EMPLOYMENT LAW CONSIDERATIONS WHEN PURCHASING A DENTAL PRACTICE
The sale of a clinic involves many labor law aspects that should be considered when structuring and negotiating the terms of the transaction. A civil suit in labor law can be quite costly for a purchasing dentist in order to resolve disputes about past employees and associates. Our team of qualified legal professionals can help you understand and better assess the labor law implications for the buyer and seller in the context of a dental clinic sale.
STAFF AND ASSOCIATES
Generally, dentists that perform dental services in a clinic can be considered either as employees of that clinic or associates working as an independent contractor. When advising purchasers, we always recommend performing a due diligence with regards to the status of each staff member and dentist working in the clinic, verifying if a contract exists between them and the owner and looking for specific clauses that may become onerous on the purchasing dentist. An example of such a clause would be a non-solicitation and non-competition clause to prevent any staff member or associate dentist from soliciting patients should they resign or be released. If the patient list is not properly protected through carefully drafted agreements, the value of the dental practice can be negatively impacted.
EMPLOYMENT CONSIDERATIONS POST-CLOSING
Employees in Quebec are generally protected under the Loi sur les normes du travail. When a dental clinic changes ownership, it is extremely important to establish and understand the rights and obligations of the previous owner and the new owner of the clinic. There are 2 points that should be discussed and negotiated between the selling and purchasing dentists prior to the closing: the vacation indemnity and termination notice of clinic staff. These points must be dealt with in order to establish who will be responsible for paying the vacation indemnity and notice until the closing date but also how a termination will be handled after the closing.
Vacation indemnity depends on the length of uninterrupted service of the employee and can vary between 4 or 6% of the gross annual wages earned during the reference year (usually May 1st to April 30th).
Termination notice must be paid when terminating the relationship with that employee and it depends on the length of uninterrupted service within the clinic. A termination notice can take two forms:
The employer and the employee agree that the employee will work for the duration of the termination notice and will be remunerated for his work.
The employer or the employee does not wish to resume the employment contract, but the employer must still pay the equivalent of the termination notice time to the employee that will no longer work at the clinic.
It is important to note that although the ownership of a clinic has changed hands, the number of years of uninterrupted service for an employee continues to accumulate as if there was no such change. As a result, should the purchasing dentist wish to terminate a staff member a few months after the purchase of the clinic, the amount of termination notice required for the staff member may become quite burdensome for the purchaser, even amounting to one month pay per year of service. If the staff member has worked for the clinic for over 10 years, the purchasing dentist will be responsible for a termination notice based on those 10 years. There are numerous ways of mitigating such risks between the buyer and seller through careful planning and drafting of a purchase agreement.