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Are You The Happy New Owner of A Dental Practice…And a Ton of Employee Liability?

By June 8, 2018November 5th, 2019Buying a Practice, Employment Law

Have you recently purchased a dental practice and inherited staff who are not on written contracts? If so, then you also inherited a ton of employee liability – liability that could range from hundreds of thousands to millions of dollars, depending on the number of employees and their tenure.

Don’t think that long term staff aren’t worth their weight in gold to a new buyer when it comes to transitioning the practice from the seller to the buyer. But what happens if the buyer wants to terminate an inherited employee?

The Liability

Buying dentists may find themselves wanting to end the employer/employee relationship for any number of reasons, including performance-related issues, attitude deterioration, personality clashes, the buyer wanting to replace the employee with their own staff, etc.

Of course, when an employee is terminated for cause, no termination notice or pay in lieu of notice is required. Read about “for cause” terminations here.

But when an employee (without a proper written contract) is terminated without cause, they are entitled to approximately 1 month of notice of termination or pay in lieu of notice for every year worked by the employee, up to a maximum of 26 months. Long-term employees, especially older, highly paid or specially trained employees can easily be on the higher end of the scale – and if you have more than one long-term employee without a contract, then the liability just keeps adding up.

Here’s an Example:

Dr. Bigtooth just bought a dental practice. He inherited 4 staff, none of which are on contract:

  • Hygienist – 15 years tenure – $35/hr – 25 hrs/week
  • Receptionist – 28 years tenure – $25/hr – 40 hrs/week
  • Assistant – 8 years tenure – $20/hr – 30 hrs/week
  • Office Manager – 30 years tenure – $28/hr – 40 hrs/week

If Dr. Bigtooth terminated all of the staff today without cause, he would owe the employees a combined total of $316,527 in termination pay.

If you’re thinking to yourself “but what about Ontario’s legislation that requires employers to give much less than 1 month for every year worked? Doesn’t that apply?” Unfortunately, the answer is NO! Without a written contract the Employment Standards Act (ESA) doesn’t apply! Read more about this here.

The Fix

There’s a simple solution; a way to minimize employee liability. Introduce employee contracts!

How is this possible? Because a written contract can stipulate that the employee will only receive ESA minimums – which are approximately 1 week for every year worked by the employee (up to a maximum of 8 weeks).

Introducing written contracts doesn’t have to involve “firing” your staff and causing an uproar among your team. It make take some time and some negotiation, but with patience and the right guidance comes reward!

Here is what guides our processes when introducing contracts:

  1. Be fair when giving contracts;
  2. Provide the right amount of notice of the change;
  3. Provide the notice in a simple and controlled way and answer all questions accurately;
  4. Give plenty of time for employees to consider the contract and get legal advice before signing;
  5. Provide consideration for signing contracts early;
  6. Negotiate, if necessary.

Let’s go back to our Example of Dr. Bigtooth:

1 year later… Dr. Bigtooth has successfully introduced contracts to his inherited employees. The contracts were generous and stated that the employees’ tenure prior to the contracts being introduced would be considered for the purposes of calculating notice of termination or pay in lieu of notice.

If Dr. Bigtooth terminated all of his staff today without cause, he would owe them each a maximum of 8 weeks of pay for a combined total of $28,760 in termination pay. That’s over 90% decrease in the cost of termination, just by introducing contracts!

The Pitfalls

We have encountered plenty of dentists who have tried to introduce staff contracts and failed.  You may have a colleague or two who fit this category. Here are some of the reasons why the process may fail, and the resulting consequences:

Amount of Notice

If you give insufficient notice to an employee of the change to written contracts (i.e. they were entitled to 26 months of notice but you gave them 6 months), then you could find yourself accused of wrongful dismissal! Recently, the Ontario Court of Appeal found that an employee was wrongfully dismissed because they were not given enough notice of a significant change. The employer was ordered to pay $200,000 in termination pay + $70,000 in legal fees. Read more about this case here.

Calculating the amount of notice an employee is entitled to is not a science; it is an art. You have to consider many factors including age, ability to find other comparable work, skill level, special training, rate of pay etc. for that reason, we recommend that you have an experienced employment lawyer calculate the amount of notice required for each employee.

How Notice is Presented

When giving employees notice of their new written contracts, you want to ensure that the message of transition from verbal to written contracts is conveyed properly, that employee questions are answered clearly and concisely, that staff are reassured of their job security and treated respectfully.

Too many dentists botch this portion of the process resulting in office unrest, mistrust of the dentist, general confusion and often resignation of one or more employees. Have a professional handle this, especially if the employer / employee relationship is new or if you are not sure about what to say or how to relay the message.

Bad Contracts

If you are going to spend the time and money presenting contracts, you absolutely must make sure the contracts are good! We’ve seen dentists go through the rigmarole of presenting contracts to staff, waiting out the notice period and finally having their contracts in place only to find out that the contracts they presented were insufficient to limit liability (i.e. poorly worded and unclear). Here is an example of a poorly worded contract that was invalidated and the employer ordered to pay 12 months of salary to the employee.

The laws that inform how employee contracts are written are constantly changing so, although tempting, re-using old contracts or using a colleague’s contracts is never a wise idea! Always consult with an employment lawyer before presenting a contract to an employee!

No Consideration

Although dentists can change the employer / employee relationship by giving the proper amount of notice, if you want employees to sign early you must give them “consideration”.  Consideration is a legal term which simply means payment or additional benefit for signing the agreement and having the terms apply early. Judges in Ontario have consistently invalidated employment contracts for lack of consideration – making those contracts not worth the paper they were written on. Read more about consideration here.

The Takeaways

Employee liability can be limited with good written contracts which are presented properly. But beware because failure to present contracts properly can have disastrous effects! Consult with an experienced employment lawyer to guide you through the process from beginning to end and you will sleep easy knowing you have limited your inherited employee liability.

If you need advice about presenting contracts to staff, please contact DMC.  We are your legal dental team.

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.