Get it in writing

Right now I'm watching, from the outside, a situation I hope you'll never have to experience. I'm an expert witness for a practice owner who is being sued by two former associate doctors. What caused this litigation? Poor communication and a contract written on a napkin.

Mark Opperman

One associate was employed for 25 years, the other for about five. However, after a partnership attempt failed, both associates left the practice. But that's not the problem; associates leave practices all the time. The problem is this: The associates were asked to reimburse the practice for expenses the practice had paid for them: health insurance, annual dues, and so on. This led to a closer look at what the practice had been picking up and what the associates had been paying for. The owner says the two were paid a percentage of their production, with employment costs subtracted from their compensation. The associates say they never knew this was happening. Once they found out, they demanded to be reimbursed for all the expenses that had been deducted to date without their knowledge. The owner refused and said they should have known about it all along.

The associates went to the state labor board and filed a complaint against the practice. In what I would consider an unusual finding, the board ruled on the owner's behalf (unusual because state labor boards normally support the employee, not the employer). The associates, still feeling they had been treated unfairly, hired a lawyer and sued the practice owner for what they believe to be deceptive practices and the compensation they think is due them. This is where I come in: I'm an expert witness for the practice owner.

The bottom line

At press time, this case was slated for trial in a few weeks. I don't know what the outcome will be, but I do know some of the hardship, hassles, and turmoil both parties have gone through—not to mention the money spent on both sides. The saddest part? It didn't have to happen. Both parties could have communicated better, put their agreements in writing, and shared financial information with each other.

I'm left observing a disastrous lawsuit, but the rest of you can learn from this trio's mistakes. No one should have to go through what these poor people are experiencing.

A napkin does not a contract make

The first mistake these doctors made was failing to create a written employment contract. In fact, one individual said both parties went out to dinner one night and wrote the basic compensation terms on a napkin. Of course, that napkin is now nowhere to be found.

Over the years, many veterinarians have told me that they don't need an employment contract or that someone advised them not to have one. The parties in this lawsuit would certainly disagree with that advice. A contract is nothing more than writing down what the parties have agreed on and acknowledging that by signing it. There's almost nothing to lose and everything to gain.

You can obtain boilerplate agreements from a number of sources, including my book The Art of Veterinary Practice Management (Advanstar Publications, 1999), Dr. Jim Wilson's Law and Ethics of the Veterinary Profession (Priority Press, 2002), or legalzoom.com. Work through the details, and have an employment lawyer review the agreement. For those of you who've been using an employment agreement for a while, it might be time to review the contract and make sure it's still legal and valid.

Whether you're entering into a new contract or renegotiating one, you need to get the employment agreement in writing. Contracts should be in place between practice owners and associates, practice owners and practice managers, and partners with corporate ownership and the corporation itself. Don't hope you'll remember where you left the cocktail napkin.

Legal Issues

Earnings should never be a mystery

If associates are paid on production, they have a right to see what they've produced and what percentages the owner is paying them. I recommend that owners give associates—maybe the entire team—several periodic reports:

• A daily report. Most clinic software programs will print out doctor production reports, which show the production for which an associate has received credit that day. If the associate notices that he or she didn't receive credit for a certain service or that the service or product was credited to another doctor, the mistake can be fixed and the report reprinted. Don't wait until the end of the week or the month to show doctors their earnings. It may be difficult by then to remember what happened.

• A report with the paycheck. Associates also need a complete accounting of how their earnings are determined when they get their paychecks. This report should include total production revenue the associate generated, the percentage being paid on that production, and any deductions for things like uncollected invoices, dues, license fees, CE, profit-sharing, and any other employment costs subtracted from earnings.

• The total package. Owners, you should give your associates a total compensation statement at least once a year. This statement lists the associate's total production revenue and, depending on your clinic, either the production percentage paid or the flat salary. (For an example, click here.)

The statement also details other costs of employment. For example, is the practice paying for associates' health insurance, annual dues, medical licenses, truck expenses, CE, pension or profit-sharing plans, and liability and disability insurance? All these costs should be itemized on the total compensation statement. After all, they're part of the compensation package. Even if associates aren't paid on production, these statements can educate them about employment costs beyond salary. If associates are paid on production, I suggest you take their total employment costs and divide that into their production. It should be somewhere between 18 percent and 25 percent of their production.

Many practices give other team members these total compensation statements as well. Receptionists and technicians should know that their employment costs the practice a lot more than just the salary they receive. It's an eye-opener.

Take action now to prevent a disaster

It grieves me to see a good doctor and two good associates going through a lawsuit. No matter what the court decides, I don't think anyone will be a winner in the end. People who used to be friends are almost certainly enemies, and reputations have been damaged. Why? Because the three of them failed to follow a basic business principle—document!

Don't just sit back and think this could never happen to you. Do something now. Update your employment contracts, and make sure everyone on your team is aware of the costs of employment. Most important, keep those lines of communication open. It's better to talk it out today in the hospital than fight it out in court a year from now.

Veterinary Economics Hospital Management Editor Mark Opperman, CVPM, is owner of VMC Inc., a veterinary consulting firm in Colorado. Send questions or comments to ve@advanstar.com