When selling a practice, it is not uncommon that the purchaser will require that all employees of the vendor be terminated and that all termination pay and severance obligations be paid by the vendor. When the sale involves a retiring dentist’s practice, often there are employees who have been with the practice for many years. In the absence of written employment agreements, the retiring dentist may be facing substantial termination pay obligations to such employees. Therefore, if a proposed sale of the practice is being contemplated, the retiring dentist should consider whether written employment contracts should be introduced to existing employees (there are benefits and risks in doing this) and/or how much notice of termination will be required for all employees of the practice. Obtaining timely legal advice and guidance proactively can be helpful in developing a strategy on how best to deal with your employees when you are planning the sale of your dental practice.
Not only are purchasers concerned with the threat of a vendor taking back the goodwill being purchased after closing; they are also concerned with any existing Associates taking the goodwill as well. Prudent purchasers will want to see any existing associate agreements to see what restrictive covenants apply to the associate when the retiring dentist sells his or her practice. Therefore, if possible, it may be wise for the retiring dentist to ensure that appropriate written associate agreements are in place with all existing associates prior to negotiating with any prospective purchaser about any proposed sale of your practice (unless of course the prospective purchaser is your associate, in which case, the terms of the proposed sale transaction could already be included in the associate’s written agreement). However, this issue can be quite problematic so if you do not have any such written contracts or you are unsure about the appropriateness of any existing associate agreements, it is recommended that you obtain proper legal advice before negotiating same with your associate.
With the amendments to the Dental Hygiene Act in September, 2007, there appear to be more dental hygienists becoming interested in owning independent dental hygiene practices. Therefore, a prudent prospective dentist purchaser interested in buying your practice will likely want to know what assurances you, as the retiring dentist, can provide to such purchaser that after closing, the purchaser will not lose a portion of the goodwill they have purchased, to your dental hygienists who may leave your practice. Therefore, as a proactive measure, it may be appropriate that the retiring dentist have written contracts in place with all dental hygienists prior to selling his or her dental practice to a dentist purchaser. However, be aware that introducing written contracts to dental hygienists working in your practice who currently only have verbal contracts with you, can be problematic and could give rise to unenforceable contracts being created and / or allegations of wrongful dismissal. Therefore, retiring dentists are strongly encouraged to seek legal advice and guidance before having any discussions with, or taking any actions regarding, your dental hygienists in this regard.
It has been my recent experience that dental hygienists are expressing interest in “buying dental practices” directly. Since non-dentists cannot own a dental practice, such a transaction is not legally possible. However, with appropriate legal advice, it is possible for retiring dentists to enter into proper business relationships with dental hygienists which can achieve many of the goals retiring dentists are seeking. Therefore, if you are contemplating this type of transaction, be sure to contact lawyers knowledgeable and competent in this type of law for legal advice before taking any action.
The retiring dentist should expect that a bonafide purchaser will expect you to agree to non-competition and non-solicitation clauses both in the Sale Agreement and any associate or other agreement you will be entering into during the post-closing period. Be aware that generally speaking, reasonable restrictive covenant clauses will be found to be more enforceable when the transaction involves the sale of the dental practice on the principle that the retiring dentist cannot take back that which he or she has sold.
The retiring dentist should truly reflect on whether or not he or she really wishes to give up ownership of his or her dental practice. Problems often arise shortly after closing when the vendor suddenly realizes that he or she still wants to treat his or her former patients and then takes steps to solicit same to a new location where the vendor has started practising again. Such actions can give rise to a costly and stressful legal action being commenced against the retiring dentist by the purchaser where the retiring dentist has breached the restrictive covenant clauses.
If you are definitely ready to reduce your practise of dentistry upon the sale of your dental practice and comply with reasonable restrictive covenant clauses, be sure to inform your lawyer so that appropriate negotiation strategy can be determined on your behalf and appropriate terms included in the Sale Agreement and any related post-closing documents.
If you are intending to stop practising dentistry altogether after the completion of the Sale Agreement, you should contact your malpractice insurer (eg. Professional Liability Program in Ontario) to see what your status is in the event you are sued after you have “retired” by a patient you treated prior to retirement. Are you still covered? If not, consider what options are available to you and act accordingly to protect yourself from professional liability. Determine if you need any additional malpractice insurance to cover you against such claims while retired.
If you intend to provide dental consulting services or teach (eg. at continuing education courses or at a dental school etc.), be sure to seek advice from your malpractice insurer as to whether or not such consulting and/or teaching is covered by your malpractice policy. If you are not covered, you will need to consider obtaining liability insurance elsewhere to protect yourself. You should also determine whether or not your proposed activity still requires you to maintain a valid certificate of registration / licence to practice dentistry in your jurisdiction and act accordingly. DPM
Rollin M. Matsui is a fellow of the American College of Legal Medicine, American College of Dentists, International College of Dentists, Pierre Fauchard Academy, Academy of Dentistry International, a member and Past-President of Omicron Kappa Upsilon honour dental society and a former elected R.C.D.S.O. Councillor (1983-1986). He provides dental-legal lectures to third and fourth year dental students at the Faculty of Dentistry, University of Toronto as well as to dentists in numerous continuing education courses. He maintains a full-time law practice in Richmond Hill and a part-time dental practice in Toronto, Ontario. In his law practice, he primarily acts for dentists in patient disputes, dental insurance claim inquiries / audits, College complaints, College investigations and professional misconduct related matters and provides legal advice regarding business agreements involving dentists in various working relationships. E-mail: lawyer@drrollinmatsui.comWebsite: www.drrollinmatsui.com
