Leaving a veterinary practice / closing a veterinary practice
By Matt Dickstein
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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.
If you want to learn how to prepare your solo vet practice for sale, see Preparing to sell a solo veterinary practice.
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.
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 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 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.
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.”
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.