When Dream Team Employees Reach Pay Caps: Three Strategies to Use

Originally Published in Today’s Veterinary Business, March 2018

At your practice, let’s say you have the veterinary nurse of your dreams. Not only is she wonderful with the animals brought to the practice, she is compassionate with their owners. She communicates clearly with your clients; is highly experienced in necessary skills; is always on time; is willing to do her share and more; and avoids gossip, among numerous other positive traits. She is, without a doubt, a star-level veterinary nurse, one you’re extremely lucky to have on your team.

The problem? She is already receiving the maximum pay allowable in her range, according to your practice standards – and a nearby corporate practice is known for wooing away top talent. A cost of living increase is due soon, but that’s not going to make a significant difference in her pay. You may not have this exact same situation at your practice, but practices often face challenges that are very similar. If your practice is, what can you do?

Here are three possibilities, ones you can mix and match for your unique practice needs.

Strategy One: Double-check the Current Market

When is the last time you checked to see the going pay rate for, in this example, veterinary nurses? If it’s a been a while, it’s likely you’ll need to review the pay ranges you’re offering. As a starting point, review this chart of hourly pay amounts being offered in small animal companion practices, according to current key indicators. This is not an all-inclusive list. Rather, it’s step one to help you determine if your practice is on target with pay ranges or if you’ll need to consider some revisions.

Job Title Starting Hourly Compensation: Median Starting Hourly Compensation: 75th Percentile
Hospital Administrator $29.65 $35.10
Practice Manager $21.65 $22.80
Receptionist $12.00 $13.00
Credentialed Technician $15.00 $16.00
Veterinary Assistant $11.50 $12.50

 

How closely does your pay structure align with these figures? Where you live in the United States will likely affect the local rates paid, but this chart is a start. Is it possible to extend the upper range of your compensation rates to keep dream employees at your practice? Because the economy has remained strong for a while, the reality is that you may continue to lose your top talent if you can’t find ways to compensate them appropriately, and this unfortunate fact will continue to be true until the job market tightens. And, let’s face it. Your best employees will likely continue to find higher-paying opportunities, no matter the economic situation.

If you can’t offer a higher pay rate to a star employee, how you explain salary caps is crucial in your attempts to keep that employee at your practice, so be prepared to sit down and have an honest talk about your practice policies and budgets.

Also, be creative. Can you offer a one-time bonus to fill the gaps as you consider strategies two and three provided in this article? Can you formulate incentive pay structures for your team? This will help your star employees to add to their paychecks, and other employees may also become motivated by these incentives. Win/win!

Strategy Two: Career Opportunities

If you can’t offer more money for the person’s current job, consider what promotion opportunities exist for this employee within your practice and then talk to him or her about the possibilities. How does your star feel about the responsibilities involved in a new position? If the promotion will require more education and/or training, can you help to provide that – or at least do all you can provide a conducive work environment for this transition to happen?

Here, though, is an important caution. Let’s say a supervisory position is open at your practice and it would allow you to pay a star employee more than he or she is currently making. It’s easy to become enthusiastic about the idea of promoting this employee, but it’s also crucial to take your time throughout the promotion process for multiple reasons, including these two:

  1. You need to follow your practice’s standard policies and procedures each and every time you hire or promote.
  2. This new promotion may or may not fit your employee’s strengths. If it doesn’t, then not only have you promoted the wrong person, you’ve also taken a star team member out of the position where he or she was shining.

Whether you can or can’t employ strategies one and/or two in your practice, all practices should consider strategy number three.

Strategy Three: Creative Perks

What perks can you offer your employees? One of the most in-demand perks today is more flexible scheduling. And, while you may not be able to offer telecommuting to most of your employees, it may make all the difference in the world to your star employee if you re-arrange schedules so that he or she will have the flexibility to come in to work 30 minutes later in the morning – which allows him or her to see his or her children safely off to school. And/or, you can help to ensure that this employee can always take a lunch break when it’s time to pick up his or her children. In the relatively rare instances when telecommuting can work with a veterinary practice employee, this will likely be a treasured perk.

Caution: make sure you offer perks to all employees in a fair way. Although you do not need to offer the exact same perks to every employee, it’s crucial that you ensure you aren’t discriminating based on race or gender, as just one example. And, even if you aren’t providing perks in a discriminatory way, to keep office morale at a quality level, you also need to make sure you aren’t acting in a way that can reasonably be perceived as unfair. If you are unsure about what is legal, consult your attorney. If you’re unsure about what may cause other employees to lose heart, prioritize coming up with creative perks in the best way for your entire practice, including but not limited to your best employees.

What professional development perks can you offer? How can you help employees who take you up on bettering themselves and improving their skills to juggle all their demands? How can you relax dress codes to a degree that allows your employees flexibility while still keeping a professional look to your practice? In which instances can you allow employees to help choose the technology they will use at work?

When you ask your employees what perks are most important to them, how do they respond?

More about the Pay Plateau

Rather than waiting until a situation arises in which a top performer reaches his or her pay plateau, create a policy on how the situation will be handled and know what conversations you’ll need to have with that employee. How much information will you share about practice financials to help him or her understand why pay plateaus exist where they do?

Know ahead of time what options you can offer that employee (more flexible scheduling, incentive pay and the like), and be aware of those you should avoid. As in virtually every challenge, well thought-out policies and preparation are key.

Click Here for Link to the article Today’s Veterinary Business: https://todaysveterinarybusiness.com/put-on-your-thinking-cap/

Laboratory Service Contracts: The Devil’s in the Details

After all the blood, sweat and tears that have gone into owning your practice, you’re finally ready to sell. You have a prospective buyer who wants to assume ownership and, after many months of negotiating, you’ve settled upon the terms of your agreement. Then comes the fateful day when your attorney asks, “Is your laboratory contract squared away and ready to be assigned to the new owner?”

You examine your contract with your reference lab and discover that you still owe monthly payments for years into the future. You find some wiggle room in the assignment clause, but your practice’s new owner tells you she has contracted with her preferred lab – and it’s not the same as yours.

Upon taking a closer look at your laboratory service contract, you’re appalled to find that any attempt to terminate the agreement early would result in the entire balance being due. To make matters worse, the equipment you were led to believe was provided to you by the company turns out to be provided, sure, but via a loan. As you continue to read your contract, your retirement dream keeps crashing around you.

The scenario described above admittedly presents a gloomy view of an owner coming to terms with his or her laboratory service contract, one that isn’t necessarily typical. Having said that, though, it is common for these agreements to contain terms and conditions within densely worded paragraphs that can leave a practice owner at a disadvantage when it’s time to terminate the contract. That’s why, like with any contract, you should safeguard yourself against any surprises by taking the time to read all clauses and know exactly what is expected of you and of the contract holder.

For veterinary practice owners, there are multiple options and agreements offered by reference labs that will allow you to outsource your diagnostic lab work to their facilities. Here are typical arrangements.

  • At a bare minimum, you can work with a reference laboratory on a “pay-as-you-go” type of relationship, picking and choosing which laboratory to send your samples to on an individual basis. The downside to this style is that labs won’t offer financial incentives to a practice owner who doesn’t enter a contract.
  • The next level up would be a basic contract with a specified reference lab that gives you a discount on fees or a better rate schedule. Because the practice is charged lower fees, you can theoretically offer clients a better rate on lab work, which will likely convince more of them to agree to have lab work run.
  • The most prevalent type of contract involves signing a multi-year deal with the lab of your choice, with the main incentive offered being a large-sum loan or special in-house lab equipment lease provided to the practice.

As long as you know what’s expected of you from these loans, discounts and equipment financing plans, the rewards of adding them to your practice can be very beneficial. In fact, according to a 2016 article found on the dvm360 website1, there are multiple reasons why it makes sense to sign a laboratory contract. The reasons mentioned most frequently by practice management professionals is the development of a strong relationship with the vendor/laboratory, better customer service and quick response to problems, and easier equipment replacement and upgrades. This data was taken from a survey conducted by the VHMA2 that categorized respondents by how many years were on their current reference laboratory contract. The survey showed that, out of the 64% of professionals whose practice had an exclusive contract with a reference lab:

  • 3% were on a one-year contract
  • 12% had a 2- to 3-year contract
  • 40% had a 4- to 5-year contract
  • 11% had 5+ years on their contract
  • 34% had no minimum length required

Because the data shows how most of these agreements (51 percent) had four or more years remaining in their terms, it becomes obvious why practice owners need to take these types of contracts into consideration several years before retiring.

With any list of pros, there usually comes a list of cons and, when it comes to entering into a laboratory service contract, cons mentioned in the 2016 survey included:

  • inability to take advantage of competitive pricing
  • subpar customer service experiences
  • confusing language of the contract.

As with many legal documents, these contracts typically contain an elevated level of vocabulary, which helps to explains why many owners look for the main points included and then sign their names. Tempting as this is, it can be dangerous to rush the process and not be aware of exactly what you’re signing.

So, what’s the bottom line? Are these contacts good to sign – or bad? The answer depends upon how long you plan to own or manage your practice. First-time practice owners may very well negotiate an acceptable rate schedule in a clear arrangement that will allow them to build a foundation for their practice. The diagnostic equipment that is provided as part of the contract can be a great asset to the practice once the loan is paid off.

Practice owners looking to sell sooner rather than later, though, will have some tough decisions to make. How will the procedure work when it’s time to assign the contract to a new owner of the practice? Are the economic terms listed acceptable? Can you decline to auto-renew your participation in the program if it’s within the appropriate time frame? Auto-renewal clauses on this kind of contract have been known to range from 60 days all the way up to one year prior to the end of the current term.

Incentives provided by the reference lab can be very beneficial to your practice, but you need to realize that all incentives will very likely cost you in some manner. Laboratory representatives might offer incentives as a show of good faith or appreciation for your business, but these incentives are likely to be a hook to persuade you to agree to other, less enticing terms of the contract. Any large sum of money provided or discount offered may be presented as a signing bonus, for example, but may more closely resemble a loan.

And, unless explicitly stated otherwise, discounts and other price alterations can disappear at any time. Even more troublesome, many of these loans or financing schedules are not commonly assignable even when you have requested written consent from the company. In other words, the lab contract you assign to your successor will not necessarily take the loan payments off your hands and, in some cases, assigning the contract may accelerate payments to make the full balance immediately due.

Pay close attention to monthly purchase requirements of laboratory goods and services, which may take various forms across the scope of these arrangements. The standard example would be a clause within the contract that requires your practice to order a specified threshold of payments to the laboratory for diagnostics ordered monthly. The amount required might fluctuate depending upon the size and productivity of your practice, but it is very important to make sure that your gross production will, in fact, allow for that much payment to the company. Some companies will allow for as much as 10% of your diagnostics to be submitted to other laboratories without a breach of contract, as well as any diagnostic tests that their laboratory cannot run. You’ll want to be clear on exactly what does and doesn’t fall under these exceptions because a breach of contract typically comes with severe consequences.

Ethical considerations also exist. If your practice has a monthly quota of diagnostics and associated charges that you must meet, you must carefully consider which tests are necessary for your clients’ companion animals and avoid ordering tests simply to reach your laboratory quota. Some members of the public already have the perception that veterinarians order unnecessary tests that do not provide meaningful results; practices that are perceived to recommend superfluous tests will begin to drive away their consumer base at best and sever the veterinarian-client-patient relationship at worst. So, before signing a laboratory service contract, make sure you can afford the level of production that your lab contract requires.

So, what happens if you can’t maintain your production and you fall behind on payments, or you order too many diagnostics from another reference lab and a breach of contract occurs? The consequences can be severe, such a penalty that states that, upon the event of default, all future monetary amounts and payments are due to be paid immediately to the company. Some companies will give you a brief period in which to cure your breach or default, but such time would usually only be beneficial if the amount of money owed was small. Another penalty for breach of contract is a tiered structure of money owed upon default that decreases depending on the amount of years the contract has been held. This may be more favorable for owners and managers who know they can fulfill the terms of the contract for the initial couple of years.

Returning to the initial scenario, here’s another variation. Let’s say you’re ready to sell your practice to an excited new owner but, in this case, the new owner is eager to fill your role in the reference lab contract. This is a much better scenario because most lab companies, when given the proper amount of notice as specified in the contract, are likely to assign the contract to the new owner. In this case, it will be very important to know what your obligations are after the assignment of the contract. As with purchase agreements, the original owner may still be kept on the contract as a guarantor, meaning that his or her assets are still vulnerable if the new owner defaults on the contract or commits a breach.

Contracts are not made up of purely economic terms. Within these agreements there are typically confidentiality clauses that prohibit you from discussing any aspect of the terms of your agreement unless necessary by law. This restricts the negotiating ability of practice owners or managers by disallowing them to consult with colleagues and assess the likelihood of more beneficial terms.

Part of your due diligence prior to signing a contract should be to consider your general impression of a laboratory’s diagnostics and services. Do you agree with their reference values and the sensitivity and specificity of the tests they perform? Have you had positive or negative experiences with their customer service? While you may not obtain much information from colleagues about the terms of their contracts, there doesn’t appear to be any penalty associated with discussing their satisfaction with service they’ve received.

Reference laboratories have pursued injunctive relief against owners and managers that breach their contract, whether such breach was intentional or not. VIN published an article in March of 2012 detailing multiple lawsuits filed by Antech Diagnostics, the laboratory services division of VCA, between 2011 and 2012[3]. These suits were taken against practice owners who had attempted to end their agreement with the company prior to the full term, citing reasons such as the laboratory’s service being “unacceptably poor” or receiving a more attractive offer from competing companies, such as Idexx.

Many of these owners believed they could terminate their contracts by paying the money due for their loans or incentives ahead of the scheduled time, in part because of the lack of language within the agreement about that topic and in part because of information provided verbally by company representatives. However, in events where these attempts were made, Antech responded with lawsuits for the sum of any money currently owed as well as income they were due to receive for diagnostics ordered by the practice through the length of the contract. According to the article, the revenues that Antech was attempting to claim ranged from $234,000 to $798,000! Many times, Antech was successful in pursuit of these funds and, since that time, the wording in relevant clauses of these contracts has become more specific.

The VIN article emphasizes the importance of considering the ethical aspects of having a diagnostic revenue quota set by laboratory contracts and cautions practice owners to carefully read all laboratory contracts to ensure a clear understanding of stipulations before signing. Though these reference laboratories want your business and will offer a friendly gesture in the form of discounts and significant sums of money (as a loan, mind you), there will be no love lost if they feel you aren’t contributing your share or have breached their terms. As long as you know what’s expected of you, though, and can meet those expectations, the sunnier side of offered incentives will shine through, and reference lab relationships can be highly beneficial to you and contribute to the growth of your business.

 

References:

  1. staff, dvm360.com. “Exclusive Veterinary Lab Contracts: Deal or No Deal?” dvm360.com, 12 Sept. 2016, veterinarybusiness.dvm360.com/exclusive-veterinary-lab-contracts-deal-or-no-deal.
  2. Shupe, Christine. “Lab Notes.” Veterinary Hospital Managers Association, 28 June 2016, vhma.site-ym.com/blogpost/1273540/250849/Lab-Notes.
  3. Lau, Edie. “Veterinary Diagnostics Giant Sues Multiple Practitioners.” VIN, Veterinary Information Network, 9 Mar. 2012, news.vin.com/vinnews.aspx?articleId=21802.

Residency Retention Agreements

Finding the right resident for your practice is a lot of time and work.  Protect your investment and keep your resident from straying to other practices by including proper retention provisions in your residency agreements.

The basic bargain you make with your resident is simple: you agree to pay all or part of your resident’s training and residency living expenses; and your resident agrees to work at your practice for a minimum period—the “retention period”– after  she is board certified.

To implement this bargain, residency provisions typically use a stick and/or carrot approach.  The stick requires your resident to pay back the residency expenses you fronted if she fails to timely pass her residency or if she leaves your practice before the agreed upon retention period expires.  The carrot, which is optional, pays your resident a bonus at the end of the retention period.

Here’s a list of the principal issues your residency provisions should address, bearing in mind that the main variable affecting their structure and content is whether or not the residency will be in-house.

  1. Residency Rules.  If you are sponsoring the residency, both you and the resident should agree to respectively follow the residency rules and guidelines set by the applicable veterinary college (“Residency Rules”).  Accordingly, you would be prudent to ensure that compliance with Residency Rules will not unduly burden your practice before you commit to sponsoring the residency.  The residency provisions should also: (a) require the resident to keep track and inform you of any rule changes; and (b) allow you to terminate the residency without penalty in the unlikely event a rule change makes compliance too burdensome for your practice.
  2. In-House Residencies.  With  in-house residencies, your resident will invariably be your employee during the residency period, so all the usual employee issues relating to compensation and benefits apply.  However, you will need to adjust your standard employment agreement to give your resident time to: (a) complete whatever externships are required by the Residency Rules; and (b) study for her boards.  (In this regard, you may consider reducing her compensation accordingly.)  Do not forget to check that your insurance and benefit plans will cover your resident during this period.
  3. Off-Site Residencies.  If a veterinary school or other hospital is going to sponsor the residency, you need to consider whether you want your resident to be your employee during this time.   If the resident will be attending a veterinary school or other hospital far from your practice, you may not want her to be your employee, since an employer is generally liable for their employees while they are acting within the scope of their employment.  Since you have deeper pockets than your (normally) impecunious resident, plaintiffs will be motivated to sue you if your resident gets into trouble.

If this liability worries you, then you will need to loan your resident the amounts she needs, with the understanding that you will employ her as soon as she is permitted to take the boards (and then forgive the loan at the end of the retention period).

Loaning residency expenses to your resident with an employment agreement to follow will be more complicated to structure, negotiate and document, than simply employing your resident from the outset.  This will take more time and cost more in legal fees.  You will need to balance this increased cost against the risk of incurring liability for your employee’s acts and omissions while a resident.  Such balancing will require weighing various factors, including the extent to which the veterinary school or other institution is liable for their residents and to which  your resident employee will be deemed to be acting within the scope of her employment.  Common sense would indicate that the school or institution should be primarily liable for all resident activities and that the risk of your incurring such liability is remote.  But all bets are off in our sue-happy society.  It may also be possible to cost-effectively insure against any residual liability.  As a precaution, your resident should agree to seek your permission before engaging in any remunerative activity while a resident, (e.g., working at a shelter or temping at an emergency clinic), so that you can evaluate the risk thereof.

Finally, depending upon the residency program’s schedule and how far away it is from your practice, consider whether you want your resident to work for you during week-ends, holidays and/or residency program breaks.

  1. Ensuring Diligence.  Whether or not your resident will be completing her residency at your practice, she should agree to diligently pursue her residency to completion, which will include studying and sitting for the boards as soon as she is permitted to do so. Your resident should commit to become board-certified by a certain deadline (which can be extended for a limited time if your resident becomes disabled).  If the residency program is held off-site, your resident should agree to provide you with adequate documentation to monitor her progress.
  2. Residency Expense Tracking. Your residency provisions will also need to specify the residency expenses for which you will be responsible and how they will be documented and paid.  Consult with your tax advisor to ensure that this is done in a tax efficient manner.
  3. Residency Expense Repayment.  Now for the stick. The residency provisions typically will provide that the resident will repay the residency expenses you have advanced, unless she works at the practice through the end of the agreed upon retention period.  In essence, your resident is “working off” her “debt” to you.  (The “debt” being your advance of residency expenses to her.)  Thus, during the retention period, your former resident’s compensation should be less than market to reflect this “repayment.”

This loan analogy cuts both ways however, because a savvy resident will demand that the repayment obligation be suitably pro-rated, so that if she leaves, say, in the middle of the retention period, she need reimburse only half of the residency expenses.

The provisions should provide for a repayment schedule and an interest rate (or specify that the resident will owe no interest).  In attempting to reduce interest as much as possible or eliminate it all together, a savvy resident will argue that the practice is benefiting from the services of a “captive” specialist, who cannot leave without incurring a substantial reimbursement obligation.   This benefit is above and beyond what an un-affiliated lender would receive, and in consideration for this benefit your practice should not charge interest.  (Be advised, however, that charging below market interest or no interest may subject you to tax liability.)

  1. Disability and Early Termination.  Proper residency provisions must also cover life’s more foreseeable contingencies. The two principal intervening events that should be addressed are disability, and employee termination before the expiration of the retention period.

7.1.  Resident disability generally will extend the deadline for obtaining board certification and also length of the retention period.  If your resident’s disability lasts longer than this extension, she normally would be terminated, just like any other employee subject to long-term disability.  But what about her repayment obligation?  Should she still owe you for the residency expenses you advanced?  If you’re tough you might say yes.  If you’re nicer you might want to forgive your disabled resident’s repayment obligation in whole or in part.  (Note that you might be able to insure against this risk.)

7.2.  What happens if you terminate your resident before the end of the retention period?  If you terminate for the usual “for good cause” reasons, then the resident should still repay you for the residency expenses you advanced.  In this regard, the residency provisions should allow you to terminate your resident “for good cause” if she fails to become board-certified by a specified date.

But if you terminate your resident at your discretion, i.e., for any reason other than “for good cause”, then the provisions should extinguish your resident’s obligation to repay you for the residency expenses.

If your resident leaves before the end of the retention period she will owe you the residency expenses you advanced. That is after all the whole point of having retention provisions in the first place.  But heads up: a savvy resident will require the provisions to address what happens if she terminates her residency agreement because of your breach of that agreement.

  1. Retention Bonus.  If you wish to motivate your resident with a carrot in addition to the stick, the residency provisions can provide that you will pay your resident a specified bonus if she stays through a specified date (which need not coincide with the end of the retention period, and could even be paid periodically in installments).  As with your resident’s obligation to repay residency expenses, the bonus provisions will need to deal with disability and early termination (either implicitly or explicitly).
  2.   Residencies as CLE.  Residency programs at veterinary schools or other institutions can constitute a valuable educational resource for your practice.  Accordingly, do not forget to require your resident to provide copies of all interesting residency documents and give your practice periodic presentations of residency activities.

Like many things in life, residency provisions are simple in concept but complex in implementation.  You will need to invest some time and effort, and incur some expense in preparing a proper residency agreement.  Accordingly, it makes sense to temporarily employ your future resident at your practice before committing to any residency obligation—just to make sure that she is worth the investment.

 

Veterinary Employment Contract Legal Issues

High turnover among veterinary associates is caused principally by the failure of practice owners and employees to properly articulate their respective expectations and negotiate and document the employment relationship. Time and effort invested up front will help avoid mismatched expectations, misunderstandings and separation down the road.

Can the practice even afford another full-time veterinarian? Management consultants estimate that a small animal practice vet needs to produce 3,000-4,000 transactions annually and collect a minimum of $225,000-$300,000 gross income (excluding OTC product sales) to be worth his salary.

I. WHAT IS AN EMPLOYMENT CONTRACT? A contract is a set of bargained for promises between two or more people, where one party promises to do X in exchange for another party’s promise to do Y. Courts require that an enforceable promise meet certain conditions. For example, the parties must be of age (no minors), of sound mind, and not under duress; there must be no fraud or mutual mistake over an important aspect of the transaction, and the deal must not be so one-sided as to be “unconscionable.”

Consideration. To distinguish binding promises from charity or gifts (you can’t sue Santa Claus because he didn’t give you enough presents last year), the law requires that the party to whom the promise is made give “consideration” for the promise in the form of a benefit to the promissor and/or detriment to the promisee. Thus, Dr. Newgrad promises to work 50 hours per week in consideration for an annual salary of $58,000 (i.e., a benefit to Newgrad and detriment to Oldguy). Oldguy promises to pay such salary to Newgrad in consideration for Newgrad’s labor (benefit to Oldguy and detriment to Newgrad). Consideration exists for each promise which is therefore enforceable.

Avoid Oral Contracts. Oral contracts generally are binding only if their performance lasts less than a year, because the law assumes that the parties’ recollections of what was agreed to become unreliable over time, increasing the tendency to remember events in a self-serving way. Few disagreements are less productive than the “you promised X,” “I don’t remember X but you promised Y” litany. Prevent such wasteful bickering by always insisting on a written contract, regardless of it’s term.

II. CONTRACT FORMATION. Legal theory provides that a contract is formed once an offer is accepted. Real life usually is a lot messier.

Offer An offer can be oral or written (e.g., employer advertisement in a professional journal, on a bulletin board or mailed to the applicant). Typically, the prospective employee will ask for clarification and wish to change the terms of the original offer by making a counter-offer. The employer counters such counter-offer with his own counter-counter-offer. This confusing and frustrating process continues until either the parties reach an agreement or, realizing they can’t make a deal, go their separate ways.

Acceptance Legally, the contract is formed as soon as the offer is accepted. This can be a trap for an impulsive party who accepts an offer, but who later (like Columbo) asks for “just one more thing.” After acceptance, it’s too late and the other party can sue for damages if the impulsive party doesn’t perform his or her obligations under the originally accepted offer.

Ideally, an accepting party will clearly indicate his acceptance to the offering party, at best by signing an employment agreement or acknowledging acceptance in writing on the offer. More difficult to prove, but still unambiguous is an oral “I accept” or words to that effect.

Avoid unclear contract formation situations. Courts have created the so-called “action in reliance” (promissory estoppel) doctrine to find enforceable contracts even when one of the parties thought no contract existed. Courts have found valid contracts in cases where an:

  • employer knew or should have known that the employee had acted “ in reliance upon the offer” such as incurring expenses to move to the job location, searching for lodging thereat, and informing other employers they no longer are job applicants; and
  • employee made the last offer or counter-offer, and such employee knew or should have known that in reliance thereon, the employer ceased advertising for the position, informed candidates that the job was filled, or bought new equipment or hired additional support staff in anticipation of the employees arrival.

Accordingly, a party considering an offer should not talk or act in a way it knows or should know will lead the other party to believe that such offer was accepted and should make sure that the other party is not taking action “in reliance” on anything it did or said.

III. CONTRACT TERMS. Assuming that the offer, counter-offer, counter-counter offer, etc. ballet results in the bliss of acceptance, the employment contract terms contain the nuts and bolts of the “meeting of the minds” of the parties. Following is a list of the main questions addressed in a proper employment agreement:

1.  How Long? Is there a fixed term (period) of employment (six months, one year, two years, or is it “at-will” (i.e., the contract continues until a party decides to terminate it)? Is the term automatically renewed on the expiration date?

2. Work Schedule. How many scheduled hours per week must the employee work, and beyond the schedule, how many additional hours will employees actually spend phoning clients, performing diagnostics, interpreting laboratory work, overseeing patient care, etc. What is the schedule for any required emergency work? Is it equitable?

3. Duties. What are the associate’s responsibilities? May employees decline (without penalty) to perform procedures they deem ethically wrong? How much emergency duty is required?

4. Compensation. Is compensation a fixed salary or commissions based on the revenue generated by the employee and collected by the practice, or is it a hybrid system under which the employee earns the higher of a base salary or a percentage of generated (and collected) revenue (a.k.a. percentage based compensation)? How are production bonuses calculated? Is there a performance bonus and if so what are the evaluation criteria? what is it based? Is emergency work paid extra? How much?

  • National starting salary information is published at least annually in the Journal of the AVMA. See also the latest biennial edition of the American Animal Hospital Association’s Compensation and Benefits-An In-Depth Look and the AVMA’s Economic Report on Veterinarians and Veterinary Practices Two periodicals, Veterinary Economics and Veterinary Hospital Management Association Newsletter, also regularly publish helpful articles.
  • Pay attention to deductions. What will be deducted from employee compensation? Some employers deduct not only the employee’s portion of payroll taxes but also the employer’s share.

5. Employee Benefits. Practices usually offer at least some of the employee benefits described below to their employees. The cost of many benefits (such as health, professional, and disability insurance, qualified retirement plans) are tax deductible business expenses to the employer and are not included in the employee’s income, resulting in a savings to the employee of 25 to 40%. Not taking advantage of this juicy gift from Uncle Sam is wasteful. On the other hand, employees must realize that the practice probably can’t afford all the benefits they desire. One leading veterinary management consultant has calculated that small animal veterinary employers cannot afford to allocate more than 23 to 27% of the collected income generated by an associate veterinarian to pay his or her salary and benefits (due to lower overhead, the range is 28 to 32% for large animal practices).

  • Health Insurance. Does the employer offer health insurance? If not, what does the employer do when he gets sick? If so, what kind of medical plan is it (e.g., fee for service, HMO, PPO)? What about pre-existing conditions, vesting, eligibility, deductibles and co-payments?
  • Disability Insurance. Employees at age 25 have a 58% chance of becoming disabled for more than three months (with an average disability duration of three years), so employees need disability insurance to protect their greatest asset: the ability to work. If the employer does not offer disability insurance, employees are well advised to get it on their own (after asking, of course how the employer, protects himself or herself against disability).
  • Professional Liability Insurance PLUS License Defense. Do employers pay the premiums on the employees’ professional liability insurance?
  • Retirement Plans. Has the employer established a retirement plan for the employees? (Profit sharing plans are the most common type of retirement plan offered by veterinary practices.) When do employees become “vested” or “eligible?” If the employer does not offer a retirement plan, employees will need to save on their own (and that means more than just the annual IRA contribution).
  • Vacation. One week? Two weeks? More? How many consecutive days may be taken? How much advance notice must be given? May unused vacation days be carried forward to next year? How are vacation days paid for percentage compensated employees?
  • Sick Leave and Disability. Does the employer offer paid sick leave? Disability leave? After how long can disabled employees be terminated? May unused sick days be carried forward?
  • Continuing Education. How many CE leave days are granted and are they paid? To what extent do employers reimburse CE expenses?
  • Association Dues. Are national, state and/or local veterinary association dues reimbursed?
  • Veterinary License Fees and DEA Registration. Are these fees paid by the employer? Should the employee register with the DEA so she is permitted to prescribe and order controlled substances (rather than just administer them under the supervision of a DEA licensed veterinarian)?
  • Relocation (moving) expenses. Most corporate and government employers provide some form of moving expense. Sometimes a “signing bonus” or short term loan can cover all or part of these costs.
  • Vehicle allowance or mileage payments. Employees using their personal vehicles for practice business should be reimbursed for a pro-rata portion of their insurance, general maintenance, registration and inspection fees, fuel, repairs, depreciation, and lost opportunity costs.

6. Performance Evaluation. Will the employer provide written and/or oral performance evaluations? How often? Will these be used to modify compensation?

7. Non-Competition. Many employers require their employees to sign non-competition clauses (also called restrictive covenants) forbidding terminated employees from competing with the employer. Such clauses must be limited in time (e.g., three years after termination) and geographic area (e.g., 15 air-miles from the practice) to be enforceable. The precise limits on the scope of such clauses vary from state to state. From the employer’s perspective, this is the most important reason to have a contract. Without a non-compete, employers cannot protect the goodwill they have worked so hard to build.

8. Termination. Does the contract have a specific term (e.g., “this agreement will expire after one year”) or is it employment “at-will”, in which case, either party can terminate the relationship at any time, for any reason? Contracts with no term are deemed to be “at-will” in most states. If there is a term, then an employee leaving or an employer firing before the term would constitute a breach unless the contract provides otherwise. Most contracts which provide for termination before the expiration of the term require that the terminating party give advance notice (e.g., 30 days) to the other party. Such contracts usually also contain a list of situations (e.g., suspension of the associate veterinarian’s license) permitting the employer to fire the employee at any time without notice (a.k.a. termination “for cause”).
Employees should make every effort to leave their employer on good terms even if they are not requesting a reference. The veterinary industry is quite small, and an employee’s reputation can easily suffer through casual conversation among colleagues.

9. Option to Buy-In. Experienced associates that have their own clientele, may not wish to enter into an employment agreement with a non-compete, without also being provided with an opportunity to buy an interest in the practice after a 1-3 year “try-out” period. These often are complex provisions to negotiate depending on the amount of security the associate wants up-front, and should not be undertaken without consultation with an attorney that has experience with medical practice transactions. Too often associates lock themselves into a non-compete, and agree to an “option” provision that turns out to be a smoke screen.

IV. LAWYER REVIEW. Negotiating and drafting an employment contract can be long, painful and complicated. It therefore makes as much sense to seek professional help in this endeavor as it does to take a pet to a qualified veterinarian when it is sick. Lawyers are expensive, of course, just as much as veterinarians…
Dr. Lacroix assists veterinarians nationwide with drafting and negotiating veterinary employment contracts and can be reached at her office at 908-782-4426 or through her website at www.veterinarybusinessadvisors.com.

V. ADDITIONAL INFORMATION. This is just a thumb nail sketch.

  • For an exhaustive study, consult, Contracts, Benefits, and Practice Management for the Veterinary Profession, written by James F. Wilson, DVM, JD; Jeffery D. Nemoy, DVM, JD and Alan J. Fishman, CLU, CFP.
  • For what you need to know as a new veterinarian associate, look for The Veterinary Associate Survival Guide published by AAHA.