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4 ways veterinarians need to protect themselves legally
You may know what brick-and-mortar items a clinic needs, but have you ever considered protecting your intellectual property as well?
One of the many reasons I love my job is that I have the opportunity to meet interesting people with new and unconventional business ideas. Even though some of the entrepreneurs I consult with are not veterinarians, there's always some connection with the animal health field. It's inspiring to see what sorts of new enterprises smart folks in our field are cooking up every day.
At the same time, it's pretty common for individuals who are highly trained in science to be unfamiliar with the most fundamental concepts of business planning and business structure. How could it be otherwise? There's so much science to learn and so little time. There is barely space in a STEM (science, technology, engineering and math) curriculum to squeeze in the humanities, let alone business law or basic tax accounting.
So, for fledgling animal health entrepreneurs, veterinary clinic first-timers and even self-employed per-diem relief veterinarians, let me take this opportunity to outline some of the business structures, liabilities and protections young entrepreneurs in the veterinary field should know as they incubate their cutting-edge ideas.
Veterinarians and others who are thinking about starting a practice or any other type of business somehow innately know that they should consider forming some sort of legal entity within which their new activity should operate. They've heard about LLCs, Subchapter S, C-corporations and find it all very confusing. Really, it's not.
Just remember this guiding principle: In the legal world, the ultimate question in any dispute is “Who has to take (financial) responsibility?” Whether an automobile air bag explodes, hospitalizing a soccer mom or a client punches out one of your drug reps in your clinic parking lot, someone is harmed and somebody must pay. Business entities exist to help give the business owner some cover when somebody sues.
When the lawsuits begin, the search for money starts. Business entities (corporations, limited liability companies and so on) are formed in large part to create a “straw man” who can bear the brunt of a lawsuit, insulating the person(s) who own the business. For example: A client is severely injured by one of the dogs in your waiting room. The client sues you for $10 million, wins $2 million, and your insurance limits are $1 million. Who is liable for the second million? If your clinic does business without a corporate or other straw man, the person liable is you. Go directly to bankruptcy, do not pass “Go.”
On the other hand, if your clinic was incorporated, the business corporation gets hit for the $1 million excess verdict. The injured client's law firm seizes every single asset owned by the corporation: All the used kennels, your fifteen-year-old, fully depreciated x-ray machine and even the rusty forceps in the cold tray. But your personal bank account is insulated and is unavailable to satisfy the debt.
So, look into getting your clinic, pet hotel, or start-up laser scalpel business protected by a straw man. In the event of an unexpected injury or assault at your business premises (or elsewhere), personal insurance may not be enough to keep your personal assets safe.
Non-Competition and Non-Raiding Contracts
Few things are absolutely evil and the protection of business proprietary rights is a thing, which, though frequently demonized, is not absolutely evil. Proprietary rights, such as client lists, referral sources, good employees and practice goodwill are worthy of safeguarding: just as long as the steps used in creating such safeguarding are fair and reasonable in light of the circumstances.
Let's say that you borrow a million bucks and open a veterinary practice. The risk is enormous. Once you've interviewed scores of potential veterinary associates and hundreds of potential receptionists and technicians, is it right that any one of those associates should be entitled to hire away half a dozen of your best lay staff members and walk off with the client list it took you years to develop?
It sure doesn't sound fair. But it also isn't fair for you to strong-arm your associates into signing a document that effectively makes yours the only clinic in 100 miles where they can work for years to come.
So here's a business tip for practitioners and entrepreneurs alike. If the law permits it, get that non-compete and anti-employee raiding clause. But make it fair; make it realistic; and make it closely match and conform to the proprietary interest you need to protect.
Intellectual Property Protection
You don't know how successful you are going to be. It's hard to tell whether you're really as clever as you think you are. That's why they invented statutory protections for entrepreneurs, including health and science professionals.
We recently did business formation work for a practitioner who had come up with a revolutionary way to provide preventive veterinary care services in sparsely populated communities. She also had a very interesting and descriptive name for her system. How will she keep one of her associates from racing off to rural Nevada and opening up a company with an identical concept, name and logo?
First, she will reserve all rights to such intellectual property to her own business, specifically referring to it in all employment agreements. She will also take steps to avail herself of state trademark and service mark laws. She may even seek patent and/or federal trademark protection if the system and its software, and/or name and logo qualify. And she will look into the process for doing so while her proprietary concepts are still fresh: Before they are appropriated and subsequently far more difficult and expensive to protect.
If you have a really clever name for your pet care service system, you can protect it against use by others. You can never tell when you may want to franchise the idea and it will be a lot easier if you do not have to compete against others who have appropriated your compelling little name or jingle.
One of our veterinarian clients recently developed a unique system for providing blood components to private veterinary practices. Before setting foot into a single customer clinic, this smart entrepreneur sought advice on the best way to protect her from liability associated with the start-up.
We put together contract documents and some other protective systems. Then I asked her to tell me about exactly how and where the work would be carried out. The promotional demos are done at her site and in CE seminars. The service itself is carried out at each subscriber clinic. Knowing that info helped me guide her as to something very important: Where to get the numerous categories of insurance she would need in order to protect herself and her family from business-related risks. Here is a taste of coverage categories she would need to consider:
- Fire and liability business package for her site if she is carrying out client meetings there.
- Malpractice coverage if the process could constitute veterinary practice.
- Worker's Compensation Coverage, even if her state permits her to opt out because she has no employees. If she is injured while providing the service, her private health insurer could disclaim coverage due to the work-related nature of the injury.
- Business automobile coverage. If an accident occurs on the way to or from a customer clinic visit, a conflict may result when her private auto insurer tries to claim that her personal injuries were work related and therefore should be paid by her employer (that is, herself.)
- Additional business automobile and bailment coverage if she will be transporting animals or other people's employees.
- Business liability insurance to protect her specifically for injuries arising to others (including customer clinic employees) while she is carrying out her services.
- Product liability insurance to protect against breaches in sterility protocols, contamination, etc. which could arise in delivery of her service.
And also, not last but certainly not least, she should have disability coverage. The likelihood of disability associated with work is vastly greater than death associated with work. Even though young entrepreneurs usually feel indestructible and invincible, they can end up in the hospital. And they can end up broke if they can't work and don't have disability protection.