Staffing Contracts

Do the employees and associates have signed contracts and are they enforceable?

Employment Contracts

As part of a preliminary assessment, it would be helpful to know if some or all of the employees have employment contracts which include a termination provision that limits notice or pay in lieu of notice, ideally to what is required under the Employment Standards Act. A non-solicitation clause is also beneficial, especially for hygienists as it prevents employees from soliciting patients and other employees for a period of time once they leave the practice.

Keep in mind that all the employment contracts will be reviewed in detail by your lawyer as part of due diligence if you proceed to that point. The lawyer will assess the strength of the contracts and their enforceability. Most dental practice sales involve the sale of shares of the vendor’s dentistry professional corporation. Given it’s the corporation that employs the staff, the employer does not change with the sale of the practice. As a result, the purchaser inherits the severance liability of the staff, which is why enforceable employment contracts are so important, especially for practices with many long-term employees. The situation is different in an asset sale. In any case, a purchaser should consult a lawyer to assess the potential risk and advise on appropriate management.

Ordinarily, the purchaser will want to keep all the staff members given they are intricately linked to the goodwill of the practice, and their retention is integral to a smooth transition and minimizing patient attrition. However, in the event you opt to terminate an employee after close, the absence of an enforceable employment agreement could dramatically increase the employee’s severance entitlement due to common law. Often in these cases, the purchaser’s lawyer would include safeguards in the purchase agreement that would require the vendor to be solely or partially responsible for any termination liability for a specified period of time post-close. As a result, although existing staff contracts are preferred, it’s rarely a deal-breaker.

Associate Contracts

Enforceable associate contracts with reasonable nonsolicitation and non-competition clauses are essential when purchasing a practice. As mentioned previously, the patient base is the most valuable asset to a dental practice, and it’s the patients from which the practice revenue is generated. Without an adequate restrictive covenant in place, an associate could relocate down the street with many of the patients you just purchased.