Lawyer for Veterinarians, Veterinary Corporations and Veterinary Practices

Article #4 – Veterinarian employment and independent contractor agreements

This is Article #4 in my 9-part series on the basic corporate, business and contract law issues for veterinary corporations and veterinary practices in California.  The articles in this series are:

In this article, I first discuss when a veterinarian is a contractor as opposed to an employee.  Second, I look at the essential terms of a veterinarian employment contract and a veterinarian independent contractor agreement .

Is you is, or is you ain’t, a contractor?

From time to time, to generate revenue, the IRS and CA EDD will audit your veterinary practice.  These governmental agencies hope that your practice has misclassified a veterinarian as a contractor (not an employee) so that they can collect on the plethora of taxes and premiums for employees, e.g. trust fund taxes, interest and penalties.

In brief, to determine contractor / employee status, the government considers whether the practice controls the manner and means by which the veterinarian does his or her job.  Contractor-veterinarians have significant control over how they do their job, whereas employee-veterinarians do not.  Specifically, the IRS considers whether:

• the vet is highly integrated into the practice
• the vet's work for the practice is substantial and continuous
• the vet has authority over employees in the practice
• the vet has privileges and benefits ordinarily given to employees
• the vet can provide veterinary services to other practices
• the vet hires and pays his or her own associates and staff

For more discussion, see IRS Revenue Ruling 66-274.

Essential terms of a veterinarian employment contract and an independent contractor agreement

The essential terms are about the same as between a veterinarian employment contract and a veterinarian independent contractor agreement.  Once beyond the boilerplate, both contracts deal with the same basic issues, such as the description of services, compensation, reimbursement of expenses, and term and termination (all discussed below).  One significant difference is that employment agreements sometimes have clauses that address the veterinarian’s purchase of ownership in the practice, whereas independent contractor agreements rarely have such terms.

Job Description.  Whether or not the agreement is for a contractor or an employee, it must clearly delineate the job responsibilities.  Veterinarians particularly care about their hours, be it full-time or part-time, night and weekend coverage, on-call hours and the like.  Be sure to clarify the veterinarian’s administrative duties.

Compensation.  You probably don’t need a lawyer to explain veterinarian compensation, so I’ll keep it short.  I frequently see veterinarians receive a fixed base salary + an incentive based on the net income that the veterinarian personally generates.  For example, the veterinarian might receive an incentive of X% of the gross revenue he or she generates in excess of $Y (Y being the expenses associated with the income including an allocation of general overhead, that is, the break-even point in income).

Expenses.  The practice’s payment of a veterinarian’s “personal” expenses is an everlasting and wondrous source of conflict.  Everyone wants to run their expenses through the corporation.  The employment contract or independent contractor agreement must clearly delineate the expenses that the practice will pay for the veterinarian.  A practice usually will pay more expenses for an employee than for a contractor.  Here is a list of expenses that practices frequently pay:

• Professional society dues (within reasonable limits)
• Malpractice insurance
• Continuing education and related travel costs (again, within reasonable limits)
• Board certification

Term and Termination.  I prefer that a veterinarian’s employment contract or independent contractor agreement be at-will with a notice period, meaning that either the veterinarian or the practice can terminate the relationship at any time (after the notice period) for any reason.  I prefer a free relationship, as opposed to contractually locking the two sides into a relationship that isn’t working – this only leads to unhappy endings and litigation.

If you want a contract for a term of years, be sure to include termination for cause.  Common examples of cause are:

• Loss of license to practice
• Violation of a material provision of that agreement
• Felony conviction or abuse of controlled substances

Veterinarian Buy-In.  Veterinarian employment agreements sometimes have clauses on the veterinarian’s purchase of ownership in the practice.  Usually the clauses are vague and non-binding, and only express the parties’ expectations on the subject.  If the veterinarian’s buy-in is a material part of the deal, however, specify these deal terms:

• The ownership percentage that the veterinarian will obtain
• The purchase price
• The period over which the veterinarian will pay the purchase price
• The extent of the veterinarian's participation in control decisions for the practice, e.g. is the veterinarian on the board of directors?

For more information on this subject, see Article 7 in this series, Bringing a new partner into a veterinary practice.

To learn about another crucial contract for veterinary practices, see my next article, Shareholder buy-sell agreements for veterinary corporations.

To learn about non-competition clauses for vets, see Article 6, May a veterinarian compete against his or her former practice?

This article only gives a short roadmap of veterinarian employment contracts and independent contractor agreements.  There is a lot more to this topic than introduced here.  Please get competent legal counsel before you hire a veterinarian.

Call me to schedule a legal consultation: 510-796-9144