Many new graduates will decide to enter a medical, dental, or other professional practice by joining an existing practice as an associate. An associate agreement is an agreement that governs the business relationship between the professional or the corporation that owns the practice (for the purposes of this article, referred to as the principal) and the associate, being the professional who is hired to provide his or her services at the practice. When joining a practice as an associate, it is beneficial to have an associate agreement in place that governs the relationship and expectations of all parties. The associate and the principal should carefully consider the terms of the associate arrangement prior to entering into the associate agreement.
Generally, the associate will be an independent contractor as opposed to an employee of the principal or the practice. There are important tax and termination issues that arise if the associate is determined at law to be an employee (regardless of whether the agreement says that the associate is an independent contractor), but this blog will focus on an associate agreement whereby the relationship between the principal and the associate is that of an independent contractor.
There are many different types of provisions that are typically found in an associate agreement, and this blog will discuss some of the key terms and considerations.
Hours of Work and Expectations of the Associate
The associate agreement will typically specify the number of days that the associate is required to work at the practice, the hours that they are to attend the practice as well as the vacation entitlement of the associate. Sometimes the associate is required to be available to tend to after-hours emergencies that may arise, and if so, these expectations should be clearly identified and outlined in the agreement.
Supply of Equipment
The associate agreement should clearly indicate the use of the practice’s facilities and tools. It is very common for the principal to supply tools, equipment and supplies that the associate may use while providing services to patients of the practice. If there are certain tools or equipment that the associate would like to use that the principal does not utilize in the practice and does not wish to acquire, the associate agreement might indicate that the associate is responsible for supplying these specialized tools or equipment at his or her own expense.
Term of the Agreement
The associate agreement should be clear about the period of time that the associate will work for the practice. In some situations, the agreement is set for a fixed term and in others there is no specific end date. Some agreements provide for renewal terms, meaning that the parties have the ability to extend the term of the agreement for a period of time after the expiration of the initial term. The renewal term may be optional, which means that the agreement can only be renewed at the option of the parties or the renewal may be automatic. Meaning that at the expiry of the initial term, the term is renewed for a certain period of time unless the parties indicate their intention to not renew the term.
Termination Clause
The associate agreement should be clear about the circumstances under which the agreement may be terminated and as such, should contain a clause that addresses the rights and obligations of the parties in the event either of them wishes to terminate the agreement. An associate agreement that does not contain a robust and comprehensive termination clause can lead to a very complicated, and potentially costly outcome for the parties.
Typically, the termination clause will indicate how the parties may terminate the agreement, whether by mutual agreement or by simply providing advance notice to the other party of its intention to terminate. The agreement may also be terminated for just cause, meaning if the associate or principal have done something wrong to deserve the termination.
Some of the common circumstances giving rise to termination by the associate are:
- bankruptcy of the principal or practice
- inability of principal or practice to pay its debts
- dissolution or liquidation of the practice
- non-renewal of the practice’s or principal’s certificate of authorization from their regulatory body
- breach by the principal or practice of a term of the associate agreement that has not been remedied
Compensation of the Associate
The compensation provision outlines the manner in which the associate will be paid, as well as the basis upon which the associate’s compensation will be determined. The associate will usually be paid based on a percentage of their collected billings, less certain expenses and deductions such as lab fees, etc. From an associate’s perspective, the associate may want to ensure that the agreement includes a mechanism that enables them to confirm the amount of remuneration he or she receives by requiring the principal to provide the associate with an outline of calculated fees and the billings or collections at the end of each pay period. This will enable the associate to check his or her compensation against the billings or collections to ensure it is accurate. It is also beneficial to ensure that the agreement contains a mechanism to handle any discrepancy in the compensation and the billings or collections, as well as a way to resolve any errors.
Restrictive Covenants
Many agreements contain restrictive covenants which are provisions that restrict the associate from doing something they would otherwise be able to do which may harm the business of the principal. The two main restrictive covenants usually included in an associate agreement are the non-competition covenant and non-solicitation covenant, which attempt to prevent the associate from competing with the business of the practice within a certain geographic region, or soliciting employees or patients of the practice. These covenants are intended to survive the termination of the agreement and protect the principal’s business. There are special considerations with respect to the reasonableness and enforceability of restrictive covenants as they are considered restraints of trade and can potentially interfere with the associate’s ability to earn a living once he or she leaves the practice. It is important to speak to a lawyer regarding the inclusion of restrictive covenants in an associate agreement to determine their enforceability.
For more information, please contact Katherine Serniwka in the Professionals Practice Group at [email protected]