The Contracts Involved in the Transition of an Orthodontic Practice

Several different types of contracts are typically involved in a practice transition.  The specific number of contracts and the terms of those agreements will vary, depending on the nature and structure of the transition.  Some contracts typically utilized in a dental practice transition are as follows:

Asset Purchase Agreement/Stock Purchase Agreement

This document serves as the foundation of the transaction.  If the sale is structured as an asset purchase, an asset purchase agreement will be used, wherein the buyer purchases a portion or all of the practice owner’s tangible and intangible assets in the practice.  If the transaction is structured as a stock purchase, a stock purchase agreement will be used, wherein the buyer purchases a portion or all of the practice owner’s capital stock in the practice corporation.

Promissory Note

If the practice owner finances any portion of the purchase price for the buyer, a promissory note will be used to document the buyer’s repayment obligation.

Security Documents

These documents may take several forms, but each document provides the practice owner with security for the buyer’s promise to pay under the promissory note.  A security agreement is typically used in an asset purchase transaction, to allow the practice owner to obtain a security interest in the assets of the practice that have been purchased.  A stock pledge agreement is typically used in a stock purchase transaction, which grants the practice owner a first lien security interest on the shares of stock being acquired by the purchaser.

In addition to the security agreement or stock pledge agreement, the practice owner may require the buyer to assign a collateral interest in a life or disability insurance policy on the buyer to fund any remaining payments in the event of the buyer’s death or disability.  The practice owner may also require the buyer to assign his or her interest in any leased office space, so that the practice owner can resume possession of the premises if the buyer defaults on a loan payment.

Personal Guaranty

If the purchaser is a professional corporation, its stock owners typically would not be personally liable for corporate debts.  The personal guaranty is an agreement by which the stock-owner guarantees the company’s performance under the Promissory Note and makes his or her personal assets available to cover the debt in the event of a corporate default.

Assignment of Personal Goodwill and Covenant Not to Compete

In this contract, the practice owner conveys all of his or her personal goodwill to the buyer and agrees not to compete with the practice for an agreed upon period of time and an agreed upon distance from the practice.  This agreement is important for the security of the purchaser, as they do not want to lose their investment to future competition from the former practice owner.  Additionally, allocating a portion of the purchase price to goodwill provides both the buyer and practice owner with significant tax incentives.

Consulting Agreement or Deferred Compensation Agreement

In these contracts, a portion of the purchase price is allocated to a consulting fee arrangement or to a deferred compensation arrangement in favor of the practice owner.  This allows the buyer to expense the amounts paid to the practice owner at the time of payment.  It also allows the practice owner to spread his or her income over several tax years, as opposed to recognizing the entire purchase price as income in one year.           

Shareholders’ Agreement

If the buyer is buying only a portion of the seller’s existing practice, a shareholders’ agreement will set forth the parties’ rights, duties, and obligations with respect to one another, so that each party is protected if the other dies or withdraws from the practice during their joint ownership.

Employment Agreement

This Agreement sets forth the terms of employment, compensation, benefits and work schedules if the purchaser will enter the practice before the practice sale takes place, as well if there will be joint ownership, or if the practice owner will continue in the practice after its sale.

Bill of Sale

This contract is used in an asset purchase transaction to formally convey all of the practice owner’s assets to the buyer at the closing of the sale.

Managing Liability Exposure for Unpaid Overtime

Since the recent recession began, just before 2008, the dental employment market has changed dramatically.  Dental practices have been forced to maintain or increase production levels, while lowering costs.  Often, they have accomplished this task by decreasing the workforce while increasing the work load that each employee must bear.  To increase productivity, many dental practices have provided employees with computers, iphones, ipads, or other mobile devices that allow them to handle practice matters while away from the office.

While employees tolerated the increased work load and working hours for some time, they have begun to fight back in the court room.  Recently, many companies, and even some municipal governments, have faced lawsuits from current and former employees, alleging that they have been unpaid for overtime hours spent working from home on their employer-provided devices.  Several of these cases have resulted in settlements costing companies many millions of dollars.

While it may be tempting for practice owners small and large to increase production by relying on employees to respond to email and manage other tasks from home, practice owners that allow their employees to do so should be sure to have a plan for dealing with the time that those employees spend handling practice business.

Employee overtime pay is regulated by the federal government under the Fair Labor Standards Act of 1938 (the “FLSA”).  Under this Act, many employees are eligible for overtime pay.  While all workers paid on an hourly basis are eligible for overtime pay, some salaried employees qualify for overtime pay as well.  Distinguishing between those salaried employees who qualify for overtime pay and those who do not is a particularly challenging area for employers.

 In order to be exempted from qualification for overtime pay, a salaried employee must earn at least $455 per week, and, generally, the employee must be a key decision–maker.  Salaried employees such as office managers who manage, hire, and fire other employees; administrators who have decision-making authority; professionals with advanced degrees; and certain information technology workers, among others, are exempted from laws requiring the practice owner to provide overtime pay.  Because distinguishing between these groups of salaried employees is a tedious, fact-based assessment, dental practice owners should consult an attorney to ensure they are in compliance with federal and state law.

After determining which employees qualify for overtime pay, practice owners should determine the appropriate amount of pay.  Under the FLSA, overtime-eligible employees qualify for a pay rate of 150% of their regular pay for all time spent working in excess of forty hours per week.  These employees should be compensated for all actual time spent working in excess of forty hours per week.  This means that if the employee is deemed “on call” to respond to work-related matters, they likely qualify for overtime pay for the entire “on call” period.  However, if the employee is generally free to respond to work-related matters at will, they should only be compensated for the actual time spent working.

 Practice owners should remember that, under the FLSA, they are required to compensate employees for overtime if the practice “suffers or permits” the employee to work.  This means that if an employer requires or allows the employee to work, the employee’s time must be compensated.  Courts may find that a practice owner has implicitly required an employee to work by providing them with access to practice systems through a laptop, mobile device, or even computer programs linking their office computer and personally owned home computer (or cell phone, iphone, etc.).

In order to properly manage risk exposure, practice owners should implement one of several options for controlling employees’ work from home.  First, a practice owner may prohibit employees from working from home altogether.  This risk management method avoids the problem of unpaid overtime hours by eliminating the source. 

Another method for controlling the unpaid overtime risk, which has been implemented with some success, is reclassifying salaried employees who qualify for overtime pay as hourly employees.  Under this method, a practice owner may be able to attain the same overall rate of pay that the employees enjoyed while they received a salary.  However, the practice owner will need to pay those employees at an hourly rate that factors in expected weekly overtime utilized to complete assigned tasks.

This risk management method is convenient because of the maintained overhead-to-production ratio.  However, it may result in decreased employee morale, as many employees gain self-fulfillment from their attainment of a salary.  Some previously salaried employees may feel that the owner of the practice does not value their work as highly when they begin to receive an hourly wage.

 In any situation where an employee may work from home, the owner of the practice must have a system in place to accurately record the time that the employee spends on practice business.  A third method of risk management is implementation of computer software requiring the employee to clock in before accessing company computer systems or email.  This allows the practice owner to have accurate records when the practice owner is compensating the employee for overtime pay.  This overtime management system may, however, be cost prohibitive for small practice owners.

Finally, for practice owners who have a good and honest working relationship with their staff members, the most cost-effective manner of controlling over-time pay may be to rely on employee self-reporting.  Obviously, this poses the risk of employees over-reporting time worked from home; however, in a small practice environment, management staff should be in a position to adequately evaluate all reported overtime hours, and expected workload to ensure that employees are properly reporting hours worked.

By implementing a process for managing the hours that employees spend working away from the office, a practice owner can effectively manage his or her exposure to claims for unpaid employee overtime.

Minimizing Legal Risks of Employee Blogging

Although blogging has been around for some time, personal blogging has recently exploded. As of 2012, there are an estimated 31 million bloggers in the United States alone. Personal blogging does not require superior technological skills or payment for the instant worldwide publication of a blogger’s personal thoughts. These blogs pose a potential risk to dental offices.

Unfortunately, employees often write about the owner of a practice on personal blogs. Since many practice owners do not monitor or consent to the publication of content posted on their employees’ blogs, office policies should be established that clearly state not only blogging guidelines, but social media guidelines.

Dental practice owners have discovered that employees are posting confidential information on their personal blogs, such as details about their work day as well as patient information. Many employers have terminated employees because of a blog post or as a reaction to an employee’s blog.

The extensive use of blogs as a personal outlet for employees has lead to an increased risk of employer involvement in litigation. A practice owner may be sued by a disgruntled former employee after his or her employment is terminated due to the content of a personal blog, or even by a patient, if the employee posts confidential information about a patient that is protected under federal law.

As a matter of risk management, practice owners must have a clearly defined and specific Internet usage, blogging and social media policy in place. A practice owner must ensure that their policy clearly states what statements may and may not be made about their patients, their work, their colleagues and their employer. In addition, the Internet, blogging, and social media policy should mandate that employees comply with all HIPAA regulations regarding the confidentiality of patient information.

By implementing an Internet usage, blogging and social media policy, practice owners may be able to limit their liability exposure and ensure compliance with federal law.

Employee Embezzlement – Employers Beware

            Statistically, approximately 40%-50% of all veterinary practices will be hit by employee embezzlement. Many incidents of embezzlement are committed by employees that work in finance and accounting positions within the practice. 

            The most common methods of employee embezzlement include  pocketing cash from patients, stealing petty cash, removing cash or checks from the daily deposits, forging endorsements, writing checks to phony vendors, writing duplicate accounts payable checks, stealing prescription medications, and returning supplies to vendors for a refund.  

Practice owners should be on the lookout for stale items in reconciliations, as deposits or checks not included in reconciliations are an indicator of employee theft.  Another red flag regarding employee embezzlement is the excessive voiding of checks. Excessive credit memos are often used by employees to cover up embezzlement. 

            It is also prudent for a practice owner to ensure that their general ledger is balanced.  Employees cover up embezzlement with excessive purchases, whereby fake payees and vendors are often used to convert funds into an employee’s personal account. In addition, a common method for employee embezzlement is altered time sheets.  Employees may falsely indicate that overtime hours were worked by altering the time sheets.

            In order to avoid employee embezzlement, practice owners should implement the following ten (10) tips:

  1. Have bank and credit card statements delivered to the practice owner’s home for personal review.
  2. Review checks and debit transactions with the statements.
  3. Either personally review business checks or require two signatures for all checks. 
  4. Run an audit trail at the end of every week.
  5. Run periodic reports for account receivable and check the report against bank deposits. 
  6. Make all deposits personally.
  7. Review the daily reports. 
  8. Ensure that a copy of the bank reconciliation is attached to each monthly bank statement and require that it be reviewed by two parties.
  9. Do not allow finance or accounting personnel to be signers on all bank accounts.
  10. Ensure that checks received in the mail are immediately endorsed by a two-person team responsible for opening and processing the mail.

            By implementing these ten (10) tips, a practice owner can effectively manage his or her exposure to the increasingly common (and costly) occurrence of employee embezzlement.

The Importance of Privacy

Privacy is something we all value.  It should not come as a surprise to anyone that dental patients want to ensure more than ever that their personal information will not be shared with anyone without a legitimate need to know.  Under the U.S. Department of Health and Human Services (HHS.gov), HIPAA Rules were created to ensure that all healthcare professionals respect and protect a patient’s privacy.   HIPAA gives patients significant rights in controlling how medical professionals maintain and communicate individual health information.  How well does your office comply with HIPAA guidelines?  Since HIPAA compliance is not optional, every dental office should take the necessary steps to ensure they are HIPAA compliant.  

About HIPAA

The Health Insurance Portability and Accountability Act (HIPAA) became law in 1996.  HIPAA provides federal protections for patients’ health care information. The HIPAA privacy rule does permit the disclosure of personal health information needed for patient care and other important purposes related to patient care.  The Security Rule under HIPAA specifies a series of administrative, physical, technical, and security measures required for covered entities (dental offices that transmit patient information in electronic form) to use in order to assure the confidentiality, integrity, and availability of electronic protected health information. 

 A main objective of the HIPAA legislation is to protect the privacy of individual health information by imposing strict security requirements on healthcare providers with access to confidential patient information. As a part of HIPAA, Congress mandated the establishment of standards for the privacy of individually identifiable patient health information.  The Privacy Rule requires that dentists [and other medical practitioners] obtain patient consent before using or disclosing a patient’s personal healthcare information which may be needed for treatment, payment, and other healthcare related purposes. 

Private Health Information, also known as PHI, is any information relating to a patient’s health, treatment, or payment for healthcare that identifies a patient.  Private health information includes, but is not limited to: names, addresses, phone numbers, fax numbers, e-mail addresses, credit card information, certificate numbers, license numbers, account numbers and birth dates. Many dental employees, including dental assistants, dental hygienists, lab technicians and front office staff, may come into direct contact with a patient’s PHI.  PHI should be carefully secured and traced throughout the dental office to ensure patient confidentiality. 

HIPPA does not require that dentists sound-proof rooms to ensure that confidential conversations are not overheard; however, dentists should make every reasonable effort to ensure that confidential conversations take place in areas away from other patients.  Also, computers, printers, faxes and file cabinets or other containers were patient records are stored should be placed in secured areas without patient access. 

Although compliance ismandatory only for “covered entities”, the American Dental Association suggests that dentists who are not covered entities adopt the same privacy practices that HIPAA mandates for “covered entities”.  It is still possible that HIPAA privacy laws may establish an industry standard among dental practices and the failure to comply with the industry standard may result in liability for the owner of a dental practice.

Understanding the value of PHI and its relationship with HIPAA, the owner of a dental practice should be able to answer some very important questions such as: how is PHI stored in our office, who is authorized to access the information, how is the information stored and how is  patient information secured, how and when is this patient information destroyed, where in the office is it appropriate to discuss personal health information, and have we implemented proper training procedures?  Answers to these questions cannot be left to interpretation. 

The owner of a dental practice must adopt and implement comprehensive privacy procedures for their office in order to ensure that patient records are kept in a secure space.  In addition, employees in a dental office must comply with HIPAA policies and procedures which have been established.  Most of the information obtained regarding patients does require the implementation of security measures.  If employees are not aware of HIPAA standards as established by the owner of a dental practice, a violation of HIPAA may be costly! 

Patient Rights

The HIPAA Privacy Rule gives patients considerable rights in controlling their identifiable healthcare information.  Covered entities must provide a Notice of Privacy Practices to each patient which details how the practice can use and disclose confidential patient healthcare information.  Under HIPAA, a healthcare provider must obtain a patient’s authorization before releasing protected patient information.  However, a health care provider may release patient information for specified health care related purposes, such as for remitting payment or for patient related treatment.   

As for patient records, patients are permitted access to their own records.  In addition, patients may also request restrictions on the disclosure of their personal healthcare information.  Patients may also request an amendment to any information in their medical file that they believe is erroneous. The Privacy Rule also prohibits employers from using a patient’s personal healthcare information as a factor in making employment decisions. 

HIPAA Violations

Failure to comply with HIPAA can result in both civil and criminal penalties, and the penalties can be stiff.  These penalties vary based on the nature of the violation and the extent of the resulting harm.  Healthcare entities and individuals who obtain or disclose individually identifiable health information face a penalty ranging from $100.00 to $50,000.00 per violation, as well as imprisonment for up to one year.  However, offenses committed with the intent to use the information for personal gain, harm, or commercial advantage face fines up to $250,000.00 and imprisonment for up to ten (10) years.  Because there is no private right of action for a patient to enforce his or her privacy rights, enforcement of the civil penalties will be processed through the Department of Health and Human Services Office of Civil Rights, and the criminal penalties will be enforced through the government. 

It is important to note that the owner of a dental practice may be held liable for HIPAA violations. Employees who knowingly violate a HIPAA rule may also be subject to civil or criminal penalties as well (including dental hygienists, dental assistants, etc.)  As a result, in order to avoid potential civil and criminal penalties, all members of a dental practice should be aware of HIPAA guidelines and procedures.

The Privacy Rule does allow dentists to use patient sign-in sheets in their offices.  However, requiring a patient to indicate the purpose of their appointment is a violation of HIPPA and should be avoided.  Reminder cards sent to a patient’s home with appointment dates on them are not considered a HIPAA violation, because of the preventative nature of dental care.  However, if the cards mention the purpose of the appointment (i.e., “This is a reminder of your appointment for a dental implants”), it will be considered as violation of the HIPAA Privacy Rule.  In addition, schedules of patient appointments should not be placed in an area in the office that is visible to other patients.  Finally, patient appointment calendars should “never” be placed on the internet [yes, this has happened]. 

Conclusion

The owner of a dental practice must determine whether their office is HIPAA compliant.  A failure to properly implement HIPAA security and patient privacy rules could result in potentially big civil and criminal penalties.  The employees of a dental practice must be trained on both HIPAA regulations and security measures.  A patient’s individually identifiable healthcare information is confidential and should be treated accordingly.

Tax Tips for Special Needs Families

April 15th is not that far away, and that means tax time. Some people with special needs may be required to file an income tax return based upon their earned and unearned income. In addition, beneficiaries and trustees of a special needs trust may also be required to file an income tax return. If you or a loved one are required to file an income tax return, there are several tax tips listed below that hopefully will save you time and money.

Not All Income Is Taxable       
Supplemental Security Income (SSI) benefits may not be considered taxable income. If a beneficiary only receives Social Security Disability Insurance (SSDI) payments, and no other income from any other source, then SSDI benefits may not be considered taxable income. In addition, funds paid through a qualified dependent care assistance program also may not be considered as taxable income. However, there may be restrictions.

Special Deductions for People with Disabilities Are Available          
In some cases, individuals who have visual impairment may qualify for a higher standard tax deduction than the average taxpayer, depending on their level of impairment. Also, individuals with disabilities who itemize their deductions on their income tax return may be able to take advantage of deductions for medical expenses, special telephones, wheelchairs, motorized scooters, the cost of schools that provide special education services, and premiums for long-term care insurance. People with disabilities who require special goods or services in order to work may also be entitled to deduct certain expenses, such as business expenses.

Tax Credits Can Help People with Disabilities and Their Relatives   
There are several types of tax credits that apply to people with special needs. If you care for a child or a dependent person with disabilities, you may qualify for a child or dependent care tax credit for up to thirty-five (35%) percent of your expenses related to their care. Also, parents of a child with disabilities may also be able to claim an Earned Income Tax Credit, depending on the family’s income.

Special Needs Trusts Have Special Rules
The trustee of a special needs trust may find it difficult and challenging to file an income tax return for the trust. As a very general rule, income generated by a first-party special needs trust is typically considered to be taxable income attributable to the trust beneficiary [regardless of whether the income is actually distributed from the trust].

However, a third-party special needs trust established by a friend or relative for a person with special needs may generate taxable income for the grantor of the trust, the beneficiary of the trust, the trust itself, or all three at once, depending on the circumstances. In some cases, trustees may be required to file income tax returns for the special needs trust itself.

Hopefully, these few tax tips have been beneficial. As with most tax matters involving the area of special needs, please make sure you consult with a qualified certified public accountant or CPA who is familiar with the areas of special needs.

According to a recent survey, many parents with special needs children have not secured their child’s financial future. Statistically, 66% of parents do not expect their child with special needs to be financially independent, and 68% of parents with special needs children do not have a will.  Estate planning is essential for parents with special needs children. Outlined below are five simple steps that will help you plan for your child’s future:

  1. Children with special needs should not be a “direct beneficiary” of a will or trust [they may be disqualified from receiving federal and state aid].
  2. A special needs trust should be established in order to make sure that certain designated money or property will be used for your child’s best interest.  
  3. In many cases, a legal guardian should be appointed for any special needs child that turns 18 years old. Once a child turns 18 years old, they are considered an adult.
  4. A special needs trust should be established in order to protect your child’s eligibility for state and federal aid. 
  5. With proper planning, a life insurance policy can ensure your child will be financially secure. A gift of money or property to a child with special needs should go directly to that child’s special needs trust. If a child with special needs is the direct beneficiary of any type of money or property, they may become ineligible for state or federal benefits.

With proper estate planning, you can secure your child’s future. For more information on special needs trusts, please contact us.

Should you choose a friend to be your business partner?

Planning to start a business partnership with a friend? Prudence demands looking at the pitfalls – as well as the potential strengths – of such relationships. Here are a few questions to consider.

  • What will my friend contribute to the business? Does he or she have strengths that will clearly enhance the business – abilities, knowledge, or resources that you don’t possess or aren’t willing to acquire by other means? Say, for example, you are good with customer relations, but not too good with numbers. If your friend loves details and is clever with records, the partnership may make sense. If, on the other hand, your friend really can not offer something that would round out the business or make it more profitable, you might want to consider partnering with someone else.
  • Are you willing to lose the friendship? This is a tough question, but one that’s critical to consider. After all, you and your friend will be working together, day in and day out, to make the business succeed. Such relationships can bring out the best – and worst – in people. If maintaining your friendship is one of your highest priorities, partnering with someone else may be a better choice.
  • What’s expected from each partner? Developing a profitable business is hard and often unrewarding work. You and any potential business partner should honestly discuss expected work hours, contributions, and responsibilities. Resentment can creep into any business relationship when partners feel that workloads and rewards aren’t fairly distributed.
  • Can you communicate effectively? Like a good marriage, a long-term business partnership takes honest communication to succeed. Ask yourself, for example, whether you can handle constructive criticism from your friend/business partner. Even the closest business partners don’t always see eye to eye, so it’s important to take an honest look at how you both handle disagreements. Will you work through difficulties for the firm’s sake, or bury your head in the sand and hope for the best? Answering this question is crucial to the success of your partnership.

Record Keeping for the Veterinary Practice

All veterinary practices must comply with record-keeping requirements related to the practice of veterinary medicine. In order to do so, veterinarians must be up-to-date on the various record-keeping laws imposed upon them.

American Veterinary Medical Association (AVMA) Rules

The AVMA’s Principles of Veterinary Medical Ethics requires veterinarians to keep medical records if a veterinary-patient relationship (VCPR) exists. The AVMA recommends that veterinarians maintain patient records for a minimum of two (2) years. In Georgia, a veterinarian is required to keep patient records for at least three (3) years.

Information that is required to be kept includes the name, address, and telephone number of the veterinarian and patient, and identification of the animal treated. A veterinarian is also required to keep very good records of any drugs that may be used or prescribed for treatment.

Federal Record-Keeping Laws

There are specific Drug Enforcement Administration record-keeping requirements for controlled substances. Veterinarians, when distributing a controlled substance, must keep a record of the substance name, dosage form, quantity and number of commercial containers distributed or received, date, name, address, and DEA registration number of distributing practitioner and receiving practitioner.

These records must be maintained separately and be readily accessible for a minimum of two (2) years. A veterinarian may be subject to civil or criminal sanctions for failure to maintain and produce these records.

Georgia State Board of Veterinary Medicine Requirements                     

700-12-.04 Record Keeping – Complete, accurate, and legible records must be maintained on all animals. This information must include, but is not limited to, animal owner information, animal identification, and veterinary care. Under the Board’s rules, when a veterinarian dispenses a drug, a written record must be kept. The veterinarian must produce for a patient a copy of these records, if requested. 

700-8.01 Unprofessional Conduct – A veterinarian is required to prepare and maintain a record of the care and treatment of all animals treated in the practice. These records should contain clinical information sufficient to justify the diagnosis given and to warrant the treatment given to the animal.

These records must be kept in a readily retrievable form, and recorded contemporaneously, following treatment of the animal. Copies must be made available to the animal’s owner upon their written request. A reasonable fee may be charged for the search, retrieval, duplication and mailing of the records. Failure to keep records constitutes unprofessional conduct.

Sanctions by the Georgia Board for failure to provide records

If The State Board of Veterinary Medicine office receives a complaint against a veterinarian for failure to release records, the Board will send a letter to the veterinarian to release the records to the patient within 10 days of the Veterinarian’s receipt of the Board’s letter. The veterinarian must submit proof that the records have been mailed to the patient.

If the Board does not receive proof that the records have been mailed or a response from the veterinarian within 15 days from the date the request was mailed from the Board, the veterinarian may have his or her license sanctioned by the Board with a public reprimand, which becomes a permanent part of the veterinarian’s record and possibly pay a fine of $500.00.

Record-Keeping Checklist

– Make records contemporaneous with observations and treatment

– Note client decisions to not follow recommendations

– Treatments and diagnostics offered, and reasons for each

– Phone conversations regarding treatment

– Entries made in periods of absence or vacation

– Informed consent in writing to procedures, with a witness

– Instructions about drugs for food-producing animals with withdrawal periods

Conclusion

In order to minimize legal risk associated with practicing veterinary medicine, veterinarians should keep required documentation in proper order. Keeping well-kept records will reduce the risk of errors or omissions in records, miscommunication with patients, noncompliance, and any possible claim of negligence or malpractice on the part of the veterinarian. Well-kept records can be accomplished with a reliable entry system and a well-trained veterinary staff.

Protecting the Value of Your Practice: Non-Compete and Trade Secret Agreements

Veterinarians are often concerned about how to best protect their patient base when an associate veterinarian leaves the practice.  Owners of a veterinary practice want to ensure that an associate can not take the practices’ patient base [or employees] with them when they leave.  To prevent this devastation, each associate should be required to sign an employment agreement, which contains certain restrictive covenants.

Non-Compete Agreements

The owner of a veterinary practice may be familiar with various terms that are used in the protection of important practice assets, such as: non-compete agreement, non-compete clause, covenant not to compete, and restrictive covenant. These are all different terms used to essentially describe a non-compete agreement.  A non-compete provision is typically a paragraph inserted into an employment agreement.   However, a non-compete agreement may be a separate document which may be signed by the employee.  These agreements are usually signed when an employee begins his or her job.  A non-compete agreement allows the owner of a practice to limit a former employee or associate from starting his or her own business that competes with the former employer or from working for a competitor. 

A non-compete agreement must be reasonable in that it protects legitimate interests of the veterinary practice.  The veterinarian’s interest in protecting the time they put into training a new employee must be balanced by the employee’s freedom to work where they choose and the public’s interest in seeing a particular veterinarian.

A non-compete agreement must meet certain requirements before a court will uphold its validity. First, the court will look to the scope of a restriction, or the type of activity that is restricted.  If a veterinary practice only treats small animals, then in some cases, the non-compete may only prohibit the practice of small animal medicine for a specified period of time, leaving the former employee free to practice large animal medicine. 

The second requirement for an enforceable non-compete agreement is that it have a specific time limit.  The shorter the period of time, the more likely it will be enforced.  Typically, an agreement of two years or shorter will be considered valid.  Again, the interests of the parties must be balanced, allowing an employee freedom to continue to work and protecting the public’s interest in selecting a veterinarian. 

The third requirement for a valid non-compete agreement is that it contain a reasonable geographic limit.  When determining the geographic restraint, the employer should consider the number of clients that come from a five mile radius, ten mile radius, twenty mile radius, or other geographical area.  If a former employee moves to a veterinary practice within a ten mile radius of their previous employer, for example, and a non-compete agreement was in place prohibiting competition within a ten mile radius, the court would likely uphold the agreement as valid and issue an injunction against the former employee.  However, if the former practice purports to restrict the employee from practicing anywhere within a fifty mile radius, this non-compete would likely not be enforceable, as it is not reasonable. 

Should a court find that a requirement for a non-compete agreement is not met, the court may utilize the “blue pencil rule”.  This rule allows a judge to modify a contract that may be too burdensome on one party, and then enforce the remainder of the contract to make the agreement more reasonable. 

Non-compete agreements may be used not only when an employer/employee relationship exists, but also when a veterinarian practice is sold. If a veterinarian purchases a veterinary practice, the purchase price typically includes the “goodwill” and client patient base, of the practice.  However, without a prudent non-compete agreement, the selling veterinarian may open another veterinary practice across the street, which would be detrimental to the purchaser of a practice.  A non-compete agreement would prevent the seller from competing with the buyer in a specified geographic area for a limited period of time, which would allow the purchaser to establish his or her new practice.  

Additionally, when hiring a new employee, the owner of the practice should always ensure that the new employee is not subject to a non-compete agreement with his or her previous employer.  In some cases, a new employer may be held liable for hiring an employee who violates a non-compete agreement with a former employer. 

In order to maintain the financial stability of the practice, the owner of a veterinary practice should have an associate veterinarian sign an employee agreement which contains a non-compete and non-solicitation clause. In addition, all associates should be required to sign an employment agreement when they start their employment.  Without an employment agreement in place, the owner of a veterinary practice is exposed to unwanted risk and potential financial instability.  

Social Media and the Dental Practice

The online world is growing. Facebook now boasts a “population” larger than the United States. Thousands of dentists are currently taking advantage of social media (e.g. Facebook, Twitter, Youtube, LinkedIn, &c.) and smartphones. It is important to take a brief look at some important issues and areas of concern for dental professionals using or considering the use of social media to build and promote their public, patient, and employee relationships.

Public Relations

The advantages of a strong social media presence are clear. Information may be shared with colleagues to sustain camaraderie, with patients to strengthen dentist-patient relationships, and with the public to bolster your reputation. However, what may seem to be a cheap promotional tool can quickly become a costly defamatory weapon.  Having a strong social media presence is better than social media absence. However, as with any tool, it is best to educate yourself about the tool’s capabilities and drawbacks before its use. It is vitally important to consult with your legal advisers early and often when bringing your professional presence to an online forum.

Patient Relations

It is becoming more common that social media and smartphone user data is tagged with an increasing amount of detail, including the author, date, time, and even location of all uploaded Information. If the content of the information is also medical in nature, depending on the forum,the Health Information Portability and Accounting Act (HIPAA) may be implicated. Members of the dental profession should adhere to the following guidelines:

(a)  Dentists should be cognizant of standards of patient privacy and confidentiality that must be maintained in all environments, including online, and must refrain from posting identifiable patient information online.

(b) When using the Internet for social networking, dentists should use privacy settings to safeguard personal information and content. Dentists should routinely monitor their own Internet presence to ensure that the personal and professional information on their own sites and content posted about them by others, is accurate and appropriate.

(c) If dentists interact with patients on the Internet, dentists must maintain appropriate boundaries of the patient-dentist relationship.

(d) To maintain appropriate professional boundaries dentists should consider separating personal and professional content online.

(e) When dentists see content posted by colleagues that appear unprofessional they have a responsibility to bring that content to the attention of the individual, so that he or she can remove it and/or take other appropriate actions.

(f) Dentists must recognize that actions online and content posted may negatively affect their reputations, may have consequences for their professional careers (particularly for dentists-in-training and dental students), and can undermine public trust in the dental profession.

When dental professionals provide a social media forum for patient feedback, they risk running afoul of HIPAA rules and regulations. Prior to building a social media presence, it is important to develop policies and procedures designed to guide appropriate use of the relevant forum. A few key points follow:

(1) Clearly define what permissions are voluntarily given or granted to the site administrator when a patient posts in the forum and explain how the posted information will be used (prior written consent is always best); (2) Specify what degree of privacy can be expected in the forum (most Internet forums are publicly available and publicly accessible); (3) Make it abundantly clear that any social media forum is not to be used for personal medical advice; (4) State that the social media forum is not monitored continuously or on a twenty-four hours a day, seven days a week basis; and (5) Post consistent policies in a prominent location on all social media sites, tailored to the relevant forum.

Above all, be clear with a disclaimer that patient information is personal and should never be shared via the Internet. Inform participants that any posting that appears to be a violation of this policy will be removed. Do not edit posts. If the content of a post is questionable, it should be deleted. Do not become the co-author of a potential HIPAA violation. Always take medical conversations offline.

Employee Relations

It is equally important to keep your employees from becoming lax about privacy rules when it comes to social media. Education is always the first line of defense when it comes to privacy and security safeguards. Make sure all employees are trained and up to date about the privacy and security rules and be sure to disseminate a written company policy outlining permissible and impermissible actions. Make social media training a part of your HIPAA compliance program.Social media is a powerful tool for expanding a dental practice, but be aware of the potential complications. Always consult your legal adviser before branching out into online forums.

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