentation.
Whether you are a partner, expense sharer, associate, shareholder or have associates, hygienists or other self employed people at your practice (including specialists such as Implantologists) there should always be a written agreement that clearly sets out the principals of the business relationship.
Not only will this significantly reduce the chances of a disagreement – as you will have discussed and agreed things at the outset, but also, in the unfortunate event of a dispute, having a written agreement in place that prescribes what happens under any circumstance can make a resolution far easier, simpler and quicker – and considerably cheaper.
Remember: Every divorce started as a marriage, and nobody enters a professional relationship expecting it to end in a dispute; but sometimes business relationships do. However, if at the outset a lawyer is instructed to prepare an agreement, this forces a principal to consider all of the different elements and outcomes that might affect their business, and may also provide a mechanism for dealing with disputes other than having the threat of court proceedings.
One particular type of agreement that is worth considering here is the associate agreement.
There are many reasons a principal may decide that they wish to end the relationship with an associate. The danger is that if the associate isn’t happy and visits an employment lawyer, they may decide on the basis of what they have been told that the associate was in fact an employee all along.
Without an associate agreement it is entirely possible that the working relationship between the practice owner and the associate can be defined under employment law as that of employer and employee. In that scenario, a principal who proceeds on the basis that their associate is self employed may well find themselves embroiled in costly proceedings before an employment tribunal with the associate seeking compensation on the basis of unfair dismissal. Although there is a limit on the compensation payable to an employee who is wrongly dismissed, it can be as much as a year’s salary up to £76,574, and therefore clearly everything should be done to try and avoid this eventuality.
If there is a written associate agreement in place that defines the relationship, and if the parties have acted broadly in agreement, then the chances of an associate being found to have been an employee are very significantly reduced.
If there is no written associate agreement then a lawyer is far more likely to advise somebody to pursue a claim, because, regardless of whether they are successful or not, there may be high chance of a negotiated settlement. On the other hand, if there is a written agreement then a lawyer being consulted by the associate will almost certainly be far more circumspect in the advice that they give their client.
What is more, if there is no associate agreement then restrictive covenants (binding-out clauses) are never implied, so there is nothing at all to stop the associate opening up a practice next door in direct competition with the principal.
What’s worse than no agreement?
It can often be the case that worse than having no agreement is having a very poorly drafted one that doesn’t address the issues, or is so poorly constructed that both parties remain uncertain as to their position. Indeed it is not unusual to come across badly worded agreements, particularly if the principal has gone to non-specialist lawyers for guidance.
I recently saw a client who wanted to sell his share in an expense sharing partnership. He had a written agreement, but it was very poorly drafted. There were no provisions specifying what should happen if one of the partners wanted to leave. There was no stipulation that said it should be offered to the other and if they didn’t want to purchase then the practitioner could sell it on the open market, and there was no defined method of valuation.
In this instance the only options were either that the continuing practitioner purchased the share or, if the continuing practitioner wasn’t happy with it being offered to a third party, the whole practice would have to be sold.
If there was a properly considered agreement this wouldn’t have been the case and there would have been a clear pathway describing the next steps, mitigating any anxiety or confusion.
Always turn to a specialist
There are of course a multitude of elements that need to be thought about when entering into or even reinforcing a business relationship. By choosing to use a dental lawyer and going through every aspect of an agreement, a principal is forced to consider all factors and eventualities.
It is essential therefore to seek specialist advice to make sure the right clauses are present and that the business can achieve its objectives. This ensures that everything is clearly set out from the beginning and should a dispute occur, a satisfactory resolution is a far more likely prospect.
John Grant of Goodman Grant Lawyers for Dentists – a Past Chairman of ASPD
For more information call John Grant on 0113 834 3705 or email [email protected]