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).
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.
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.
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 email@example.com.