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Associate Agreements – Harsh Terms to Watch Out For

22/03/2019

 

You’re ecstatic. You’ve just received a letter confirming an offer of your dream associate position. The contract is enclosed and you are asked to sign and return a copy, demonstrating your acceptance of the post, without delay. Keen to secure the position, you whip out your best fountain pen and prepare to sign on the dotted line – the contract will be back in the post before the days out! But wait. Are you sure the contract reflects what was discussed at interview? Does it confirm where you will be working? Are the financial terms accurate? How quickly will you be able to leave the practice if the unimaginable happens and things don’t work out? Will your dream practice try to restrict your professional activities or withhold your fees after you leave?

Importance of a contract

The importance of having a written associate contract is difficult to overstate. A well-drafted agreement will provide the parties with clarity and certainty on key terms and conditions and very often will be a crucial document in the event of a dispute. By not entering into a written agreement, you leave yourself open to claims that you have agreed to terms you may not have, for example, to provide an unrealistic number of UDAs or to deliver your services below market rate. It’s also possible that, in the event of a dispute, a court will impose a more onerous set of terms and conditions upon you.

As important as obtaining a written agreement is taking the time to read and understand the terms and conditions you have been presented with. Some contracts use complex language and legalese, which can be confusing and difficult to understand. If you don’t understand the terms of a contract, you should resist any urge to sign it and seek advice. BDA members can have their contracts checked by an experienced member of the Advisory Services before they accept a position; to help them fully appreciate the terms and conditions they will work under and assess whether a particular practice will be right for them.

Terms to watch out for

There are a number of key terms that you should look for in any prospective associate contract. You should look for these terms even if the practice owner provides you with an agreement which it says is based on the BDA model associate agreement or some other “standard” contract – the implication being that its terms are reasonable and fair and you should agree to them without full consideration. It’s possible that the practice owner may have made amendments to the BDA model agreement, which place you in a less favourable position or may quite simply be wrong. It may be that, driven by its own set of commercial objectives, the practice owner’s standard agreement is one that takes advantage of dentists seeking associateships in difficult circumstances, for example, VTE dentists, focussed on achieving qualification, who are asked to sign contracts that “tie them in” for lengthy periods of time. You should always take the time read any contract carefully and in full.

Terms to watch out for include:

Financial arrangements

The financial arrangements underpinning an associateship are often complex. Typically, they involve an associate agreeing to pay a practice owner a licence fee for use of its premises and facilities. This fee is deducted from the associate’s gross earnings, together with other deductions, for example, laboratory costs, bad debts and/or hygienist fees. It’s imperative to check the mathematical correctness of the payment provisions in any contract. The financial terms should be clear, certain and reasonable. Associates often find it useful to apply illustrative figures to a payment schedule, which sets out  things like how much they will be paid per UDA performed (gross and net), how laboratory costs will be apportioned and the value of any licence fee.

Increased risk

It would not be unusual for you to be given a contract, containing performance targets; either a UDA target, a private income target or both. Where this is the case, the contract often contains clawback provisions or indemnities, which seek to protect the practice owner from sustaining any losses in the event that you fail to achieve your targets. Before agreeing to any performance targets, you should consider whether the target is realistic and fair, by reference to factors like the practice’s patient base and local market conditions. You should also consider whether corresponding clawback provisions or indemnities are fair and reasonable. If the compensation the practice owner will receive should you underperform places it in a better position than if you had met your target, then it may be that the clawback provisions are too high. An indemnity that permits a practice owner to recover from you where you have failed to meet your targets, but through no fault of your own, may be drafted too widely. 

You will be paying the practice owner to use its facilities, including its premises and equipment. You should look for clauses that set out what will happen should those premises become unavailable or equipment breaks down. Ideally, the contract will provide for you to be compensated in these circumstances. However, it may be that the contract makes no provision for compensation, which could mean you lose out financially. Where the contract does not provide for compensation, you should raise it with the practice owner. It may be that the practice owner can justify its position, but if not, you should try to negotiation the inclusion of a clause which compensates you in the event of breakdowns, etc.

Notice

Generally, associate contracts will provide for three months’ notice of termination from either party – this is the industry norm. Occasionally, a practice owner will ask for something more than this – four or six months’ notice of termination from the associate – or even seek to “tie” the associate to the agreement for a lengthy fixed-term, perhaps as long as two years. You should think carefully before agreeing to notice periods that exceed the industry standard or entering into a fixed-term contract. You might ask the practice owner to explain why it is seeking a longer notice period than usual. It may be that you are willing to agree to a longer notice period where the practice owner has a good reason for requesting one – a shortage of associates in the area, making recruitment difficult, for example. Be cautious though, six or twelve months can feel like a long time when you have taken the decision to leave a practice and the relationship between you and the practice owner may not be what it once was.

Post-termination restrictions

Most associate contracts will contain restrictive covenants; provisions that are intended to protect a practice owner’s goodwill after an associate leaves the practice. It’s tempting to glance over these provisions since they will only apply on termination, but any future associate positions may be hampered if they are too restrictive. Commonly, restrictive covenants in associate agreements prevent associates from working as a dentist within a particular radius of the practice for a particular period of time and from treating patients of the practice.  You should consider whether such clauses are reasonable. In most cases, it will be difficult to justify a restricted period of more than 12 months. The reasonableness of the proposed radius will depend, amongst other things, on the location of the practice and local factors.

Retention fees

These clauses allow practice owners to retain money from associates’ fees for the purposes of remedial or replacement work after they leave the practice. A practice owner is not able to retain fees for these purposes without express contractual authority to do so. Retention fees can be a useful way of dealing with returning patients once you have left a practice. You must check, however, that the amount you agree to leave behind is reasonable and proportionate, taking into account your length of time at the practice, the type of list you have and the number of returning patients you may have had during the last 12 -18 months. It’s also important that the contract sets out when the retention fee can be used and how and when any balance will be returned to you.

How to address harsh terms

An associateship is a commercial arrangement between two parties and coming to an agreement often requires some negotiation. If you are presented with a contract that seems skewed in the practice owner’s favour, places you at increased risk or fails to reflect your needs, speak up.

Before approaching the practice owner, understand a little about the practice and the position you are negotiating from – how quickly does the practice need a dentist in post; is there a shortage of dental provision in the local area; how much are other Associates being paid locally? The answers to these questions, may mean that you are in a stronger position to negotiate the removal or amendment of harsh terms.

During any negotiation, you should prioritise the clauses that are most important to you – don’t become bogged down in discussions about clauses that are not “deal breakers”. Try to support your position with evidence and explanation rather than simply stating that you feel a term is unfair. The aim of your negotiation should be to get to a point that you are comfortable with. However, if the practice owner is unwilling to make the changes you seek, you will have to consider whether your dream practice is the right place for you after all.

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