You just graduated dental school and are about to join a preexisting practice. You are presented with an associate employment agreement. It is long, complex, and overwhelming. You were trained in school to practice dentistry, not review contracts.
Fortunately you do not have to spend endless hours parsing the agreement word for word. Instead focus on five key areas:
1) Classification of Associate
You will either be classified as an employee or an independent contractor. If you are considered a W2 employee, then the employer will account for employment taxes. If you are considered a 1099 independent contractor, then you are responsible for your own employment taxes, as well as adhering to other requirements to be considered an independent contractor.
There are several methods of calculating associate compensation:
- Commission: Collection percentage (32-35% average) vs. production percentage (32% average) vs. net profit (commission minus any other expenses)
- Salary + commission (or bonus)
- Lab fees (can coincide with collection/production percentage or some other percentage)
3) Malpractice Insurance
Some employers provide insurance and others require associates to pay out of their compensation.
4) Future Buy-In & Other Fringe Benefits
- The employer is unlikely to agree on any specific terms, but you should request language regarding when the owner will present you with a buy-in opportunity (usually within one to two years).
- Ensure that the agreement speaks to other fringe benefits such as PTO or vacation time, payment for continuing education, health insurance, etc.
5) Non-Competition & Non-Solicitation
- A non-competition agreement/clause must be ancillary to the offer of employment.
- If the non-competition agreement is not ancillary to the offer of employment, independent consideration must be provided.
- Generally, a 1-year limitation period is considered reasonable, a 2-year limitation period may be reasonable under certain circumstances, and a 3-year limitation period will only be reasonable in very limited circumstances.
- The geographical restriction must be considered reasonable. If the associate begins working for a provider that has multiple locations, make sure it is explicit from which location the geographical limitation will be enforced (i.e. only from the location where associate spends 90% of his or her time or more).
- Owner/employer wants to protect its “asset” of client base and if the associate leaves, the owner/employer does not want the associate either taking the existing clients or existing employees.
- Ensure that the description of what “solicitation” means in the agreement is explicit.