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Monday, August 31, 2015

Do you have a Death or Disability Clause in your Office Lease?

This past week I negotiated a lease on behalf of an ophthalmologist and I wanted to share an essential but often overlooked lease provision, “Termination upon Death or Disability.”  If a closely-held company is entering into a lease, the company needs to consider whether it can continue to operate if a critical owner or employee dies or becomes disabled and cannot work.  Examples include physicians, dentists, veterinarians, attorneys, architects, chiropractors and other types of unique personal services where another person cannot easily step in and run the company.  The company must have the ability to terminate the lease if it loses its critical person.

Without protective language in the lease, the company will remain bound to the lease despite the absence of the critical person.  The lease is often between the company and the landlord, so the company still legally survives and remains obligated to perform under the lease.  If the company defaults, the landlord can strip the company of its assets.  Even worse, the lease could be personally guaranteed and the guarantors or guarantors’ estate could remain liable for the company’s performance under the lease.

These types of companies must include a “death and disability” clause in their leases to allow lease termination in the event of a death or disability of a critical person.  Following is an example of a “death and disability” clause:

In the event of the death of ____________ (the “Critical Person”), or in the event the Critical Person becomes Disabled (as defined below), Tenant shall have the option of terminating this Lease upon thirty (30) days’ written notice to Landlord. The effective date of such termination shall be the thirtieth (30th) day following delivery of such written notice. On such termination date, Tenant shall surrender the Premises to Landlord in accordance with this Lease, this Lease shall terminate and neither party will have any further obligations with respect to this Lease. For purposes of this section, “Disabled” shall mean the inability of the Critical Person to perform his/her customary duties for Tenant for a period of at least one hundred eighty (180) consecutive days. In the event the Landlord disputes whether the Critical Person is Disabled, the Critical Person shall submit to examinations by two medical doctors, one selected by the Tenant and the other selected by the Landlord. The two medical doctors shall examine the Critical Person and determine whether it is more likely than not that the Critical Person will be unable to perform his/her customary duties for Tenant for a period of one hundred eighty (180) consecutive days from the date of the examination. If the two medical doctors agree, their decision shall be binding and final. If the two medical doctors disagree, they shall select a third medical doctor, whose determination shall be final and binding.

Prior to using any language or concepts from this blog entry, consult with an attorney.

 

The LaMaster Law Firm, PLLC, a boutique style law firm committed to delivering legal services to healthcare professionals and their practices.  Our services include assisting with the purchase and sale of practices, leasing, employment law matters, regulatory compliance, and other legal matters.

For more information about Matt LaMaster, The LaMaster Law Firm, PLLC, and dental specific legal services, visit www.lamasterlaw.com.


Thursday, July 2, 2015

Beware of the "Bundled" Loan and Mortgage If You're Buying a Practice

Here's some information for those dentists who are looking to finance their practice acquisition. 

Background:

I was recently working with a dentist that was purchasing a practice and the accompanying real estate.  The practice was in a medical condominium complex with other dental and medical providers.  Originally, I was just asked to help the client clear up and obtain declination's of first rights of refusal that the other co-owners of the condominium association were given in the original condominium documents.  After that, my client asked me to review and help with the financing and closing of the real estate.

The client was obtaining financing from a rather large bank that does not typically deal with financing dental practices.  The bank offered her the “opportunity” to bundle the practice acquisition loan with a small loan that she needed to purchase the condominium.  The condominium was only selling for $33,000, while the practice was selling for around $250,000. 

During negotiations with her dental practice broker and the bank, the bank told her that they would not be taking out a mortgage for the purchase of the condominium because it was such a small portion of the total loan amount and her credit was stellar. 

Well, a few days before the closing when I received the closing documents things had drastically changed. You see, the bank was in fact going to record a mortgage and it was going to be for the entire amount of the loan.  My client went from being told that she would have no mortgage to having a mortgage of almost $290,000.  I truly believe that without an attorney my client would have likely signed those documents not knowing the potential repercussions.

So you may be asking, what are the repercussions?  To put this simply, my client would have taken a mortgage out that would have immediately be in an amount greater than the property was worth.  That means that in order for her to sell the property she would need to release the mortgage, which would have likely required her to pay off the promissory note that was tied to the mortgage in an amount that would be much greater than the property was worth.  The only way she could have done that would have been to sell the practice, or find the money somewhere else to pay off the amount of the loan.  Now, you may say why would she want to sell the condominium and not the practice?  Well, she will likely be very successful and may need or want a bigger and better practice location.

So, in this scenario having an attorney review the closing documents prior to closing may have saved this dentist and her practice.

Lesson:

Work with an attorney that can help identify the hidden risks and costs associated with bank loans, mortgages, and closing documents.

  

The author, Matt LaMaster, is the Founder and Principal Attorney of The LaMaster Law Firm, PLLC, a boutique style law firm committed to delivering legal services to dental practices, chiropractors, and healthcare facilities. 

For more information about Matt LaMaster, The LaMaster Law Firm, PLLC, and mortgages, visit www.lamasterlaw.com.


Thursday, May 21, 2015

Working Interviews: To Pay or Not to Pay?

I’ve heard the term “working interview” used often with dental and veterinarian practices.  A “working interview” is when the practice/employer wants to observe the clinical or clerical skills of job applicants (dentists, dental hygienists, veterinarians, assistants) or their clerical staff (front office and billing staff) by actually seeing the applicant perform essential job duties before they hire the applicant as an employee. 

The question is often raised, “do I need to pay wages for working interviews?”

The answer….it depends.  I know, that’s the typical lawyer answer.  But really, it depends on what the applicant is asked to do and the length of time they are performing the tasks.

Under the Fair Labor Standards Act (FLSA), unpaid working interviews are only lawful if the work is not to the benefit of the enterprise and the interview is limited only to the necessary amount of time to test the applicant’s ability to perform the essential job functions.  So, if you have the applicant work an 8 hour day by seeing patients and performing services that you would have performed if not for them there, you really need to pay them. 

So, as an employer how can you “try it before you buy it?”

The answer is skills testing. The difference between working interviews and skills testing is the environment they are performed.  During a working interview, you ask the applicant to work alongside you during a regular workday and have him or her perform and demonstrate skills on patients.  In contrast, skills testing is when you set up a scenario and ask the applicant to walk you through it, as they understand it.  For example, take an assistant into a room and show him or her your set up.  Then ask the applicant to reproduce the set up in another operatory.  For a clinician applicant, create a chart for a fake patient (or use a real patient) and have the applicant tell you how they would proceed.  This skills testing method will grant you an inside look at the applicant’s skills and personality without requiring you to pay them.

In summary, by using the skills testing method you will have all the benefits of a working interview, but without the requirement to pay the applicant. Happy hiring!

 

The author, Matt LaMaster, is the Founder and Principal Attorney of The LaMaster Law Firm, PLLC, a boutique style law firm committed to delivering legal services to dental practices, chiropractors, veterinarians, and healthcare facilities. 

For more information about Matt LaMaster, The LaMaster Law Firm, PLLC, and employment related issues, visit www.lamasterlaw.com.


Sunday, May 3, 2015

Importance of Dental Graduates’ Associate Agreement

Graduating dental school is a great accomplishment.  With graduation comes excitement, new beginnings, and potential for making money.  Yet, it also comes with some anxiety, large student loans, and often starting out working for someone else.  Those are things that new graduates tell me they’re thinking as graduation approaches. 

If one of the things on your mind is working for another doctor when you graduate, of great importance for you will be your Associate Agreement.  That is the contract that you will likely be asked to sign by your new employer.  It’s often an area in which new dentists are not familiar or informed about, and because of that it can be troublesome.  This article sets out to educate you as a new dentist on your journey as an Associate. 

Why Have a Contract?

Many new dentists believe a contract only protects the employer.  Nothing could be further from the truth.  A contract can, and should, protect the associate dentist just as well as the dental practice.  The contract should contain anything and everything an employer and employee want addressed.

A signed contract should be in place prior to any commencement of employment.  In fact, I insist that all of my clients have a signed agreement in place before starting a position.  Without one, legal recourse is somewhat limited and it’s much easier for things to go awry because of poor communication and misaligned expectations.  The challenge for new dentists is to know what to look for in a contract and what should be included on their behalf.  This article discusses the terms and issues related to a contract that represents the best interests of the associate, so that you can be well prepared.

Employment Status

One of the first issues that often comes up in associate relationships is whether you are classified as an “Employee” or “Independent Contractor.”  The problem is that in the dental industry these two terms are often represented as having the same meaning by the employer.  They are not the same, and each has significant legal and financial implications!

As an employee, you work for another person, i.e. the employer dental practice.  Employees are be subject to the control of the employer and the terms of an employment contract or employee handbook/guide.  As an employee, you are generally entitled to all the benefits offered to other employees of the practice. These benefits may include health insurance, vacation pay, holiday pay, uniform allowance, retirement savings, and other fringe benefits.

An Independent Contractor, on the other hand, is akin to a subcontractor.  The associate dentist “subcontracts” their services to an existing practice that is owned and operated by another owner.  Independent contractors have freedom to practice as they wish and can take liberty on when, how, and where they practice.  If a dental practice is controlling your hours and your work product, telling you what materials and supplies to use, requiring you to abide by the practice philosophy and restricting you from working at other practices, there’s a really good chance that you are actually an Employee.

Oftentimes confusion of the terms Employee and Independent Contractor arise because the employer wants to control the associate but does not want to offer benefits and pay employment taxes for the associate.  In simple terms, the employer wants control and protection from the associate not competing, but they don’t want to pay the taxes or benefits.  Determining whether an associate is an Employee or Independent Contractor is a determination based upon many factors that an attorney can discuss with you.

The dilemma for the new dentist is that if a practice asks you to sign an Independent Contractor Agreement, but it’s telling you they will control you as an employee, do you question the validity of the Independent Contractor Agreement at the expense of not acquiring the position or placing yourself in an untenable position?  The dilemma for the owner doctor is to fabricate a reasonable, thorough and legally enforceable contract or expose themselves to potential litigation or an inability to hire quality associate dentists.  Nonetheless, there is room for negotiation.  Both parties may not get everything they want, but you may get more than you had in the original deal with a fair and valid contract.  Compromise is the key to brokering a fair agreement.

The difficulty is most new dentists are so eager just to have a job they fear questioning the contract proposal or initiating a dialogue of negotiation.  The bottom line is that while attorneys and dental CPAs will recommend being an employee, it is the associating dentist who must do what is in his or her best interest.  And in your best interest, an associate should seek professional advice before signing on the dotted line.  

What Should Be In a Contract

The first thing to understand is that no two contracts are alike, especially dental contracts.  Some are very lengthy and encompassing, and some are short with a dearth of information.  Remember, anything can be added to or subtracted from a contract, and “if it is not in writing, it didn’t happen.”  

If the new dentist wishes to enter into an employee associateship relationship, the contract should specify the duration of the contract (“Term”), how it will be renewed, and the owner’s expectations of the employee.  The contract will require you to abide by the practice philosophy, adhere to the standards of practice and ethics of the state dental licensing authority.  It will also address your duties to the practice on patient treatment and the like.  I recommend for more experienced associates that the contract also include what the employee can expect from the employer in terms of equipment, materials, supplies and personnel necessary for optimum delivery dental services.  As a new dentist you may not be married to specific equipment or materials yet, so this is normally not a concern for new graduates.  Nonetheless, I do recommend having some statements regarding your expectations of the practice.

There are also other important provisions such as means for settling disputes and causes for employment termination.  The causes for termination must be specific and should not allow for summary termination of you without cause.  In addition, the contract should contain a time frame for notice of termination.

Compensation

This is extremely important for obvious reasons—it defines how and when you are to be paid.  The contract must specify how you will be paid: by salary, a percentage of your production, or a percentage of collections of your production.  If you are being paid on collections, will you be paid after the termination of the agreement on collected amounts for work performed by you?  It should also specify which party is responsible for laboratory fees.  Will the practice pay the lab fees or are the lab fees to be subtracted from the production or collection figure?  What about remakes or redo procedures?  Who has responsibility for those procedures and fees?  Will you be able to render services to family and friends?  And, what is the compensation and discounts allowed for such services to family and friends?

Now that you know how you are to be paid, when will you be paid?  The contract must specify payment on a weekly, bi-weekly, or monthly basis.  I strongly recommend waiting no more than once per month for payment.  If you are eligible for individual production or team bonuses, the bonus policy must also be included in this section of the contract.  Another issue not often addressed by employer contracts is the issue of paid or requested personal leave policy.  Everybody likes a paid vacation, right?  If this issue is important to you, and I feel it should be, then it must be present in the contract.

Benefits

Probably the most overlooked and undervalued aspect of an employment contract is the issue of employee benefits.  As I stated before, if you are an employee of the practice, you are entitled to receive the benefits offered to other office employees. 

Often, owner doctors treat associate doctors differently than other office employees when it comes to benefits.  Sometimes it is illegal to treat one employee of the practice different from another employee on the same issue.  The problem is that new dentists are either not aware of their legal rights as an employee or they do not want to challenge the employer on this issue.  If you have a question about your benefits package and possible unequal treatment, you should discuss that with an attorney.

Restrictions

Most of the remaining parts of the contract deal with issues such as confidentiality of patient and practice information, non-compete agreements, and non-solicitation of patients or practice employees upon termination.  These issues are basic to just about every dental associate contract, but they can be some of the most contentious and litigated aspects.

First let’s start with the confidentiality provision.  Almost every employer will try to protect their trade secrets, business processes and any other intellectual property that the practice may have created over time.  The employer will also likely have a confidentiality provision and policy relating to keeping patient information confidential.  Confidentiality provisions are often drafted extremely broad.  Best practices for an associate is to not share or discuss any patient information without the approval of the practice.  And, if you leave the practice do not discuss anything that is not already public knowledge.

As an advocate for associate dentists, I believe that every patient has free will to seek dental services from whomever they choose.  Employers however often believe that they “own” a patient.  That idea leads us to the next two restrictive covenants, the non-solicit and non-compete.  And yes, they are different—very different!

A non-solicit provision states that the associate dentist will not direct or indirectly solicit (that is communicate) with the patients or employees of the employer.  This can be effective during the employment and after termination.  Most litigation around non-solicitation relates to what constitutes a patient and what constitutes direct or indirect solicitation.  For instance, does the parent of a child patient constitute a patient for the purposes of non-solicitation?  Or, is placing a billboard in the town informing the public that you’ve opened your own practice constitute direct or indirect solicitation?  Those are questions that can often be answered in a properly drafted non-solicit clause.

The most contentious aspects of any dental contract is generally the non-compete clause.  It will state that if you leave the practice, for any reason, you quit, you are fired, or if the contract has ended and not renewed, you will be restricted from practicing dentistry within a specified distance from the practice for a specified length of time.  These restrictions are so variable I cannot even mention an appropriate distance or time for your specific scenario.  What I will say is that for this clause to be enforced, it must be reasonable in geography, scope, and duration.  As public policy, restricting one’s ability to make a living is generally disfavored.  So, courts must find that the restrictions are reasonable to protect the valid interest of the employer.  This really all comes down to what a court will find reasonable, and that heavily depends on your circumstances.

Also, be careful, some contracts contain a clause stating that if you leave the practice and a patient follows you to that practice, you will be subject to financial penalties for treating that patient.  In addition some contracts have liquidated damages provisions, stating that if you breach a provision, you are subject to pay a specified amount in damages.  Those are often found in restrictive covenant clauses, and I have seen them as high as $250,000.  I strongly caution new dentists against agreeing to these clauses.

For the owner doctor, they will often draft unreasonably broad restrictive covenants.  Some states, may void the entire non-compete if the court finds that it’s at all unreasonable.  Other states will reform the clause to make it reasonable.  For instance, if the court finds that 5 years is too long in duration, the court will change the contract to 2 years.  The only way to determine if a contract is reasonable and legally enforceable is to seek professional guidance, as I have stated before.  All of this discussion pertains to employees.  So, if you are an independent contractor, the owner doctor should not legally have the right to restrict you from practicing anywhere you choose when you terminate from the practice, but they may have a valid non-solicit in place, so be careful.

Conclusion

Evaluating a dental contract can be a daunting and nerve-wracking task for a new dentist due to the lack of experience in the legal field.  To put this in perspective, it would be like an attorney, performing a dental procedure when they graduate law school.  I could not imagine how that would turnout for the new attorney and that poor patient.  Yet, imagine that the patient in that situation is your career.  By not seeking legal advice you are putting your career in jeopardy, just as that new attorney would have done with the patient.  You want to make sure that you protect yourself and your career.  Because there are so many issues to be addressed, professional advice from an attorney versed in dental associate agreements is necessary to develop a thorough, reasonable and legally enforceable contract.

  

The author, Matt LaMaster, is the Founder and Principal Attorney of The LaMaster Law Firm, PLLC, a boutique style law firm committed to delivering legal services to dental professionals and their practices.  For the past five years, Matt has worked dental professionals and practices, helping them with the purchase and sale of practices, leasing, employment law matters, regulatory compliance, and other legal matters.

For more information about Matt LaMaster, The LaMaster Law Firm, PLLC, and dental specific legal services, visit www.lamasterlaw.com





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