An employment contract is a legally binding written agreement that spells out how one party will compensate another party for specific services as defined and limited by the agreement. In the dental profession, these agreements are often a part of negotiating the terms of a new associateship. However, the contract you’re looking at now – or the one you signed when you joined the practice – can affect your career long after you’ve moved on. That’s why it’s essential to review your agreement carefully so that you can open a productive dialogue with your prospective employer about any terms that concern you.
What you might not have learned in dental school
Your dental education taught you the art and science of patient care, but may have offered few insights into business details such as employment agreements. And while you may be very eager to sign and begin working, it’s essential that you know:
- How your compensation will be calculated and paid
- What benefits (if any) you will be eligible for: medical, dental, retirement, vision and more
- Conditions under which you can be terminated by the practice
- Who will pay for your malpractice insurance
- Whether you will be governed by a non-compete clause if you leave the practice
If you’re in the dark about these and other issues, you may find yourself in a tough spot later on. Many dentists prefer to have an attorney review proposed contracts before they negotiate and sign. This step will be more fruitful if you familiarize yourself with the way employment contracts work in a dental setting.
Examples of what your agreement should cover
One of the most important issues to clarify in writing is whether you will be considered an employee of the practice or an independent contractor who essentially works as a self-employed service provider. This determines your tax status with the IRS and the state where you practice (if income taxes are required by your state). It also designates who will pay your federal and state taxes – you or your employer. Further, your status as an employee or contractor governs the amount of latitude you have in setting your own work hours, procedures and treatment protocols. This article explains more about the difference between employment and contractor status.
Your employment agreement should also define:
- Whether compensation will be paid as a straight salary or a percentage of production, adjusted production, or collections (along with any related compensation formulas)
- How patients will be assigned to you (or how you can build your own patient base)
- Whether or not you will be responsible for any expenses or a share of the practice’s overhead
- Any procedures you will be required to follow, including call responsibility and any mandatory community engagements
- Other costs the practice (or you) will be responsible for: professional dues, CEU course costs, malpractice insurance premiums, DEA licenses and more
- The benefits you will be eligible for (such as health, dental, vision and life insurance) and how you will pay your share of the premiums
- Any retirement savings programs you will be eligible for and whether or not the practice will match some or all of your contributions
- What happens if you leave the practice or the practice decides to end their agreement with you
As an ADA member, you can download a free copy of “Dentist Employment Agreements: A Guide to Key Legal Provisions” – a comprehensive guide to the terms and provisions common to dental employment agreements. It’s not a substitute for a lawyer, but can help you know what questions to ask. Also check out this free, on-demand webinar with ADA legal expert Jeffrey Fraum, who explains how employment contracts work and why dentists should look closely at all contract provisions before they sign.
The right agreement can prevent misunderstandings like these
Written contracts are designed to protect associates and practice owners by clarifying exactly how the relationship will work. This helps you both get started on the right foot and work together effectively over time.
Here are 3 examples of things that can go wrong when contract terms are not understood ahead of time – or there’s no written agreement at all.
1. I didn’t read my contact carefully enough, and now I owe my employer money.
Let’s say you are fresh out of dental school and excited to land your first job. The HR department at the practice assures you that you are signing a “standard contract,” so you skim it simply to double-check the salary, benefits and start date. You’re happy to receive a signing bonus, which helps pay for home renovations you’ve been waiting to complete.
Eight months later, your partner is offered a fantastic job in another city where members of your family live. You give your employer notice and begin looking for a job in the new location, but are shocked when the practice bills you back for the signing bonus! A careful look at your contract reveals that you were required to stay at least 24 months to keep the full bonus. (Here’s a helpful article on the true costs that may come with a signing bonus.)
This scenario reveals that every contract must be read closely, and preferably by more than one person. A qualified attorney can help you understand:
- How pay and bonuses are tied to performance or production goals
- How long you must stay in the practice to earn your signing bonus
- Any non-compete clauses that could limit your career growth
If you do receive a signing bonus or similar payment, resist the urge to spend it immediately. Instead, talk to your accountant or financial advisor about a short-term savings or investment vehicle that allows you access without penalties if you need the money in an emergency or other urgent situation.
2. I didn’t bother with a written contract.
In this case, let’s say you built strong rapport with the owner of a small practice. You share similar philosophies of care and even a love of hiking and biking. It felt like a natural match from the first interview, so when you were offered the job on a handshake alone, you didn’t hesitate to say yes.
In your first year, you were a rockstar, exceeding your production goals and building great relationships with patients and staff. You expected a bonus and a raise, but then learned they weren’t forthcoming – because there was no agreement guaranteeing pay for performance. Your relationship with the owner becomes strained and ultimately, you decide to leave.
As tempting as it can be to skip the hassle of a written contract, the truth is that verbal contracts are significantly more difficult to uphold and frequently lead to misunderstandings. Always ask for a written contract that spells out compensation, transfer of ownership, scheduling and coverage and any non-compete terms.
3. I signed a contract, but then I had a change of heart.
You went to work for a practice owner who planned to sell the practice to you after 2 years. Your contact was very simple, covering very few details about the expected sale. Later on, you realized that you weren’t ready to buy at the 2-year mark. Family responsibilities and other factors made the hassles of owning a practice too much, at least at this point in your life and career.
The practice owner became frustrated, because her retirement was put on hold while she searched for a new buyer. And when one was found, you had to be re-hired by them to continue working as an associate, which opened you to a new set of terms and conditions.
Keep in mind that a contract involving a future sale should spell out every element, including terms under which both parties can change their minds. Specifically, the contract should state:
- The timeline or milestones for the sale
- How and when the purchase price will be determined
- Which method(s) will be used to value the practice
- Valid reasons to void the agreement without penalties, such as death or disability
- Penalties for non-compliance, including promissory notes, voiding or alteration of non-compete clauses, and voiding or alteration of contractual obligations to remain in the practice
The value of legal counsel in negotiating an employment agreement
It might seem like an unnecessary expense to hire an attorney when you’re preparing to join a new practice or office, but as these examples show, it can be more costly to skip legal review.
If the practice owner declines to offer you a formal contract, you may still consider going to work for them – but you should document the basic employment terms you have discussed and send them to the owner via email with your request for a read receipt attached.
Putting your own contract together can be risky, since you are not a legal expert. This is another situation where having legal counsel can help you avoid costly misunderstandings down the road. An attorney can help you draft contract terms, making sure they comply with applicable federal and state laws and protect you from unforeseen issues (and possible financial losses).
More resources for you
Want personalized advice? Check out what the ADA has to offer
Need help negotiating your employment agreement? The ADA’s Practice Transitions service gives you access to our Associate Contracting Toolkit, which helps you think through every element of your contract — plus step-by-step help from a dedicated ADA Advisor who will match you with practices that share your goals. Create your free profile and get started today!