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Legal Services

By Dan Schulte, J.D.
MDA Legal Counsel
From the August 2010 issue of the Journal

Question: I am a recent dental school graduate. Fortunately, I’ve received two offers of employment. Each requires me to sign an employment agreement. What are the most important issues I should be concerned with in reviewing these employment agreements? Do I need an attorney?

Answer: You should absolutely hire an attorney to review any contract you are considering signing. This is true for both new dental school graduates and experienced dentists. What the important issues are will vary from case to case depending on a variety of factors (such as age, experience, geographic location, the employer, partnership opportunities, etc.).

The following three areas of concern are very often among the most important when reviewing an employment contract.

Compensation and benefits. If you are being paid a fixed salary (say, $120,000 per year), this section of the contract may be very simple. The only other items you should ensure are covered are the timing and frequency of payment and whether and when you will be considered for compensation increases.

Many dentist employment agreements provide for variable compensation based on productivity. If this is true in your case the methodology for calculating your productivity-based compensation should be clearly described. What is it that your compensation will be based on (for instance, billings, collections, profitability or some combination)? What amount of overhead and other expenses are taken from this amount (e.g., lab bills)? Will you be given a fixed monthly draw at least till your productivity reaches an acceptable level? You should ask for an example of the calculation to be attached to the agreement as an exhibit.

If any portion of your compensation is based on collections arising from services you provide to patients the agreement should clearly specify what happens upon termination. Will you receive compensation based on collections received following your termination? If so, for how long? You may also seek a provision in the agreement that patients will be scheduled equitably, so that patients cannot be "cherry picked" based on procedures, payor mix, collectability, etc. Finally, the agreement should specify that you have the right to receive detailed information from the employer setting forth billings arising from your services, collections, expenses, amounts written off, and any other information relevant to determining whether the amount of your productivity-based compensation has been properly calculated.

Term and termination. The agreement should clearly state the period of time for which it will be in effect. How and under what circumstances this term may be terminated, and by whom, should likewise be clearly specified. Most employment agreements will specify that the agreement can be terminated both "for cause" and "without cause" or "at will." What is the amount of advance notice (which should be in writing) that must be given? What are the events that will enable the employer to terminate with cause? These for-cause events usually include a breach of the agreement, breaking the law, becoming uninsurable, and not treating patients properly. What are the consequences of a for-cause vs. a without-cause termination? (See the covenant-not-to-compete section below.)

If the employer has the right to terminate you without cause, then the Employment Agreement’s term has in reality been reduced to the amount of notice the employer is required to give you. If the term is two years but the employer may terminate you without cause upon 90 days notice, the term is really 90 days.

Covenant not to compete. Contrary to the belief of some, a covenant not to compete is enforceable in Michigan if the length of time the restriction applies and the geographic scope are reasonably limited (i.e., no greater than what is reasonable necessary to protect the employer’s business).

You should insist that the covenant not to compete only applies in the event that you terminate or you are terminated with cause by the employer. You should not give the employer the right to inhibit your ability to find new employment when you have been terminated without cause. If the employer has multiple practice locations the geographic scope of the covenant not to compete should be limited by reference only to the office in which you have actually worked. You might also consider including a "liquidated damages" or other buy-out arrangement (instead of the employer having the right to sue for damages or an injunction) to apply in the event your employment is terminated and you are subject to the covenant not to compete.

An attorney experienced in these matters can be a great help to you in reviewing an employment agreement. The cost to review an employment agreement is always substantially less than the cost of unwinding a bad employment situation, with the client fighting an uphill battle due to an onerous employment agreement that was signed with little thought given to the consequences of its terms.

Question: In reviewing invoices from a dental products supplier I noticed I have been charged sales tax on both the products and the shipping charges. Should I be paying sales tax on anything other than the cost of the products?

Answer: Michigan’s Sales Tax Act requires sellers to charge a 6 percent tax on the sales price of the item sold. The definition of "sales price" includes "delivery charges incurred or to be incurred before completion of the transfer of ownership of tangible personal property from the seller to the purchaser." Therefore, sellers are required to add the shipping charges to the cost of the products when computing the sales tax.


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