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Veterinary Law Blog

9 Items to Consider When Contemplating the Sale of Your Veterinary Practice

October 27, 2021

For many veterinary practice owners, aspirations of selling your practice may be tempered by the unknowns of the acquisition process. Even when the circumstances of a potential sale are ideal, unfamiliarity with the market and sale procedures can lead to hesitancy. While timidity toward the unknown is certainly justifiable, owners should not let it stop them from becoming a participant in the rapidly growing market for veterinary practice acquisitions. While each veterinary practice sale is unique in its own right, there are also a number of procedural commonalities that appear in nearly every deal. Getting familiar with these steps and procedures may help shed some light on the selling process and relieve the effects of the acquisition unknowns:

Deciding to Sell
: Behind every veterinary practice sale is the practice owner’s “Why”. The end goal for a successful veterinary practice owner is to one day sell their practice for a lucrative price and start their next chapter. For some, that next phase is complete retirement. For others, it might mean stepping away from a managerial role to focus solely on medicine, carving out more free personal time or sharing the responsibilities with a partner. Whatever the motivation may be, every sale of a practice begins with an owner’s decision to sell. 

Valuing the Practice
: An owner must have a general understanding of the monetary value of their practice prior to initiating the sales process. This valuation establishes reasonable expectations of return prior to entering the acquisition market and sets a pricing standard for potential buyers.   Several key factors that are helpful in determining your practice’s value include  the practice itself, equipment, and current and potential revenue. Potential buyers will also consider gross revenue, profit and loss statements, net operating income, EBITDA (earnings before interest, taxes, depreciation, and amortization), profit margins, a good location, room to expand, a long-lasting, efficient staff, a practice owner who will stick around and great client retention.

Finding a Buyer
: There are many ways in which a practice owner may come across a suitable buyer. In some cases, the buyer may be a partner or associate veterinarian in the practice. In others you may have considered selling to a corporate consolidator.   Selling to a corporate consolidator can be an excellent way for some owners to get their equity out now, with the ability to still work as a DVM for a few years after the sale.    Three things that just about every corporate consolidator is looking for in a practice – high gross revenue, profitability and location.   Knowing your options when it comes to selling your practice is a must.  Consider engaging an experienced practice broker who can help you form the best plan for you and the best plan for your practice.

Negotiate the Deal
: Once a suitable buyer has been located, it is time to determine the terms of sale. What does the purchase price look like? Will the owner receive all cash at closing?   How long will the owner have to work after the sale? Are there any ownership opportunities for my associates? Should I sell or hold the real estate? What will the terms of my lease look like?    There are many moving parts that need to be negotiated before the transaction can be consummated.  

Letter of Intent
: The letter of intent (LOI) is the preliminary agreement of the acquisition process which contains such salient terms as the purchase price, how the purchase price will be paid at closing, when the deal will close, the owner’s opportunity to reinvest in the buyer, the owner’s post-closing employment terms, and the terms involving the real estate. While the LOI is not a legally binding contract, it is typically used to establish both the essential terms of the transaction and the commitment of the parties to move toward a successful closing.

Due Diligence
: This is the process of “looking under the hood” of the practice; the buyer will conduct an extremely detailed accounting of the assets, records, inventory, and financial standing of the veterinary practice. By conducting due diligence, the buyer is ensuring that the practice to be purchased is worth the price to be paid. For this process, the parties will want to involve industry specific accountants and legal counsel, as the closing of the deal and the purchase price to be paid is naturally contingent upon buyer’s satisfaction of the due diligence outcome.

Contracting Stage
: The “Purchase Agreement” is one of the most important pieces of the entire transaction. This agreement, prepared and negotiated through each party’s respective legal counsel, will encompass the essence of the acquisition and obligations of both buyer and seller in successfully closing the transaction.

Pre-Closing Contingencies
: Between the execution of the LOI and the agreed-upon closing date, both the buyer and the seller will be contractually obligated to perform a number of actions prior to the closing. These obligations may include the obtaining financing, disclosure of all practice operations, execution of employment documents and various certificates, etc. Each party’s respective legal team will be significantly involved in facilitating the drafting of documents and ensuring the satisfaction of deadlines and contingencies during this period.

Closing
: The “Closing Date” is the day that the veterinary practice transaction is solidified; the seller is paid the purchase price, the buyer acquires ownership to the practice, and transaction is complete! Keep in mind that with modern technologies, a successful closing is typically accomplished electronically – gone are the days of the in person closing. The closing date marks the end of the acquisition process, and a new beginning for each party, especially for the owner who moves one step closer towards retirement.

Attorney: Peter Tanella
Related Practice: Veterinary Law
Category: Real Estate

Can My Practice Enforce A Non-Competition Agreement?

October 27, 2021

President’s Executive Order

The enforceability of non-competition agreements (NCAs) has been a hot topic in many industries since President Biden issued his July 9, 2021 Executive Order. The Executive Order does not bar or even limit NCAs.  Rather it is a directive to the Federal Trade Commission to analyze the issues surrounding NCAs and promulgate rules.  Although the media has framed this section of the Executive Order as seeking to ban non-competition agreements in employment contracts, the plain language of the Order makes clear that the Administration at this time is seeking to target what it feels are “unfair” uses of NCAs that “unfairly” limit worker mobility.  

Regardless of whether the FTC has the authority to do so we anticipate that it will promulgate rules relating to NCAs within the next 12 months.  We expect that the FTC will prohibit NCAs for lower wage earners, as defined by the FLSA, and will require that an NCA be presented prior to the acceptance of an offer of employment or promotion.  When these regulations are issued there will be litigation over whether the FTC has acted outside the scope of its authority.

This is not just an issue at the Federal level. A few states have already adopted legislation either prohibiting NCAs or limiting their scope.  Many other states have recently introduced legislation, that although not successful, demonstrates that this is an issue of concern to state legislatures.   It is more likely changes in the laws governing NCAs will come from the States as opposed to Congress or Federal administrative agencies.  

Creating Enforceable NCAs

You have hired a new associate.  You spend countless hours training and mentoring the associate.  You expend resources to market the associate to the community you serve, only for the associate to leave for a competitor, or start up his/her own practice in direct competition with you.  That story does not have to happen.  In most states a Practice has the right and ability to protect its legitimate business interests through NCAs.   

1.       Know Your State’s Law: California, North Dakota, Oklahoma, and have enacted legislation effectively bans NCAs in most circumstances, and Washington D.C.’s law will go into effect in 2022. Other states have implemented laws that prohibit NCAs for low wage employees or require that the employee be provided with some level of compensation during the restrictive period. Some states have implemented requirements regulating when a NCA can be issued to an employee. However, most states still will still enforce an NCA that contains reasonable terms. 

2.       Cleary Define the Services Your Practice Provides: If your practice provides emergency services, mobile services, home visitation services, or another specialty be sure to identify those specialties in both the employment agreement and restrictive covenant. If the agreement only states that the associate will provide general veterinary services to companion animals and that employee then seeks employment with a specialty practice a court may find that the two practices are not in competition and may not enforce the NCA.  

3.       Identify The Prohibited Activities: Specifically articulate the activities the associate  is prohibited from engaging in, and the classes of individuals or entities the associate is prohibited from soliciting. 

4.       Imposing a Reasonable Geographic Scope: This is going to vary based on the location of      your practice. A reasonable geographic scope in an urban area will be different than in a               suburban or rural area.  This will also vary depending on the type of practice. The      reasonable scope for general veterinary practice will be less than one for a specialty         practice.  

5.    Imposing a Reasonable Duration: Generally 1- 2 years is considered reasonable.  However, if an associate does not work out within the initial 60-90 day period of employment a Court is not likely to impose a 1-2 year NCA.

A reasonable NCA will apply only to employees who are in a position to compete with the Practice. This means veterinarians, practice managers, operations and financial officers. It should be provided to the employee at the time of hire, when given a promotion, or a bonus. An NCA with a tech or assistant is not likely to be enforceable. The NCA should identify what key services that employee provides to your practice, and what the employee is being prohibited from doing. The time and geographic restrictions should be reasonable in nature when considering where the Practice is located and the type of Practice.     

Finally, it is important to remember that non-solicitation agreements (NSAs) can be just as useful as NCAs in protecting your Practice’s business interests and NSAs are not subject to the regulation and judicial scrutiny that NCAs are. 

Attorney: Brent Pohlman
Related Practice: Veterinary Law

A "Paw"tionary Tale: Construction Counsel Can Save You Time and Money When Building or Renovating

October 22, 2021

We recently represented a veterinarian client in a construction contract dispute. He had contracted with a very sophisticated builder to build a brand-new veterinary hospital. He was a solo, and had a well-established, but relatively small practice. In the course of growing his practice and taking it to the next level, our client determined to build a new ground up facility. He contacted a reputable builder which held itself out as very experienced in this specialized type of construction. The builder developed a three- part program, with several different contracts governing each phase of the project. Our client signed the contracts and invested over $100,000 in preliminary budget discussions and design concept meetings. Our client told the builder that his budget was $ 4 million.
 
At first, our client was pleased with the level of detail in the proposal from the builder. Indeed, the builder’s proposal calculated the entire economics of the project – from the practice’s income from office visits, product sales, grooming etc., and analyzed its expenses from the cost of its bank loan to salaries and benefits costs. What ultimately happened is that the builder told our client that in order to get what he wanted, he needed to spend $ 5 million. When our client told the builder that the cost could not exceed $ 4 million as per their original discussions, the builder told our client that the only way to meet the budget was to build a lesser building. Not wanting to go over budget by a million dollars, and feeling duped by the contractor, our client terminated the contracts and had to start over from square one.
 
The good news is that our client was able to build his building with another contractor, at the high level that he wanted, while maintaining his $4 million budget. The bad news is that our client basically spent $100,000 and walked away with nothing from the first design by the original builder. He contacted us after these events occurred asking why he could not get the design drawings for his building in exchange for the $100,000 he paid? He wanted to use them to build the hospital with his new contractor.
 
Unfortunately, the damage was done. He signed the contracts without having qualified construction counsel review the contracts and explain it to him before he signed it. Had he done so, construction counsel would have pointed out to him that the design contract with the original builder contained language specifically claiming the design drawings as the intellectual property of the builder - even though our client paid $100,000 for the design. When we pointed out the language preventing our client from obtaining the drawings and using the design after the fact, he said he did not understand the meaning of that clause when he signed the contract. He is now faced with the loss of his $100,000 investment in the initial design and the delay involved in hiring a new contractor.
 
A construction lawyer also could have negotiated the terms of the contract to make sure the builder had an obligation to make a proposal within our client’s budget or be required to return the initial deposits. Also, our client would have been aware that the first $100,000 was for design concepts, not drawings, and that if he did not build the project with this contractor, he would forfeit the money.
 
When a lawyer is retained to represent a client in the negotiation and development of a construction contract, the lawyer will point out all the language in the contract that could either hurt the veterinarian’s business, require him to spend more money than anticipated and/or result in a one-sided unfair contract. Construction counsel will explain the contract terms in simple, understandable language, and ensure the project owner understands the consequences of the contract terms. Construction counsel will assist in identifying the terms of the contract that can and should be negotiated, and the terms that cannot and advise the client whether they should agree to those terms. Counsel will also propose new language to the contract to provide the best protection for the client, and educate the client regarding the construction process, so that when the unexpected occurs, they are prepared to manage it.
 
Many veterinarians are reluctant to hire construction counsel before there is a problem, thinking that they are saving money that they don’t need to spend if no problems occur. However, the reality is that penny wise is pound foolish – and this is particularly the case in construction. 
 
Hiring qualified construction counsel before there is a problem is more likely to save money than to cost money – in the shape of avoiding problems, allocating risk and meeting expectations – so that problems like the one described above are avoided at the outset. 
 
Involving construction counsel in a project from the very beginning will prevent unanticipated delays and payment disputes, and create mechanisms for ensuring quality workmanship, setting up fair and economical dispute resolution procedures and realistic budgets and schedules.
 

Attorney: Jacqueline Vogt
Related Practice: Veterinary Law

When Pet Owners File Litigation against Veterinarians, It's Rarely over Money

October 20, 2021

As if running a business isn’t hard enough, veterinarians often worry about getting sued for malpractice or negligence. One reason to be fearful is obvious – a well-publicized lawsuit can quickly ruin a veterinarian’s career and practice. Another reason to be fearful is less obvious – absolutely no one in the world, not even an attorney, can predict the outcome of a lawsuit with perfect certainty. That’s because the outcome of litigation depends on many factors, including the facts and circumstances of the case, the personal ideology of judges and juries, and the type of lawsuit brought by a pet owner. To illustrate that point, and uncover a few best practices you can follow to safeguard against lawsuits, let’s dive into a recent appellate case in New Jersey. 
 
The case of Amor the cat 
 
In this case, the plaintiff brought his sick cat, Amor, to a local veterinary hospital. Amor was subsequently diagnosed with saddle thrombus, a heart condition, and needed to be euthanized. During the euthanasia, Amor bit one of the staff members. The veterinarian informed Amor’s owner that pursuant to state law, a brain tissue sample was required to determine whether the cat had rabies. The plaintiff explained to the veterinarian that Amor was a vaccinated indoor cat, and was never outdoors. He also provided Amor’s vaccination records and suggested that the veterinarian speak to Amor’s primary veterinarian. 
 
Before Amor’s body was sent to testing, the plaintiff was given the opportunity to say goodbye. At that time, Amor’s owner cried, as he held Amor's body, spoke to him, and sang to him before the veterinarian took Amor away. At this time, the plaintiff also advised the veterinarian, not once but twice, that he intended to display Amor’s body at the pet cemetery prior to cremation. When the negative rabies test was returned, Amor’s body was released to the plaintiff.
 
When he viewed his pet at the cemetery, the plaintiff discovered that Amor had been decapitated due to the brain tissue sampling, and his head had been disposed of as medical waste. The veterinarian never explained to plaintiff what a rabies brain tissue sample entailed. Similarly, the veterinarian never provided the plaintiff with other options for sampling, even though other less drastic options existed. Plaintiff was also not informed that his pet’s head would not be returned after the testing was completed, even though such a request could be made. 
 
As a result of this incident, the plaintiff went "into a state of shock,” in front of the pet cemetery’s staff.  He also called the police department and requested to be connected to grief counseling services. 

An analysis of the plaintiff’s lawsuit

Approximately two years after Amor’s death, the plaintiff filed a complaint consisting of one count of negligent infliction of emotional distress, six counts of negligence, and one count of bailment (a legal term involving the transfer of personal property for a short time). This article will solely discuss the first count of the plaintiff’s complaint, in which the plaintiff alleged that he developed severe mental and physical health problems because of the incident. 
The plaintiff’s suit was dismissed at the trial court, but on appeal, the appellate court ruled that the veterinary hospital had a duty to return Amor’s body in an acceptable condition. It also ruled that the veterinary hospital breached their duty to Amor’s owner by disregarding the obvious mental distress he would experience from seeing Amor’s decapitated body, and by decapitating Amor without informing him of less drastic alternatives, pursuant to the New Jersey Veterinary Procedures for Handling Rabies Situations. Ultimately, the appellate court reversed the trial court’s dismissal and remanded the case for trial.
 
Key takeaways from the decision 

The appellate court clearly outlined the mistakes that led to this lawsuit, and by analyzing those mistakes, a few best practices emerge:  
 
1. Empathy is a critically important quality: It is important for you to know your client and pay attention to social cues. In this case, the veterinarian and staff did not place enough emphasis on the plaintiff’s obvious emotional distress. The court emphasized the fact that the plaintiff cried loudly, held Amor's body, spoke to him, and sang to him before the cat's body was taken away. As this case highlights, it is more likely that a court will find “foreseeable damage,” if a highly emotional or sensitive client is involved. When these situations arise, it’s important to recognize them and handle accordingly. 
 
2. Learn to communicate effectively: Spending time with clients and practicing effective communication, oral and written, is one of the best ways to ward off malpractice and legal liability. It is your responsibility to ensure that clients are fully informed about their pet’s treatment and their options. In this case, the client knew nothing more than his cat was being tested for rabies. He was not informed how the test was conducted, whether alternate testing was available, and in what state his pet would be returned to him. 
 
3. Listen, and then listen some more: We all know the feeling of seeing a doctor that didn’t spend enough time with us, or wasn’t really listening. Listening to the client could have played a large role in avoiding this lawsuit. The plaintiff clearly explained that Amor was an indoor cat and that his vaccinations were up to date. Even if testing was indeed necessary, the plaintiff also repeatedly put the veterinarian on notice that he would be viewing Amor at the pet cemetery. Nevertheless, the hospital did not take any of the precautionary measures that were available. 
 
4. Train your staff to handle difficult situations:  An emotional intelligence workshop, or even a basic training session that reviews different client scenarios can help prepare staff to handle difficult situations. For example, in this case, when the plaintiff called the hospital to ask why he was not informed that Amor would be decapitated, an employee referred the plaintiff to the Department of Health with Amor's case number – a decision that left an emotionally distraught client angry, and with unanswered questions. Subsequent calls to the veterinary hospital led to similar outcomes for the plaintiff, and eventually, to litigation. If you run through situations like this with your staff, and develop a set of best practices, you may be able to prevent difficult matters from escalating.   
 
The big takeaway

Lawsuits are often not about money. They frequently arise not because of the initial action, but because people feel that they were ignored, or mistreated, or even lied to by people they trusted. Luckily, lawsuits are not inevitable. If you hone the skills noted above, you stand a much better chance of avoiding lawsuits, or improving your odds in lawsuits that do arise. 
 

Attorney: Melody Lins
Related Practice: Veterinary Law

Potential Capital Gains Rate Increase May Supercharge the Veterinary M&A Market

August 17, 2021

At certain points in time, there have been unique windows of opportunity, where market factors have driven veterinary practice valuations upward. For example, in 2012, America approached a fiscal cliff, due in large part to George W. Bush’s expiring tax cuts. If Congress and President Obama failed to act, which it appeared they might, it would have led to the largest tax increase in more than six decades. As this played out, many veterinarians raced to close their transactions, fearful of an increase in the capital gains rate.

In the end, Congress and President Obama reached a last-minute compromise that avoided most of the issues that veterinarians feared were inevitable – and the M&A market came back to earth.

If you fast forward to recent times, one trend driving transaction activity in the marketplace is the consolidation that’s occurring throughout the profession. We are now seeing the rapid emergence of private equity-backed consolidators, which are becoming a greater percentage of the overall marketplace. As a result, practice values and sale prices have been driven higher because of the different valuation concepts used by private equity compared to traditional veterinarian to veterinarian transactions.

Throwing gas on this already bright fire is the COVID-19 pandemic, which has caused many veterinarians who were contemplating their future to rapidly accelerate their timetable for transition. Simply put, many older veterinarians have been impacted by the stress of the pandemic, and when they’ve been presented with one of the lofty offers floating around the market these days, decided that they did not want the burden of running their practices anymore.

On top of this, we see a third factor emerging, which should lead to an unprecedented volume in M&A activity in the profession. Since the beginning of the COVID-19 pandemic, the federal government has been printing money at an unprecedented pace, including the $2.2 trillion CARES Act passed in March 2020, a $900 billion relief bill passed by the Trump Administration late last year, and President Biden’s $1.9 trillion American Rescue Act, passed in March of this year. On top of that, the Senate passed a $1.2 trillion infrastructure bill in August, and one day later a larger $3.5 trillion budget resolution.

When you add up these extraordinary pieces of legislation, you get a potential total of over $9.7 trillion of newly printed money by the federal government – in just over a year. Regardless of your politics, this spending will plunge the country deeper into debt, and there appears to be no plan to pay for any of it other than President Biden’s plan to dramatically raise taxes. Moreover, the intensity of political debate is fierce, as politicians fight for, and against, such a complete overhaul of the tax system.

If you’re contemplating a practice transition, it’s important to recognize that a material increase in the capital gains rate is a likely outcome from this debate, and that change will have significant adverse tax consequences if you sell a practice after December 31, 2021 (the President’s plan calls for making this increase retroactive in 2021, but most experts do not believe he has the support for such a drastic measure).

The current proposal calls for any person or family with a combined income of $1 million or more to potentially pay 39.6% tax on any capital gain or ordinary income, plus the Obamacare tax, resulting in an enormous tax of over 40%. Many in the tax profession believe it might be difficult for the President to gain the support of every single Democrat, which he will need in order to pass this huge tax increase, however the same experts are confident that there will be an across-the-board increase in the long-term capital gains rate from 20% to something in the neighborhood of 30%. While nobody has a crystal ball, when you reflect on the recent spending, and the fact that the country was already massively in debt, I think we can all agree that our taxes cannot stay the same.

Taken together, this perfect storm of conditions should lead to unprecedented veterinary M&A activity in the final quarter of 2021.


My advice to you is this: If you’re thinking about listing your practice, or considering a transition, you must start the process immediately. And for those of you looking to grow through acquisitions, I recommend you speak with your banker, line up capital, and be ready to strike at an opportunity with a motivated seller who is racing against the tax clock.

Attorney: Peter Tanella
Related Practice: Veterinary Law

Employee Handbooks for Veterinary Practices

August 4, 2021

A handbook is an important resource that every veterinary practice should have, whether it has five, 25, or 50 employees. That’s because the key to healthy relationships between employers and employees is clear and consistent communication. Most workplace dissatisfaction, tension, and even litigation results from employees not knowing what’s expected of them, what they are entitled to, or the appearance of practices and polices being inconsistently applied. A handbook provides employees with the following:
  • An introduction to the practice’s culture, mission and values
  • An understanding of what’s expected of employees with respect to punctuality and attendance, job performance, attire, client and patient interactions, workplace communications and other items.
  • An explanation of employee benefits and how to make use of them.
  • An explanation of employee rights, and what steps an employee can take if they believe their rights may have been violated.
  • Information about how employees can communicate with management or ownership.
A handbook is also beneficial because it ensures compliance with federal, state, and local laws, and it can serve as a defense to claims in litigation. Drafting, distributing, and implementing a handbook is a great first step, but practice owners cannot put it on the shelf and forget about it. Ideally, a practice should review its handbook once a year for changes in employee benefits, new positions or updates to existing ones, and several other reasons, including:
  • Changes in federal, state, or local laws: Existing employment laws are continually being revised and new laws are being enacted all the time. A practice needs to ensure that is not inadvertently violating the law, which can lead to an agency investigation or lawsuit.
  • Changes in staffing levels: Many employment laws are based on the number of employees that work for an employer. As your practice grows there may be laws and regulations that you will now have to follow.
  • Adding new locations: If you open a location in a new city, county or state the handbook may need to be revised to address laws specific to that location.
  • Changes in practice or procedure: As a practice grows, new policies and procedures are often developed and implemented.

Attorneys: Peter Tanella and Brent Pohlman
Related Practice: Veterinary Law

Mut Do's If Thinking of Selling

June 22, 2021

The purchase or sale of a veterinary practice can be an overwhelming journey. Even seasoned clinicians will encounter numerous potholes — emotional, financial and legal issues — on the road to closing what in many cases can be a multimillion-dollar transaction. Here are eight gaffes that frequently occur in the veterinary world and suggestions for overcoming them.

1. Failing to Plan

Selling a practice takes time. Not adequately planning for the sale can cause you to miss valuable opportunities to find the right buyer. To avoid this mistake, sellers should continually update their records and keep a sales portfolio on hand. Buyers and brokers notice when a seller has been diligent, giving them confidence in the purchase, not to mention assurance that the sale was not driven by desperation.

2. Rushing into Negotiations

Rather than immediately incurring the expense of drafting a contractual agreement, both parties should consider entering into a letter of intent. An LOI is not a legally binding contract; it’s a document that outlines the preliminary agreements and understandings. It should describe the deal’s essential terms, including the timing, monetary provisions, financing, contingencies, risk allocation, transition, form of documentation and which party will prepare the documentation. A well-drafted LOI increases the likelihood that a contract will be signed and that the transaction will close.

3. Not Enough Due Diligence

A deal should not close until the buyer is satisfied with the due diligence conducted. A thorough due diligence process should include:
  • A detailed accounting of the practice’s assets and liabilities.
  • An inspection of the premises, assets, inventory, records, tax returns, financial statements, client charts, accounts receivable, personnel files, employment agreements, leases and contracts, list of creditors, insurance policies and benefit plans, and any government approvals required to operate the practice.
The buyer should check for liens against the practice’s assets. Most notably, during due diligence the buyer will want to determine the viability of the real estate lease, ratify the fairness of the purchase price, verify financial data, be satisfied with personnel contracts and other key agreements, and inspect and cross-reference charts with billings and procedures.

4. Delaying Lease Talks

A tremendous amount of goodwill is attached to the practice’s physical location. The buyer should not assume that a lease is sound simply because of longevity. Buyers should request a copy of the lease upon taking an interest in a practice and begin a dialogue with the landlord. The seller should be upfront with the landlord, especially if the lease will expire soon.

5. Ignoring Accounts Receivables

The most common ways to manage accounts receivables (A/R) are:
  • The seller keeps A/R, and the buyer collects it as a courtesy or for a fee.
  • The seller collects and keeps A/R.
  • The buyer pays a negotiated amount and collects A/R after closing.
Determine early the amount of A/R. One drawback of having the seller collect it is that the practice’s goodwill could be damaged if the seller aggressively chases clients who owe money.

6. Not Establishing Clear Restrictive Covenants

The seller’s post-closing plan should be shared and understood. The seller is receiving significant consideration during the transaction — the purchase price — and the buyer is acquiring all the goodwill and, in most cases, taking on considerable debt. Therefore, what’s reasonable is a requirement that the seller agree to a post-closing restrictive covenant with substantial time and geography limitations so that the seller leaves the marketplace.

7. Forgetting the Transition

A reasonable transition period will benefit the buyer, seller and veterinary clients. The contract should detail the arrangement. At a minimum, the seller should be willing to answer questions and introduce the buyer to clients and employees for zero to nominal consideration. The buyer should reserve the right to cut ties to the seller if the post-closing chemistry isn’t working.

8. Failing to Build a Team

Selling a high-value practice requires a professional team to work with potential purchasers, maximize the price and sale terms, and analyze the tax and legal issues. A solid team should include an experienced practice broker, an accountant and an attorney.

Avoiding these eight mistakes when you buy or sell a veterinary practice should put you well on your way to a positive experience. Good luck!

Attorney: Peter Tanella
Related Practice: Veterinary Law

When Wil I Get My COVID-19 Vaccination?

February 24, 2021

The FDA began issuing COVID-19 vaccines in December. With distribution determined by “phase” classifications, many members of the veterinary industry have been left wondering when their vaccines will be made available.

Vaccination distribution plans have been primarily left at the discretion of state governments, thus resulting in some differences from one state to the next. That said, Phase 1A has generally included frontline healthcare workers, as well as residents and staff of long-term care facilities. Upon the substantial completion of Phase 1A, some states have begun transitioning to Phase 1B, which generally includes first responders, individuals over the age of 65, and individuals with underlying health conditions. The parameters of Phase 1C is still largely unclear in many states, but it is generally expected to encompass select groups of “essential workers,” including childhood education workers, public transit workers, postal workers and more. Vaccination of the general population is not expected until Phase 2 (or, in some states, Phase 3).

While veterinarians are typically recognized as “healthcare providers” by their respective states, they have scarcely been included in Phase 1A of vaccine distribution – with California and Oregon being notable exceptions. The CDC has recently recommended including “veterinary services” in Phase 1B of vaccine distribution, with states such as Illinois and Pennsylvania following this federal guidance. Other states, however, have not granted this level of priority; for instance, South Carolina and New Mexico have designated veterinarians as Phase 1C eligible, while Massachusetts will not make vaccination available to veterinarians and support staff until it is available to the general population in its respective Phase 3.

Many states such as New York, New Jersey, Florida, and more, have yet to determine which priority status will be granted to veterinarians and support staff, if priority status is provided at all. The prevailing trend seems to be that veterinary medicine will receive Phase 1B or Phase 1C classification in most states. However, it is important to remain up to date on the vaccination distribution plan of your respective state, as such plans have been subject to frequent update and revision. 

Attorney: Peter Tanella
Related Practice: Veterinary Law

Veterinary Telemedicine Options During and Beyond COVID-19

May 15, 2020

On March 24, 2020, the U.S. Food and Drug Administration (FDA) suspended temporarily the enforcement of certain regulations governing veterinarian-client-patient relationships (VCPRs), a move that helps veterinarians examine and treat animals using telemedicine, while limiting human interaction and the potential spread of COVID-19. This is welcome news if you’re considering telemedicine for your practice, but you also need to review the specific VCPR requirements that may exist in your state; as well as telemedicine licensing considerations if you’re treating patients across state lines.

After you’ve done that, there are a number of technology options available, including TeleVet, Medici, GuardianVets, AirVet, BabelBark and VetCareShare. Here are a few common features, and the potential benefits they provide:

Remote exams and evaluations


Telemedicine platforms make it easier to offer certain services remotely, such as medical progress exams and follow-up evaluations of existing conditions. For instance, a vet could remotely offer post-operative surgical consults; and evaluations of skin disorders, wound healing, ear infections or bladder infections.

File and screen sharing


The telemedicine platforms offered by these companies include features that have been widely adopted during COVID-19, including image and video sharing, and document transfers. In addition, some allow vets to share lab results or x-rays with a voice recording that explains the results to the animal’s owner. Many of these platforms also help veterinary practices store and maintain medical records, including pictures, data, client/provider communications, and recorded consultations. 

Remote monitoring of patients


Some platforms also include around the clock ability to monitor a patient’s well-being. For example, telemedicine platforms have been used to supplement and support veterinary staff by providing a hotline that can triage patients’ medical needs remotely. Further, to ensure continuity of care, some platforms can send veterinary practices the details of the call and outcomes, which can be helpful with after-hours cases and overflow. 

Patient monitoring applications

Another benefit of some platforms is a patient monitoring application, which enables the service provider and the client to share health metrics such as weight, diet, nutrition, medication compliance, activity or exercise. This feature expands the data in a veterinary practice’s medical records because clients can make contemporaneous updates, such as a recording of a pet’s food, or notes about prescriptions purchased elsewhere, all of which can help if correlated health issues arise later.

Attorney: Melody Lins
Related Practice: Veterinary Law

Life After COVID-19: Preparing to Reopen Your Veterinary Practice

May 15, 2020

Stay at home orders and social distancing may be the current norm, but eventually businesses will re-open and gradually come back to life. In the rush to return to normal, veterinary practices must carefully plot the safest and smoothest path forward. In this article, we address many of the issues veterinary practice owners need to be mindful of as they re-integrate their workforce, including employment rules, guidance for managing the care of household animals that reside with a person with COVID-19, and best practices for implementing curbside service and/or telemedicine.

What kind of medical information can veterinary practice employers ask their employees?


Employers covered by the Americans with Disabilities Act (“ADA”) may ask employees who report feeling ill at work, or who call in sick, questions about their symptoms to determine if they have or may have COVID-19. Currently these symptoms include, for example, fever, chills, cough, shortness of breath, or sore throat. These inquiries are not disability-related and are thus permitted under the ADA. Similarly, an employer can send home an employee who has reported to work with COVID-19 or symptoms associated with it. Further, because the CDC and state/local health authorities have acknowledged community spread of COVID-19, employers may also measure employees' body temperature as an additional measure to protect the practice.  However, as with all medical information, employers must maintain all information about employee symptoms and illness as a confidential medical record in compliance with the ADA.

May a veterinary practice employer compel its employees to take a vaccine during a pandemic?


No. An employee may be entitled to an exemption from a mandatory vaccination requirement based on an ADA disability that prevents him from taking the influenza vaccine. This would be a reasonable accommodation barring undue hardship (significant difficulty or expense). Similarly, under Title VII of the Civil Rights Act of 1964, once an employer receives notice that an employee’s sincerely held religious belief, practice, or observance prevents him from taking the influenza vaccine, the employer must provide a reasonable accommodation unless it would pose an undue hardship as defined by Title VII. Although there is no currently known vaccine available for COVID-19, ADA-covered employers should consider simply encouraging employees to get the vaccine rather than requiring them to take it. 

May a veterinary practice employer require employees who have been away from the workplace during a pandemic to provide a doctor’s note certifying fitness to return to work?


Yes. Such inquiries are permitted under the ADA either because they would not be disability-related or, if the pandemic influenza were truly severe, they would be justified under the ADA standards for disability-related inquiries of employees. As a practical matter, however, doctors and other health care professionals may be too busy during and immediately after a pandemic outbreak to provide fitness-for-duty documentation. Therefore, new approaches may be necessary, such as reliance on local clinics to provide a form, a stamp, or an e-mail to certify that an individual does not have the pandemic virus.

What guidance exists for veterinary practices that manage the care of household animals that reside with a person with COVID-19?


In addition to other prevention measures, people with COVID-19 should be advised to limit interaction with household animals. Specifically, while a person infected with COVID-19 is symptomatic, they should maintain separation from household animals as they would with other household members, and avoid direct contact with pets, including petting, snuggling, being kissed or licked, sleeping in the same location, and sharing food. If possible, a household member should be designated to care for pets in the home and should follow standard handwashing practices before and after interacting with the household animal. If a person with COVID-19 must care for pets, they should ensure they wash their hands before and after caring for pets. If an owner is sick with COVID-19, a family member or friend from outside the household may bring the animal to a veterinary hospital or clinic. Telemedicine may also be appropriate to provide consultation with a veterinarian if the owner is a COVID-19 case and is unable to find an alternative caretaker to bring the pet to the hospital.

Veterinarians and their staff should review and adhere to their biosafety and biosecurity protocols for infectious diseases to ensure the safety of their patients. Further, they should familiarize themselves with the concepts in NASPHV Compendium of Veterinary Standard Precautions for Zoonotic Disease Prevention in Veterinary Personnel. This document outlines routine infection prevention practices designed to minimize transmission of zoonotic pathogens from animals to veterinary personnel. These infection prevention and control guidelines should be consistently implemented in veterinary practices and hospitals, regardless of ongoing outbreaks of infectious diseases, but are especially important during an outbreak of an emerging infectious disease such as COVID-19. Further, a state public health veterinarian should be contacted by animal health professionals or veterinarians that have discovered a household animal with a new, concerning illness that has had close contact or resides with a person with COVID-19.

How should veterinary practice managers change their protocols to continue providing excellent service while keeping people and animals as safe as possible?


Social distancing has proven to be an effective way to mitigate the spread of COVID-19. Therefore, many veterinary practices and hospitals have changed their workflow completely to offer curbside service. If your practice has not implemented telemedicine or curbside services yet, this may be the best way to ease back into life after COVID-19. Many practices made the decision early on to stop elective procedures and ancillary services (e.g. grooming, boarding) and currently are providing only outpatient services and emergency surgeries. With a few exceptions, namely euthanasia appointments, clients are being asked to remain in their cars and are not permitted in the building.

Attorney: Peter Tanella
Related Practice: Veterinary Law

When Should Veterinarians Consider Forming a Management Services Organization?

March 12, 2020

A Management Services Organization Adds a Layer of Structural Complexity to a Veterinary Practice but Offers Non-Veterinarians and Even Family Members the Opportunity to Reap the Financial Rewards

Veterinarians, investors and executives who want to form a management services organization (MSO) often do so without fully exploring the reasons. One revolutionary change in the veterinary industry over the last decade was heightened interest in MSOs, which resulted in a lot of newer market entrants, including, but not limited to, private equity.

The problem for private equity and any other potential investor is that in most states, they cannot own the veterinary practice because it is not a professional entity. The only entity that private equity or any other investor can typically own is the MSO.

What Is an MSO?

At its most basic level, an MSO is a legal entity that is separate and distinct from a veterinary practice and that provides certain administrative or management services. In most states, a veterinary practice must be owned and controlled by one or more licensed veterinarians. Some states require those veterinary owners to be licensed in the state, while others will accept equivalent licensure from another state.

Some states allow non-veterinarians to own the practice directly, so long as patient care decisions are ultimately made by licensed individuals. In states where practice ownership is restricted, non-veterinarians may own the MSO instead. These non-veterinarians can be investors, lenders, members of management, trusts, or friends and family investors. These individuals may own the MSO alongside one or more of the licensed veterinarians.

Such flexibility permits the practice’s veterinary owners, for example, to have family members partially or completely own the MSO so that they can indirectly enjoy the financial rewards of the practices. Alternatively, the veterinary owners might want to expand or purchase additional practices but do not want to assume additional debt liability. The MSO can be owned by non-veterinary investors as a means of providing capital for funding practice expansion. The profits that these non-veterinary investors realize from their ownership of the MSO, and the value of this business entity at the time of a sale, are, in effect, the return on investment for these non-veterinary investors.

Back-Office Support

Involvement of the MSO in the veterinary practice and services provided will vary based on the goals of the parties as well as the applicable state regulations governing these arrangements and the corporate practice of veterinary medicine.

An MSO may be involved in almost every non-clinical aspect of the business and offer a full suite of administrative and management services, including billing and collections, IT support, human resources, professional management, payor contracting services, financial accounting, and benchmarking. On the other hand, an MSO may contract to provide a smaller subset of services in a fee-for-service model. The MSO can provide overall management and administration, all support services, facilities, staffing, equipment and supplies — essentially everything the practice needs to operate except for the actual veterinary care.

The MSO’s goal is to free veterinarians from the burden of operating the practice as a business, leaving them to focus on patient care and growing the practice. The MSO accomplishes these goals by hiring the support staff (office and clinical) and leasing them to the practice. In a practice acquisition, the MSO will typically purchase all of the selling practice’s equipment, both office and clinical. In a de novo scenario, the MSO purchases or leases all the new equipment. In both situations, the MSO will then lease the equipment to the practice. The MSO thereby assumes all the financial and all other obligations and responsibilities for the equipment, including its maintenance, repair and replacement.

Similarly, the MSO assumes responsibility for the purchasing and adequately supplying the practice with all required office and clinical supplies. Further, the MSO can assume the building lease, including payment of rent and all other landlord relations, and then sublease the office to the practice. If the practice owns the real estate, then the MSO can either act as the property manager or the MSO can own the real estate and lease the premises to the practice.

The operational advantages of the MSO can be summarized as economy of scale, greater efficiency and availability of a higher level of services. The economy of scale and enhanced efficiency is realized through the MSO’s providing of services for any number of practices with administration of their overall business operations, including human resources and centralized billing and collections, increased purchasing power, and the ability to negotiate lower rates on employment-related insurances such as health coverage and workers’ compensation.

The relationship between the MSO and practice is contractual. The MSO will typically enter into a long-term agreement to provide all the services and other items described above in exchange for a management fee. Because the relationship is contractual, it affords the parties involved great flexibility in what the MSO will provide to the practice and the ability to change the mix of services and other items as the relationship and business progress.

Savings and Additional Costs

Creating an MSO does not by itself create any real value attractive to investors. The value is in being able to deliver efficient processes, standardization and professional business management in a way that is scalable across multiple locations. Additionally, creating an MSO comes with some cost, such as legal and accounting fees, and adds a layer of structural complexity. Most importantly, the MSO and its arrangement with the practice will need to be structured to comply with the state’s corporate practice of veterinary medicine restrictions and federal and state fraud and abuse laws.

Additional structural complexity comes at a cost. Whereas operating out of a single professional entity as a veterinary practice is relatively straightforward, operating an MSO with one or multiple levels of management and submanagement can create headaches. Investors, management and clinicians will need to be taught the vagaries of a somewhat esoteric legal structure.

Finally, moving from a single-practice structure to an MSO can limit flexibility in structuring a sale or acquisiion. Specifically, in creating an MSO, the parties might inadvertently create issues around concepts like subchapter S elections, depreciation recapture and taxes.


This story was originally published in todaysveterinarybusiness.com

Attorney: Peter Tanella
Related Practice: Veterinary Law
Category: Partnership Agreements

Avoiding Malpractice Liability

October 6, 2019

Avoiding Malpractice Liability: A Guideline for Veterinary Practices



What is Veterinary Malpractice?

Veterinarians are regulated by state board of examiners and a few governmental agencies, such as the DEA and OSHA. Veterinary malpractice refers to a situation where a veterinarian has failed to meet the reasonable standard of care when providing healthcare to an animal. Malpractice generally occurs when a veterinarian falls below the normal standard of care, which then causes injuries to an animal. The standard of care for veterinarians is like other professions, which adheres to the normal practices and protocols in the field which practitioners are expected to follow.

Negligence

In order to prevent medical malpractice, veterinarians should be aware of a few general principles regarding negligence. To recover and/or prevail in a malpractice lawsuit, a pet owner has to prove the following four elements by the preponderance of the evidence: (1) the veterinarian had a duty of care to treat the pet; (2) the veterinarian failed to meet the professional standards of care; (3) the pet was killed or became sicker because of a veterinarian’s incompetence; (4) as a result of the injury, the pet owner experienced some kind of harm such as an economic loss or emotional distress. However, lately there has been a shift in the considerations for the fourth factor in many courts. Under common law pets are viewed as property, and usually can be replaced with another pet. However, now courts are starting to view pets more as family members in some jurisdictions and this is changing precedent. This change in the assessing of damages will likely lead to a rise of malpractice suits for veterinarians.

Differentiating Malpractice and Examples of Malpractice

It is also important to differentiate between veterinarian malpractice and the concept of simple negligence – a mistake by a veterinarian does not always amount to malpractice. In contrast to a simple mistake, malpractice is based on the level of a veterinarian’s professional competence or judgment. There is a myriad of reasons that a veterinarian may face allegations of malpractice, which includes:
i. Incorrectly or delaying the diagnoses of an animal’s illness.
ii. Providing the wrong treatment or medicine. This can also include failure to provide treatment when an animal is in need.
iii. Recommending a treatment plan that is inappropriate.
iv. Stopping treatment prematurely.

Addressing an Accusation of Malpractice

The way a veterinarian addresses an accusation will depend on the allegations set forth in the lawsuit, state board complaint, or both. Immediately upon receiving a complaint, the veterinarian should contact his/her professional liability insurance carrier and ask for advice. Typically, the insurance carrier will require the defendant to fill out forms in which the veterinarian describes the circumstances leading to the claim. A claims representative will then review the facts and make a recommendation regarding a course of action and assign an attorney for a defense. When dealing with a letter from the state board, the veterinarian will be defending conduct on his/her own expense, since professional liability carriers generally do not provide coverage for state board actions. In this situation, it is highly recommended to obtain legal advice as to how long to respond to such allegations and have an attorney review the letter.

Avoiding Client Complaints

The best measure to avoid facing a lawsuit or state board investigation is to take measures to avoid client complaints. To start, periodically evaluating your practice and identifying areas where preventative measures can be made to avoid complaints. Veterinarians should also regularly consult their staff, colleagues, and even insurance carriers to ensure that they are aware of preventative measures adopted by other practitioners. Staying up to date with developments in the legal liability field should be an integral part of a veterinarians continuing professional education. In this area, a preventative attitude is always the best approach.

Professional Malpractice allegations can come in the form of a civil lawsuit or state board action and require veterinarians’ immediate attention so as not to compromise their defenses. Preparing a defense against such allegations is facilitated by having knowledge of the law of negligence and an understanding of the adjudicatory process. Nonetheless, the best defense lies in addressing client complaints when they first arise by using honed listening and communication skills, keeping abreast of the standard of care within the industry and adopting preventative measures.

For more inf
ormation contact Peter H. Tanella at ptanella@lawfirm.ms.

Attorney: Peter Tanella
Related Practice: Veterinary Law
Category: General Practice Governance, Hot Topics in Vet Law

Surviving the Corporatization of Veterinary Medicine as an Independent Practice

October 5, 2019

Surviving the Corporatization of Veterinary Medicine as an Independent Practice



While the veterinary industry remains comparatively fragmented to other parts of health care, the area has seen substantial consolidation over the last five years. The consolidation has largely been led by Mars, Inc., who are considered by many to be the lone strategic buyer in the industry. But, as more private equity firms begin to explore sales of their investments in veterinary hospital groups, new strategic buyers attempting to capture economies of scale could emerge. In this coming shift, how can a veterinary practice owner continue to grow their practice, or, if the time is right, obtain the best value for their practice?

Private Equity has been a persistent investor in the veterinary industry because of the lack of strategic buyers, the attractive private pay revenue stream, and the largely recession proof market for veterinary services. Over the past 5 years the industry has seen two stages. First, the Ares purchase of National Veterinary Associates for 13x EBITDA in mid-2014 until the Morgan Stanley investment in Pathway Partners. The second stage began with Mars Inc.’s purchase of VCA at a multiple of 18x EBITDA in late 2017 is continuing today. The current climate of large valuations are seen when larger groups can capture economies of scale, roughly at 20 clinics. However, the purchase price for smaller groups and add-on investments has also crept up to about 8x-10x EBIDTA from 6x.

Currently, the expectation is that the private equity firms will remain active in the space for another 6-8 years at which point the market is expected to have become more consolidated. This shift will occur as investments reach the end of their timeline and begin to sell to established corporate groups like Mars or new strategic buyer entrants.

A practice owner in this environment can find it stressful to grow their business with the economic pressure that can come from corporate groups or feel anxious that they are not getting the best possible price for the business they have worked so hard to build.

First, remember that what makes a veterinary practice successful has not changed in the current environment. Veterinary practice owners should continue to do what some large corporations cannot: practice better medicine and offer better and more personalized client services! But in order to continue to grow and be attractive to clients and potential buyers, practice owners should learn from the corporate model and focus on the business side of revenue and improving efficiencies.

A few areas that practice owners can learn from the big corporations are:

Marketing

Corporations spend a lot of time marketing and it really matters. Spend time developing a marketing plan and thinking about strategic partners in the community.

Team and Client Education

Corporations do a great job and invest a lot of effort into making sure their teams are on the same page. Practice owners should develop training manuals for their employees on a variety of topics. Furthermore, corporations often have resources online to educate clients on major issues.

Talent Acquisition and Retention

Big corporations have the advantage when it comes from providing benefits to new and existing hires. Practice owners should educate themselves on benefit offerings and make the investment in the wellbeing of their associates and staff.

Facility Investment

Lastly, practice owners shouldn’t shy away from investing in the physical appearance of the practice. While corporations might be able to invest more money into renovations, smaller investments into the facilities of the practice can pay large dividends down the road.

In the climate of corporate competition, remember to focus on what made your practice successful in the first place. The independent veterinary practice will continue to survive, but the corporate structure is here to stay.

For more information, please contact Peter Tanella at 973.243.7915 or ptanella@lawfirm.ms.

Attorney: Peter Tanella
Related Practice: Veterinary Law
Category: General Practice Governance, Hot Topics in Vet Law

Maximizing your "Paw"-Fits

October 4, 2019

Maximizing your “Paw”-Fits: Structuring Your Veterinary Practice the Right Way



Choosing the right business structure for a veterinary practice is a vital decision that can have significant consequences for the future of your practice. If a veterinarian selects the wrong structure, it can cost their business a significant amount of money. Choosing a correct business structure for a veterinary practice is a fundamental decision that will impact your business daily and should be guided by an attorney. The main factors to consider when structuring your business are: (1) the financial issues and tax consequences; (2) limited liability; and (3) flexibility versus formality. Selecting a business structure is one of the most important decisions you will make for your practice. In selecting the right entity, substantial tax, legal, and accounting expertise is recommended. It is advantageous to start your business on a good foot, and while it may look daunting to hire expert consultants at the beginning of your endeavor, it is a valuable investment for your future success. The proper structure of your veterinary practice will allow you to reap all the possible benefits and increase your chances at a successful practice. However, it is recommended for veterinarians to stay active in the process in order to ensure that the expert’s proposals reflect the needs and goals of your practice.

Tax Considerations

Tax benefits are a primary driver when choosing a proper legal structure for a veterinary practice. Two key aspects include: taxation on income/profits and taxation on the sale/transformation of a practice.

Limited Liability

Limited liability is another significant consideration when deciding between business entities. The majority of independent veterinary practitioners around the country have traditionally operated as a partnership or sole proprietorship. However, there is a growing trend towards incorporating a practice and/or forming LLC’s as a vehicle for running the business because the structures various benefits. This business structure combines features of a corporation and has elements of a partnership and/or sole proprietorship. Limited liability companies can be tactical from a tax standpoint. Single member LLCs can be taxed either as a ‘C’ Corp or sole proprietorship. Multi-member LLC’s can elect to be taxed as either a ‘C’ Corp or partnership. However, this can be dependent on the state, as not every state allows for veterinarians to form an LLC (for example, California). There are many benefits for the LLC Sub ‘S’ structure. These types of entities are treated the same as any other corporation under state law. Although under federal law, ‘S’ corps do not receive federal tax.

For certain veterinary practices, it can be advantageous to be the only owner and in complete control of the practice. There would be no requirement for seeking approval and or consent of any partners, members, or officers. With a sole proprietorship, there are also minimum to no reporting requirements. Sole proprietorships do not need to file an annual report with the state or federal government. However, under a sole proprietorship, a veterinarian will be held personally liable for all general debts and liabilities of the practice. Moreover, in a partnership, each partner is jointly and severally liable for the debts and obligations of the business. In comparison to sole proprietorships and partnerships, the significant advantage of a corporation or LLC is that the owners of the business (the shareholders/and or members) enjoy the benefits of limited liability.

There is one big exception; however, in that a veterinarian is always liable for his/her own professional negligence and negligence of other employees. Insurance is the only avenue to mitigate this kind of liability, and it a necessity in veterinary practices.

Benefits of Flexibility and Adhering to Formalities

Certain entities also provide more flexibility and can be less of a burden than others. Veterinarians often ignore these formalities, which can be a serious mistake. In certain instances, courts have looked past the liability shield and have held owners personally liable for failing to observe the formalities of separating their personal affairs from their veterinary practice.

Attorney: Peter Tanella
Related Practice: Veterinary Law
Category: General Practice Governance, Tax Planning, Partnership Agreements

A Guide on the Upcoming Minimum Wage Increases in New Jersey

July 1, 2019

In early January, Governor Phil Murphy and Democratic leaders of the Legislature struck a deal that would raise the minimum wage to $15.00 per hour in New Jersey. On Monday, February 4, Governor Murphy followed through on his campaign promise, signing the legislation that will increase the state’s minimum wage over the next few years.[1]  This deal places New Jersey among the most progressive states in the nation, joining California, New York, and Massachusetts, in phasing into a $15 hourly wage.[2]

While the wage increases are seen to be beneficial for employees, numerous small to medium-sized businesses are apprehensive about the reforms and impact on company revenues.  The good news is that the impending changes provide an opportunity for New Jersey employers to audit their pay practices and ensure that they are in compliance with all wage and hour laws.  Below summarizes the potential impact of the new ordinance and provides some tips for adjusting to the wage increases:

I.    Increases will continue through 2024

The new minimum wage ordinance will not occur immediately.  Rather, the deal sets forth a gradual increase until it reaches $15 dollars per hour in January 1, 2024.  The current minimum wage in New Jersey is $8.85 per hour.  The following chart details the scheduled increases in the state’s minimum wage.

  • On July 1, 2019 – the minimum wage will increase to $10.00 per hour.
  • On January 1, 2020 – the minimum wage will increase to $11.00 per hour.
  • On January 1, 2021 – the minimum wage will increase to $12.00 per hour.

The minimum wage would then increase on January 1 by $1 each year from 2022 to 2024 until topping out at $15 per hour.[3]  The new minimum wage will apply to most workers in the state, although there are a few so called carve-outs.  The deal calls for most wage earners to receive a minimum of $15 an hour by 2024, but includes a slower schedule for workers at seasonal businesses, small businesses with five or fewer employees, and farmworkers.  Farm workers, for example, will see their minimum wage climb to just $12.50 an hour over five years.  Seasonal workers and small businesses with five people or fewer would see their minimum wages reach $15 an hour by 2026.[4]

II.    The Business Impact

Although raising the minimum wage is generally seen as beneficial for employees, there can be certain costs for businesses operating in the state.  Specifically, small businesses in New Jersey could feel the brunt of the minimum wage increases.  Opponents believe that the announcement reflects another potential hit to small businesses who are already absorbing cumulative costs in other forms of new mandates by the Murphy administration.  Nearly 70 percent of respondents to the latest NJBIA business-outlook survey[5] said their businesses would be impacted in some way if the state were to enact legislation mandating a $15 minimum wage.  To offset such a requirement, they said some businesses — though not a majority of them — would reduce staff and working hours, and enact price increases or turn to automation.[6]

Overall, it is estimated that over 1 million New Jersey workers will be impacted by the minimum wage changes, according to the governor and lawmakers.[7]  As a result, employers and businesses should weigh the impact of a higher minimum wage on profitability, hiring, and overall finances.

III.    Staying Compliant

Now more than ever, states, counties, and cities, who do not see movement at the federal level, are implementing specific minimum wage laws in their jurisdictions. As a result, employers must ensure that they comply with federal, state, and local minimum wage laws.  While the federal minimum wage ($7.25 per hour) isn’t changing next year, the state of New Jersey and many other states will have new minimum wage rates throughout 2019.

These new minimum wage ordinances can increase compliance risks for employers, requiring new workplace postings and changes to existing workplace policies.  Therefore, employers need to be cognizant of the legal liabilities they could face if company wage and hour policies are not in compliance prior to the increase.  Compliance is essential; employers in violation of payroll regulations can face penalties, including steep fines and civil litigation.  When dealing with questions about minimum wage and overtime statutes, it is recommended that all employers consult with experienced counsel.

IV.    Preparing for the Changes: Adjusting Pay Structures

In states that have significantly increased their minimum wages, the financial impacts often occur immediately and can be burdensome for small business owners.  Employers should find ways to manage the effect on increase of pay structures.  For example, if the minimum wage increases and jobs that currently pay $10 an hour are not entry-level positions – but a next level up – there could be a compression issues. Thus, employers should adjust their payment structures and account for them to be shifted up.  The best way for making this wage shift can depend on the specific company and its compensation structure.  Employers do not have to adjust all levels, but it is important to consider adjusting lower-paid jobs from a certain hourly rate on down.

V.    Employees Earning More than the Minimum Wage

When the minimum wage increases, some employers wonder if they should also provide a raise to employees already earning equal to or more than the new rate.  For example, if the minimum wage increases from $9 per hour to $10 per hour, should an employee already earning $10 per hour also get a raise?  While the employer is under no obligation to provide a raise, some employees may be expecting one.  In this scenario, the employer should consider the potential impact on labor costs, employee morale, internal equity (how employees are paid when compared with other employees within your company based on skills and experience), and the typical merit increase schedule.

VI.    Conclusion

As a result of Governor Murphy’s new deal, New Jersey’s minimum wage will continue to increase, starting July 1, 2019.  With the patchwork of federal, state, and local minimum wage laws becoming more complicated, employers and organizations will need to pay more attention to the these issues and payment structures.  Paying small business employees fairly begins with gaining a good understanding of the minimum wage laws.  In doing so, employers need to remain compliant and cognizant to changes at the federal, state, and municipal level.  Advanced legal planning will help employers – both public and private sector – to comply with the new minimum wage thresholds.

Enlisting the help of outside legal counsel can assure compliance with the complex patchwork of different minimum wage laws. Mandelbaum Salsburg P.C. is a full-service law firm focusing on providing exceptional legal counsel to its clients. Our labor and employment attorneys are uniquely qualified to assist you and your business in achieving full compliance with New Jersey labor laws. Please feel free to contact us if there are any issues that we can assist you with.

Disclaimer:

Mandelbaum Salsburg P.C. provides legal alerts to inform readers regarding trending legal issues and developments in the law. This communication does not create, offer, or reduce to writing the existence of an attorney-client relationship.   This communication is not legal advice and may not apply to the specific facts of any particular matter.

For more information, please contact Peter Tanella at 973.243.7915 or ptanella@lawfirm.ms.
 

[1] New Jersey Becomes 4th State to Increase Minimum Wage to $15, CBS News (February 5, 2019), https://www.cbsnews.com/news/new-jersey-gov-phil-murphy-minimum-wage-increase-today-2019-02-04/.

[2] Nick Corasaniti, In New Jersey, the Minimum Wage is Set to Rise to $15 an Hour, new york times (Jan. 17, 2019), https://www.nytimes.com/2019/01/17/nyregion/nj-minimum-wage.html.

[3] Mike Catalini, New Jersey Governor, Lawmakers Make $15 Minimum Wage Deal, nbc philadelphia (Jan. 18, 2019), https://www.nbcphiladelphia.com/news/local/New-Jersey-Governor-Lawmakers-Minimum-Wage-Deal-504542452.html.

[4] Murphy, Dems Reach Minimum Wage Deal, nj herald (Jan. 18, 2019), https://www.njherald.com/20190118/murphy-dems-reach-minimum-wage-deal.

[5] NJBIA’s 60th Annual Business Outlook Survey, New Jersey Business & Industry Association, https://www.njbia.org/wp-content/uploads/2016/05/NJBIA-2019-Business-Outlook-Survey-Handout-V5.pdf.

[6] Id.

[7] David Levinsky, Murphy, Legislative Leaders Reach Deal on $15 Minimum Wage, (Jan. 17, 2019) https://www.burlingtoncountytimes.com/news/20190117/murphy-legislative-leaders-reach-deal-on-15-minimum-wage.

Attorney: Peter Tanella
Related Practice: Veterinary Law
Category: General Practice Governance, Employment Law, Hot Topics in Vet Law

Legal Issues Surrounding the Treatment of Veterinary Patients with Cannabis

June 30, 2019

Pot for Spot?: Legal Issues Surrounding the Treatment of Veterinary Patients with Cannabis

California has become the first state to give veterinarians the legal protection to discuss medicinal cannabis as a form of animal treatment, but the question is should other states follow suit? Under federal law cannabis is strictly illegal and is considered a schedule 1 controlled substance; which makes many veterinarians afraid to discuss cannabis use with pet owners due to the guidelines of their professional licenses. Federal law is extremely different from the various state laws which may allow medicinal/recreational use of cannabis. However, state issued laws regarding the consumption of cannabis in humans do not apply to use in animals. CBD infused products have swept the market, due to the increase in the legalization of medical and recreational marijuana throughout the United States. These factors have led many pet owners to question whether it is safe to treat their pets’ ailments with medicinal cannabis, but in 49 states they are not allowed to discuss this proposition with their veterinarian. The reluctancy from veterinarians to discuss cannabis treatment for their patients has led patients to take their animals’ treatment into their own hands, with many pet owners conducting online research and treating their animals with unregulated products that contain cannabinoids. According to a 2018 study conducted by Colorado State University’s veterinary medicine researchers, almost eighty percent of 1,068 dog owners who participated in the survey admitted to buying cannabis infused products for their pets.

The internet is flooded with CBD infused animal treats and miracle stories about how CBD saved animals lives. However, it is hard to decipher fact from falsity in an area that has been notoriously under researched and viewed as illegal. Albeit; because of the rise of the legality of cannabis use in humans, there has been a recent rise in studies concerning animals and cannabis; these studies have shown evidence that cannabis can be beneficial for cats and dogs who suffer from diseases such as epilepsy, anxiety and arthritis, without the typical side effects of prescription medication. The FDA has the authority to regulate all products which claim to have therapeutic properties; the agency focuses on the safety and efficacy of the products. Since there has not been many studies on the effect of cannabis in animals, there has only been one product that is derived from cannabis that have been approved by the FDA in a extralabel manner by veterinarians, while following the guidelines of the Animal Medicinal Drug Use Clarification Act.

In addition to the legal ramifications, and licensing concerns, there have been a substantial amount of veterinary cases of Cannabis toxicosis in pets, which usually stems from animals consuming edibles intended for human consumption. To bolster this ailment, most of the edibles are made with other products which are toxic to animals such as chocolate, raisins and xylitol; which lower the chances of the animal making a full recovery. There have been several deaths reported due to cannabis toxicosis in animals and have led many pet owners and veterinarians to be suspicious of using cannabis to treat ailments in animals.

For more information contact Peter H. Tanella at ptanella@lawfirm.ms.

Attorney: Peter Tanella

Independent Contractor or Employee

June 29, 2019

Independent Contractor or Employee: What’s the Difference?

It's a vexing question for practice owners: How do you classify a potential new veterinarian who is joining your practice? Is the veterinarian an independent contractor or an employee?

The misclassification of an employee as an independent contractor can result in serious financial ramifications, including taxes, fines, and penalties from both state and federal agencies.

What is an independent contractor?

Generally, veterinarians are independent contractors if they have control over the number of patients they see and their work schedule. They are not independent contractors if they perform services that can be controlled by the practice.

Practices often classify veterinarians as independent contractors to avoid having to comply with state and federal withholding requirements and payroll taxes. The practice simply issues 1099s to the veterinarian at the end of each year, and the veterinarians are responsible for reporting their income, which is subject to self-employment tax.

What is an employee?

If the practice has control over the veterinarians' patient load and schedule, they are employees of the practice. Employees are supervised by the practice and may be entitled to certain benefits and protections under state and federal laws. For instance, the practice is responsible for withholding a portion of employees' earnings for tax purposes.

4 classification factors

Independent contractors have complete autonomy over their work lives, whereas employees must answer to and abide by their employers. State and federal agencies consider four primary factors when determining if a veterinarian is an employee or an independent contractor.

1.    Supervision

The first factor is who supervises the veterinarian. There are four questions to be answered:

  • Is the veterinarian under direct control of the practice's supervisors?
  • Does the veterinarian work for other practices?
  • Who is responsible for corrective treatment and addressing such issues with the patients?
  • Does the practice provide the veterinarian with any training?

2.    Scheduling

This factor concerns a veterinarian’s schedule and hours:

  • Do the patients belong to the practice or the veterinarian?
  • Who schedules the patients?
  • Who determines the veterinarians hours?
  • Can the veterinarian refuse to treat certain patients?
  • Does the veterinarian have to request time off?

3.    Benefits and insurance

This category focuses on insurance, healthcare coverage, and more:

  • Who pays for the veterinarian’s healthcare insurance?
  • Who pays for the veterinarian’s malpractice insurance?
  • Who pays for the veterinarian’s licensing fees and continuing education credits?
  • Is the veterinarian entitled to any benefits from the practice, such as paid time off or a retirement account?

4.    Payment and expenses

The following five questions can sometimes be contentious, so it's best to spell them out clearly:

  • Who determines the rates paid by the veterinarian’s patients?
  • How is the veterinarian paid?
  • Does the practice provide the veterinarian with tools, supplies, and equipment?
  • Who pays for laboratory fees?
  • Does the veterinarian independently pay to advertise services?

Misclassification consequences

If an agency, such as a state department of labor or the U.S. Internal Revenue Service, audits a practice and finds that the practice has misclassified a veterinarian as an independent contractor, the consequences of a misclassification can be severe. The agency will likely seek payment of unpaid employment, disability, and Social Security taxes, along with additional interest and penalties. This could potentially cost the practice millions of dollars.

In addition, the misclassified veterinarian may be retroactively entitled to insurance coverage and other benefits that should have been offered by the practice if the veterinarian had been properly classified as an employee. If the veterinarian is deemed to be a nonexempt employee and worked more than 40 hours in any given week, the practice will also be responsible for back payment of overtime.

What can a practice do to protect itself?

The only fail-safe way to survive an audit is to classify veterinarian and staff in compliance with the criteria established by federal and state laws. Although this list is not exhaustive or foolproof, it is a start for identifying the best practices for maintaining classification as independent contractors:

“Compliance with a well-crafted independent contractor agreement is the best defense in a reclassification audit.”

  • The veterinarian establishes their own business entity with its own Federal Employer Identification Number that the practice will contract with.
  • The veterinarian procures their own general and professional liability insurance.
  • The veterinarian is solely responsible for paying appropriate taxes on revenue they receive from the practice.
  • The veterinarian is solely responsible for their own business expenses and provide their own tools, supplies, and materials, as necessary.
  • The veterinarians do not receive any benefits or bonuses from the practice.
  • The veterinarians establish their own work schedule and vacation schedule.
  • Theveterinarians sign a written agreement that provides that they are an independent contractor, that they meet the criteria of an independent contractor, and will indemnify and hold the practice harmless.

Compliance with a well-crafted independent contractor agreement is the best defense in a reclassification audit.

Attorneys: William Barrett and Casey Gocel
Related Practice: Veterinary Law

Opioid Epidemic

June 28, 2019

When Two-Legged Epidemics Reach Our Four- Legged Friends: Veterinarians and the Opioid Crisis

It is common knowledge that an opioid epidemic has been sweeping the nation, but many veterinarians do not realize that they have a responsibility to help curve the abuse of pain medication in their practice. Opioids are extremely powerful pain-relieving medications, that are commonly prescribed to treat intense pain. However, these drugs are also extremely addicting, and can cause overdoses in humans and in pets; but the pets are not the problem. Recently a study was conducted by the Colorado School of Public Health, which concluded that a large amount of the veterinarians who were surveyed were concerned that their clients have intentionally hurt their pets in the hope of receiving a prescription for pain killers. Out of the surveyed population, almost forty five percent of the veterinarians knew a pet owner or employee who was abusing opioids. In addition, the University of Pennsylvania Veterinary medicine school analyzed the number of opioids dispensed at their veterinary school for ten years, and concluded that prescriptions rose forty-one percent annually, when the number of new patients only rose thirteen percent.  

There have been many incidents of animal abuse by a pet owner in the hopes of obtaining prescription medication. For example, a woman in Kentucky was arrested after she admitted to cutting her dog with a razor blade with the intention of obtaining and consuming pain medication through her veterinarian. The most commonly targeted pain killer that is carried in most veterinary practices is tramadol, because it is highly addictive and is typically prescribed to both humans and animals. Other commonly abused drugs by pet owners include Xanax and Valium, whose prescriptions are extremely difficult to obtain through a physician.  These methods are a way for drug addicts to obtain drugs under the radar, so it is imperative for veterinarians to be observant and meaningfully participate in the effort to end the opioid epidemic.

A combination of incidents has pushed the Food and Drug Administration to offer new resources for veterinarians who stock and prescribe opioids. The resource outlines six steps that veterinarians can take to help combat opioid abuse in their practice. It is recommended that veterinarians have an emergency plan outlined if they are ever in a situation in which they suspect opioid diversion, or clients harming their animals in attempt to gain access to pain killers; local police departments are the best people to help advise veterinarians on a plan of action if they ever encounter these dangerous situations.  The FDA released a list of tip-off’s that can help veterinarians determine if a client is abusing opioid medication: suspect injuries in new clients, pet owners asking for a specific drug by name, asking for refills because medication was lost or stolen, and having a general demanding attitude about their request. However, it is not only pet owners that veterinarians need to worry about, it is also necessary for them to monitor the behavior of their employees who have access to the drugs. There are many warning signs that a staff member is abusing pain medication such as: lack of focus, frequently missing work, mood swings and anxiety. In addition, it is important for veterinary practice owners to have checks and balances regarding their ordering, storage, administration and dispersion of opioids for the health of their employees and for their own legal protection. This outbreak has made many states create control measuring laws for prescribing opioids. For example, Maine enacted a Prescription Monitoring Program, which must be checked before prescribing opioids and benzodiazepines to animals. The program requires the veterinarian to state the reasoning for the prescription and the physical condition of the animal; logging it into a statewide database, which helps to limit repeat abusers. In addition, the state of New Jersey signed the most restrictive law, limiting a five-day supply of initial opioid prescriptions, and require veterinarians to share the data with fourteen other states to help combat abuse. Many groups are currently pushing for other states to adopt New Jerseys restrictive laws in order to help combat the opioid crisis that is now affecting us all.

For more information please contact Peter H. Tanella at ptanella@lawfirm.ms.

Attorney: Peter Tanella
Related Practice: Veterinary Law

What to Consider When Leaving a Veterinary Practice

June 26, 2019

The Veterinary Divorce: The Considerations When Leaving a Veterinary Practice

While departing from a veterinary practice may seem like a trivial task, it can often be a complex decision and process. When dealing with a “veterinary divorce”, both parties should engage in careful considerations to protect both the clients and the veterinarians.  This article will provide a brief overview of the best practices to consider for a veterinarian leaving his/her veterinary practice – from both the perspective of the veterinary practice group and the individual veterinarian(s).

Contract Review:

First, the veterinarian and surviving practice should review their existing contracts in the event that a veterinarian leaves.  The two most important agreements to consider is the employment agreement and a shareholder buy-sell agreement (if one exists).  These two contracts can have a significant degree of importance if the departing veterinarian wants to continue their practice.

The Employment Agreement

Veterinary practices commonly require their employees to sign an employment agreement when they begin working for the veterinary practice.  When dealing with the termination of a relationship, both the employee and employer should understand the details of their employment contract.

    a. Terms: Veterinary employment agreements may be for a fixed term or they can be continuous.  For example, some agreements will have a policy addressing the time period that a veterinarian must be employed by the practice.  When an employment agreement contains a fixed term, an employee leaving or an employer firing before that term is considered in breach of contract.  Other employment agreements lack a definite term, and are considered “at-will”, where either party can terminate the relationship at any time.  Contracts that are “at-will” will typically require that the terminating party give advance notice to the other party.
    b. Notice: Employment agreements typically agreement contain a notice period before a veterinarian’s termination of employment.  In the event that the veterinarian fails to give contracted notice to the employer or practice, he or she can be sued for a breach of contract.
    c. Transition Costs: The employment agreement may also cover transition costs.  In order to cover the costs of a departing veterinarian’s absence, the practice may seek recovery for costs associated with hiring a temporary veterinarian until the practice finds a permanent replacement.  When the practice must pay deferred compensation, they may try to offset damages against the compensation to be paid.
    d. Non-Compete Agreement: Lastly, both parties should be aware of any non-competition or non-solicitation clauses in their employment agreement.  Many employers require employees to sign a non-compete clause that forbids the employee from competing with the employer.  Both the employer and employee should be aware of the non-compete agreement, which may be limited in scope (geographic proximity) and in time (for example, two years after termination).

Shareholders Buy-Sell Agreement

When changes in veterinarians causes an economic divorce, a buy-sell agreement can provide a fair resolution.  A buy-sell agreement is a contract between business owners that determines what occurs to business ownership upon a triggering event, such as death, disability, bankruptcy, or disputes among shareholders.  A buy-sell agreement essentially is an agreement for exiting a practice, and veterinary Buy-sell agreements frequently require a mandatory buy-back of shares.

Thus, if a buy-sell agreement exists, it should be reviewed for any buy-back provisions. The buy-sell agreement would provide a share price, either by an accounting formula or arbitration process.  The agreement may also cover the following events:

    a. Death: In the majority of states, when a veterinarian dies or becomes disqualified (due to losing his/her license), the corporation must buy-back the veterinarian’s shares.  A death buy-back is usually paid in a lump-sum using the proceeds of life insurance.
    b. Disability: In the event that a veterinarian becomes disabled, the veterinary corporation can buy-back his or her shares.  The practice can pay through a disability buy-back on a promissory note, or by using the proceeds of disability insurance.
    c. Disputes: When a dispute arises between two veterinarians, the buy-sell agreement may include a procedure for buy-out.  The procedure is typically as follows: the first party offers to buy the second out – and the second has the choice – either to be bought out or to use an identical term and buy the other party out.  Either way, the price would be fixed for the buy-out, and one of the veterinarians will leave the practice group.

Additionally, as mentioned above, the parties should beware of any non-competition or non-solicitation clauses in a buy-sell agreement.

Compensation after Termination

When a veterinarian leaves a practice, the practice may provide compensation after the termination date.  First, there could be a salary owed to the date of termination plus accrued vacation time.  Second, there may be compensation owed for the veterinarian’s share in accounts receivable or collection of a pro-rated share of year end-bonuses.

Exit and Severance Agreement

When an employer decides to terminate its relationship with an employee, it can be advantageous for both sides to enter into an agreement defining their rights and obligations.  This agreement is often called a severance agreement.  A severance agreement acts as a contract for the employee; however, there is no law requiring employers to offer severance packages.  There are two major parts of a severance agreement: the agreement and the release.  The agreement outlines what the veterinarian would get in return for their release, and details what the severance package consists of.  The release, in essence, is a statement that releases the company from any liabilities associated with the employees exit.

Exit and severance agreements are useful for both parties because they can prevent misunderstandings that can lead to litigation.  The agreements may contain provisions against future competition (“non-compete” clauses) and confidentiality provisions relating to the agreement itself.  For veterinarians, severance agreements often contain the content of notice by the departing veterinarian and can discuss the duties of retaining client records.  Lastly, these agreements act a useful tool for employers because they can release liability.  The exit and severance agreement can control and/or negate the veterinarian’s right to pursue claims for prior acts of discrimination, harassment, equal pay, or wrongful termination.

When the relationship of veterinarians and/or veterinary practices comes to an end, it is advisable that these considerations be addressed.  If not resolved by negotiation, these types of disputes can result in protracted and expensive litigation.  An experienced counsel can help the parties reach an acceptable division, which can be a victory for all of the parties involved.

For more information, please contact Peter Tanella at 973.243.7915 or ptanella@lawfirm.ms.

Attorney: Peter Tanella
Related Practice: Veterinary Law
Category: General Practice Governance