Fairness in Employment Agreements in a Dental Practice

Answer: What you are describing is more common than it should be.  Your question is too broad for me to completely cover in the space allowed for this column.  Let me focus on the termination and covenant not to compete provisions.  There really should be nothing controversial about the following:

TERMINATION RIGHTS

Both the employer and the employee should have a without cause and with cause termination right.  The without cause termination right should be subject to a reasonable amount of notice (e.g. 30, 60 or 90 days) so that the employer has time to find a replacement and you have time to find a new job.  The notice should be required to be in writing.  The employment agreement should provide that if there is a termination without cause and the employer will not let you work during the notice period that you will still be paid for the notice period.  The opposite is also true.  If you refuse to work during the notice period, you should be held liable for the employer’s damages (the profit that would have been earned by the employer resulting from the services you should have performed during the notice period).

Each side should also have a with cause termination right effective immediately upon notice.  The “causes” for the employer exercising this right are usually your loss of licensure, your DEA registration, controlled substance license, conviction of certain offenses, failure to follow office policies and procedures, etc.  Your “cause” for exercising this right would be the employer breaching the employment agreement.  An example is your employer not paying you what you are owed on time.  If you do not have a with cause termination right, you would be stuck terminating without cause and having to give notice – meaning you would have to continue working despite your employer’s breach for the notice period.

COVENANT NOT TO COMPETE

The covenant not to compete should contain an exception applicable when the employer terminates you without cause soon after you sign the employment agreement.  For example, if you are employed less than a year when the employer terminates without cause the covenant not to compete should not apply.  This is because you have not been employed long enough to have established the type or volume of relationships with the employer’s patients to enable you to compete with the employer or otherwise be any threat to the employer’s legitimate business interests.  In this case, where the employer terminates without a cause, you should have the unrestricted ability to find new employment.

Predetermined fines for breaches of a covenant not to compete are not enforceable unless the amount reasonably approximates the employer’s actual damages (i.e. the profit the employer would have earned on services you perform in violation of the covenant not to compete, the patients that you are seeing in violation of an anti-solicitation agreement, etc.).  These amounts are rarely capable of being determined in advance.  For this reason, these type of penalty clauses are just scare tactics and should be avoided.

The article can be viewed in the Journal of the Michigan Dental Association, on page 20.

Daniel Schulte has more than 25 years of experience helping clients solve tough problems and capitalize on opportunities that require a blend of business and legal expertise. His practice includes a focus on addressing the legal, business, licensing, and regulatory challenges of health care professionals, organizations, and facilities. Through his experience as a Certified Public Accountant, his role as a former managing partner and current executive committee member of the firm, and as co-chair of the firm’s Health Care Practice Group, Dan understands how legal issues impact business objectives and, as a result, offers his clients practical, results-oriented advice.

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