Dental Contracts Can Make or Break an Associate's Dream

Restrictive covenants can leave you with limited options if an employment arrangement doesn't work out.

If you’re a young practitioner coming out of dental school, chances are you’re saddled with some pretty exorbitant education loans that make it impractical to start up a practice from scratch.

If you join an existing practice as an associate, you will likely negotiate and sign a dental associate contract. But it’s not as simple as putting pen to paper with your signature — there’s a great deal to consider. Do you want to work in a private or corporate practice? Is future ownership a consideration?

William Prescott, Esq., E.M.B.A., is a practice transition and tax attorney with Avon, Ohio-based WHP. He says it’s critically important to understand what you’re signing and to recognize going in that all contracts are negotiable. In other words, it’s a two-way street.

THE DREAM

It’s likely you spent time in dental school wondering what your dream or ideal practice would look like. Prescott points out that just because you’re signing on as a dental associate doesn’t mean you need to give up your dream. The structure of your contract can go a long way toward helping you eventually achieve that dream.

“Your dream may need to be put off, but you will eventually get it because that’s your vision,” Prescott says. “The problem is, people don’t have vision.”

Prescott believes there are many young dentists working for corporate practices because they don’t think private practices can pay them enough. As such, they compromise, and sometimes they compromise too much.

“The contract is not so much about living your dream as it is, ‘What opportunities do you have at this particular practice?’” he explains. “’Is this the place I want to be, or are you going to move on at some point?’”

There are common contract provisions that you need to be aware of, Prescott says. Some of them can be down right uncomfortable. For example, there could be a stipulation that if you leave, you cannot practice within a specific distance from any location the current practice may have or will have in the future. Or, if you’re a specialist, such as an orthodontist or periodontist, you will continue to refer patients back to the general practice.

“You need to have an advisor with experience in dentistry,” Prescott says. “And don’t sign what you can’t live with.”

RESTRICTIVE COVENANTS

If you’re considering signing on with an independent or multi-doctor practice, your dental associate contract could contain a restrictive covenant. This is a clause in the contract that prohibits you from competing with your employer for a certain period of time, or across a specific geographic area, should you leave their employment. It could also restrict you from soliciting or dealing with patients from that practice.

Prescott sees the dilemma of a restrictive covenant from both sides of the equation.

“For the dental practice owner, I would never give an associate the door to my patients without a restrictive covenant,” he says. “If [the employment arrangement] doesn’t work out, the associate will go down the street and take the patients.”

But there are also considerations if you’re a prospective associate.

“I don’t want associates signing restrictive covenants,” Prescott says. “We had a client in Columbus, Ohio, and she joined a practice that had three locations. She had to work really hard to figure out where she could go if it didn’t work out. Guess what? It didn’t work out. Restrictive covenants need to make sense for everybody.”

COMPENSATION CONSIDERATIONS

The thought of receiving a regular paycheck may seem terrific, but the reality may be less than desirable depending on how you are being compensated. Prescott advises against accepting a draw that must be repaid against future compensation. In other words, do you really want to find out three or four months later that you need to repay thousands of dollars?

It’s also best not to be paid based on collections.

“If I was the associate, I’m not going to make anything for 120 days,” Prescott says. “I want to be paid.”

He recommends a compensation package based on the greater of a dollar amount per month or a percentage of adjusted production. By calculating the differential on a quarterly basis, the associate avoids the peaks and valleys of pay versus production.

In addition, an expenditure of time provision reflects whether you will be employed full- or part-time, how many days a week you work, how many hours in a day, and vacation and personal time off. Don’t assume that full-time means eight hours a day, five days a week. Schedules vary from practice to practice, and full-time could mean 7 a.m. until 6 p.m., three days a week.

“It’s about being specific,” Prescott says about a dental associate contract. “Know what you are agreeing to, and don’t leave anything open.”