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Lawyer for Veterinarians, Veterinary
Corporations and Veterinary Practices
Article #9 – Leaving a veterinary practice
/ closing a veterinary practice
This is the last article 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:
This article gives a very brief overview
of how a veterinarian leaves or closes a veterinary
practice. The veterinarian can’t just walk away – leaving
or closing a veterinary practice is more complex than you
think. In this article I try to give both sides of the
story, that is, the perspectives of both the individual
veterinarian and the group practice.
Contract Review
Both the veterinarian and the surviving practice should look
over their contracts when the veterinarian leaves, primarily
the employment agreement and the shareholders (buy-sell)
agreement if you have one. The latter 2 contracts become
important if the veterinarian wants to continue to practice
medicine.
Employment Agreement.
Most veterinarian employment agreements require a
notice period before termination of employment. The
consequence of failure to give the contracted notice is that
the employer / practice might sue the veterinarian for
breach of contract. Usually the practice wants to recover
the costs of hiring a temp veterinarian to cover for the
departing veterinarian’s absence until the practice replaces
him or her. Further, if the practice must pay deferred
compensation, the practice might try to offset its damages
against the compensation to be paid. Lastly, beware any
non-competition or non-solicitation clauses in the
employment agreement; for more information see Article 4 in
this series,
Veterinarian
employment and independent contractor agreements.
Shareholders Buy-Sell
Agreement.
If the practice has a shareholders buy-sell
agreement, check it for any buy-back of the veterinarian’s
shares in the practice. Veterinary groups frequently
require a mandatory buy-back of shares. The buy-sell
agreement also will provide for the share price, either by
an accounting formula or through an arbitration process.
Once again, beware any non-competition or non-solicitation
clauses in the buy-sell agreement. For more information see
Article 5 in this series,
Shareholder
buy-sell agreements for veterinary corporations.
Compensation after Termination
When a veterinarian leaves a practice,
usually the practice will pay compensation after the
termination date. First, there is salary owed to the date
of termination plus accrued vacation pay. Second, there
might be (i) compensation owed for the veterinarian’s share
in accounts receivable or collections; (ii) a pro-rated
share in year-end bonuses; and (iii) a pro-rated share in
the practice’s contributions to the veterinarian’s
retirement plan.
Word #1 to the wise: The latter 2
items (pro-rated share in bonuses and retirement plan
contributions) frequently create timing issues,
specifically, whether the termination date falls before or
after vesting in the particular payment. Word #2 to the
wise: Consider using an exit / severance agreement
(discussed next) to require that the practice give financial
data, and permit inspections, that make clear its
calculation of post-termination payments.
Exit / Severance Agreement
Exit / severance agreements are useful
when a veterinarian leaves a practice to tie up loose ends
and prevent misunderstandings, all of which can lead to
litigation. Typical matters for an exit / severance
agreement are:
1. The content of any notice that the
departing veterinarian and the practice give to clients and
referral sources. Both sides should discuss who is
responsible for the mailing, its costs, and the deadline for
the mailing. I talk more below about notices to clients.
2. Mutual access to client records.
3. Who keeps the client records.
Retaining client records is a significant burden. Your
retention period is a product of state law and private
contract (e.g. malpractice
insurance policies).
4. The buy-out of shares in the practice
and post-termination payments (all discussed above).
5. Mutual liability releases.
6. The departing vet might buy a
malpractice insurance tail.
7. Indemnities in favor of the
departing vet for any guarantees that the vet gave
for practice debts.
Word #3 to the wise: Identify and
resolve (as best you can) any personal guarantees that the
departing veterinarian signed to secure financing given to the
practice. Guarantees are the wild card when leaving a
practice.
Notices
A veterinarian who leaves or closes a
practice should notify a host of persons of the change in
status.
Notice to Clients.
A veterinarian should give notice to clients of his
or her leaving or closing a practice. The notice to clients
should be a minimum of 30 days. The notice should specify
the date of departure, the veterinarian’s new contact
information if applicable, and who the clients can choose
for future veterinary care.
Veterinary Records.
Be sure to include in the notice a client
authorization form that states where veterinary records will
be stored. For example, the notice might have 2 boxes that
can be checked – one that keeps records at the practice, and
one that transfers the records to the departing
veterinarian. As I discuss above (at exit / severance
agreements), it is best that the practice and the departing
veterinarian agree in advance to the form of notice and the
retention of records.
Notice to Malpractice
Carriers.
The insured (whether the practice or the departing
veterinarian) should notify its insurance carrier of the
change.
Notice to Veterinary
Medical Board. Notify
the Veterinary Medical Board within 30 days of any change in
address; use the Board’s “Veterinary Premises Application.”
Insurance
A tail policy covers malpractice claims
for incidents that occurred while the departing veterinarian
was still with the practice (even though the claim was filed
after the veterinarian left the practice). Someone must pay
for the tail policy, be it the practice and/or the
veterinarian, and this is why an exit / severance agreement
is so useful. The practice can consider deducting the costs
of the tail policy from any deferred compensation or buyout
amounts owed to the departing veterinarian.
As I mentioned in the introduction, I’ve
given you only a brief outline of the topic of leaving or
closing a veterinary practice.
It’s a complex topic, so please get competent legal
counsel to help you.
This is the end of my 9 article series on
the basic corporate, business and contract law issues for
veterinary corporations and group veterinary practices in
California. I hope this series has been useful to you.
Call me to schedule a
legal consultation: 510-796-9144 | 