A recent pattern we have seen emerging in practice sales / purchases is the number of principals engaging their associate dentists without having a written contract in place. Many performers have joined practices on the basis of verbal assurances provided by the practice owner(s) and the relationship is often born out of friendship or trust.
If an associate dentist is engaged without an effective agreement to regulate the relationship, there can be a number of issues that arise for the principal:
- Ownership of goodwill: Where an associate dentist has a contract in his / her own name, a principal will need to be careful if and when the practice is sold. The personal contract held by the associate dentist will attract its own goodwill and carry its own value – an issue is therefore likely to arise if the principal tries to sell the goodwill attaching to that contract.
- Employment status: For associate dentists, there are a number of advantages to being “employed” rather than “self-employed”. An employee is granted certain legal rights which do not apply to someone who is self-employed. Provided certain qualifying criteria are met, employees are entitled to redundancy pay and the right not to be unfairly dismissed. Employees also gain the protection of more general rights such as sick pay and holiday leave.
- For these reasons, a principal will want an associate to remain self-employed. In the event of a dispute arising, it is ultimately the decision of an Employment Tribunal to determine an individual’s employment status. Although the existence of an associate agreement will not be conclusive, it will at least have the effect of establishing the intent of the parties.
- Underperformance / defective work: An associate dentist may leave a practice in circumstances whereby he / she has underperformed on their target UDAs and / or carried out treatment on a patient which later requires remedy. If this is the case and no associate agreement exists, the principal would be left without effective recourse against the associate dentist potentially leaving a practice owner out of pocket.
- Exit strategy: Where there is uncertainty as to whether a formal contract has been entered into, this can be a cause for concern for potential buyers of the practice. If you are looking for an exit strategy, a buyer will want to ensure the terms upon which the practice has engaged an individual(s) are clear. As such, a buyer may require the associate dentist(s) to enter into contract before completion for its own personal security and often to meet a lender’s requirement. You may find that where a contract has not been drawn up, the associate dentist has a different view as to the terms agreed which could potentially cause disagreement.
- Restrictive covenants: In the absence of an agreement, an associate dentist will not be bound by any restrictions post-termination. This means that the associate will effectively be entitled to set up a similar practice within close proximity. If this were to occur, you run the risk of damaging the goodwill generated by your own practice. Restrictive covenants do however need to be reasonable both in duration and geographical scope. The extent to which a restriction will be considered reasonable depend on the individual circumstances.
A comprehensive associate agreement can serve to bridge the gap between principals and performers and ensure the parties are clear as to their rights / obligations. A well drafted agreement will cover a range of issues, including:
- Patient information / confidential data: The nature of a dental practice is such that associate dentists will have access to patient records / charts etc on a daily basis. An effective agreement will explicitly state that all information remains the property of the principal and that the associate dentist will only use such information in a manner that is consistent with performing his / her duties. During the course of an associate’s engagement, he / she may be exposed to certain know-how / secrets which are unique to the practice. By addressing which information is confidential in the agreement, an associate dentist is prevented from using such information for their own benefit.
- Professional indemnity: An agreement should specify that the associate dentist is under an obligation to effect their own professional indemnity cover and require him / her to provide evidence of a policy.
- Remuneration: There are a number of ways in which a dentist can be remunerated for services provided to the principal e.g. flat day rate or by reference to completed treatment. In either case, an associate agreement must set out whether the associate dentist is responsible for reimbursing the principal for laboratory fees and materials and if so, the percentage contribution.
- Equipment: Although not common, equipment can malfunction and prevent an associate from providing dental services to patients. The associate agreement should expressly set out the extent of the principal’s obligations to repair such equipment. Although it is both parties’ interests for equipment to be in working order, disputes can arise where there are delays repairs being made.
When engaging an associate, principals should take care in considering the potential issues that could arise if a formal associate agreement has not been entered into. The form of agreement required will also change depending on a range of circumstances e.g. whether the practice undertakes both NHS and private work.
Our specialist dental solicitors can draft bespoke associate agreements to suit the particular requirements of each individual practice and to reflect the specific terms agreed.
Are you operating a practice without associate agreements in plate? If so, please call us to speak with an expert advisor