Are Your Employment, Shareholder / Operating Agreements Current?

June 17, 2018

These Critical Documents Can Have Unintended Consequences If They’re Out-Of-Date.

Employment and shareholder / operating agreements form the core of your medical practice’s financial and legal structures. You probably consulted with accountants and lawyers when you created them. The same should be true when you review and update these complex documents to ensure that they’re still accurate – and that you’re keeping up with changing times. Here are some of the issues you’ll want to tackle.

Employment Contracts

There’s no hard-and-fast rule governing how lengthy an employment contract should be. You may have your own requirements that aren’t typically included, but there are some standard items you should be checking for relevance and timeliness, like the items listed below.

Job descriptions: Your practice must be able to adapt to changing conditions. Are your employees’ stated responsibilities broad enough to cover them? Does the agreement cover not only regular working hours but on-call expectations?

Outside activities: Are they allowed? Are there any restrictions on them to safeguard against your staff’s ability to give 100 percent under your employ?

Non-compete clauses: The legality and enforcement of these can vary from state to state. Can you/should you be building them into employment contracts?

Termination rationale: Are you crystal-clear on this issue, or is there enough wiggle room that it might possibly come back and bite you?

Non-disclosure clauses: Business operations, key operations, key contacts key relationships not disclose to outside parties should you leave. What does this specifically entail at your practice?

Non-solicitation clauses: Not being able to hire employees currently employed by the practice.

Compensation. There’s a lot to consider here, including:

  • Status. W-2? Or are there certain incentives?
  • Direct costs. Who should be responsible for these, and specifically which costs?
  • Liability / Tail insurance. Who is responsible for both of these costs?

Shareholder / Operating Agreements

When you first started your medical practice, you may have felt that you didn’t need a kind of business pre-nup. But you do. Things change, even seemingly unshakeable relationships among shareholders / partners. You need to be prepared—legally and financially and in writing—to anticipate unexpected circumstances.

Like employment agreements, shareholder / operating agreements are not evergreen documents; their content will likely evolve as the medical practice does.

Probably the first element of your agreement that will require regular updating is the value of your practice. How was it originally determined (book value, market value, etc.), and is that still the best measure? Is the value of your accounts receivable included in the mix?

Do you still feel that your income distribution method is working and fair to all? If you’ve been sharing income equally, but one of more partners feel that not everyone is carrying their weight, should you switch to a productivity-based model or one that takes into account things like seniority or training? Has the practice changed significantly enough that you need to consider your overhead allocation guidelines?

In the event of a buy-out, could the practice still operate, while buying out the departing physician. Or have your financial circumstances changed enough that it would be a hardship for the remaining partners? Have you had to deal with a shareholder’s / partner’s disability, and you need to adjust the ground rules for future incidences? Have you anticipated what will happen when a shareholder / partner goes into retirement?

Medical Expertise Needed

When you sit down to update your employment and shareholder agreements, it’s important that you call on financial and legal professionals who have experience in dealing with medical practices, since their structures and needs are unique. We have the expertise to do so and would be happy to consult with you as you undertake this critical process.

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