One topic we most often get asked by our dentist clients relates to their employees. We thought that it would be useful to do a blog post in a Q & A format responding to those questions. 1. My employees don’t have employment contracts in place should I get them to sign an employment contract?
1. My employees don’t have employment contracts in place should I get them to sign an employment contract?
Our answer to our clients is always YES you should get them to sign an employment contract, if possible. An employment agreement sets out each parties’ responsibilities and expectations of each other. By not having one in place you open yourself up to liability down the road as to what had actually been agreed to. In the employment contract you will agree on terms such as duration, pay, vacation, termination and responsibilities.
Unfortunately, it’s not as easy as putting an agreement in front of your employee and getting them to sign, especially when the employee has been working for you for a long period of time. We advise our clients to work with their employees to come to mutually agreeable terms in the agreement. If the employee refuses to sign the contract you cannot force them to sign it. Use this as a learning experience and ensure that any new employees coming to work for you sign your form of employment contract.
2. How much notice or termination pay do I owe the employee I am thinking about firing?
Under the Employer Standards Act (Ontario) your employee is statutorily entitled to one week’s notice or pay in lieu of notice per year that they have worked at your practice up to 8 weeks if they are terminated without cause. So if your employee has been with you for 6 years they will be entitled to either 6 weeks’ pay or 6 weeks’ notice. The chart below should be helpful in determining the notice/termination pay owing to your employee.
Length of Employment Notice Required
Less than 3 months None
3 months but less than 1 year 1 week
1 year but less than 3 years 2 weeks
3 years but less than 4 years 3 weeks
4 years but less than 5 years 4 weeks
5 years but less than 6 years 5 weeks
6 years but less than 7 years 6 weeks
7 years but less than 8 years 7 weeks
8 years or more 8 weeks
An additional consideration is whether your employee may be entitled to damages under common law. Damages at common law generally come into play with long term employees who have held a managerial or executive position. The general rule under common law is that the employee will be entitled to one month notice per year worked at the dental practice. Court cases have established that the maximum is now approximately 18 months. Keep in mind that damages under common law are fairly rare in dental practices but they are a possibility.
You can avoid damages at common law by having an employment agreement in place that sets out that the employee is only entitled to damages under the Employment Standards Act (Ontario) and not at common law.
3. What does it matter to me whether the person works for me is an employee or an independent contractor?
The first thing you need to consider is whether the individual working at your dental office is an employee or an independent contractor. Normally, the only persons at your office that may be an independent contractor is your hygienist and associate(s). The courts have applied a 4 part test for making the determination which includes control, ownership of tools of production, chance of profit and risk of loss. Lastly, the courts look at the entirety of the relationship. You need to look at factors such as does the individual set their own hours, do they have their own equipment, do they get paid based solely on the work they do (think a hygienist), are they able to work for more than 1 employer, etc.
If the individual working for you is an independent contractor you do not have to pay their income taxes, EI premiums or CPP contributions, whereas if they were an employee you would. From a termination perspective it’s also easier to terminate an independent contractor as the Employment Standards Act (Ontario) wouldn’t be applicable. Again, you should, if possible, attempt to have your hygienist sign a contract setting out her contractual obligations and benefits.
You should talk to your lawyer and accountant when determining whether to treat the individuals working for you as employees or independent contractors.
4. I am looking to buy a dental practice and I’m concerned with assuming all of the employees, what should I do?
When negotiating the terms of the purchase there are several ways that employees are dealt with. The problem is that virtually 100% of vendors do not want to terminate their employees as they do not want to pay the termination costs – as it is a seller’s market purchasers are forced to assume the employees. However, most vendors will agree that if an employee is terminated within 90 days of closing the vendor and purchaser will split the costs of termination. 90 days is a negotiable number but it is a timeframe we most often attempt to incorporate in the agreement.
In rarer circumstances the purchaser is sometimes able to negotiate the termination of the employees prior to closing with the employees being re-hired after closing. This allows the purchaser to avoid paying termination costs. You should note that Vendors are reluctant to put this clause in as it puts the entire burden of the termination costs on them (seller’s market).
As we advise our clients, be very careful before you terminate, as the employees are the face of the practice and they will help you with the transition from the vendor to you as purchaser. You should also contact us prior to terminating any employees.
5. Is the non-competition clause in my employee’s or independent contractor’s contract enforceable?
In the context of your employees or associates the non-competes will only be upheld in “exceptional” circumstances as the courts consider non-competition clauses as restraints on trade and contrary to the public interest. If you do have a non-compete in your employment agreement with an employee or associate it will be difficult to enforce. We still advise inserting the non-compete/non-solicitation covenant as the employee/contractor will usually feel morally bound. You should ensure that the length and radius of the non-compete is reasonable.
In the situation where you purchase a practice and have a non-compete as part of the purchase the courts will in most circumstances uphold it as binding.
Summary
If you have any further questions on employment matters for your dental practice please do not hesitate to contact us. This blog post of for information purposes only and should not be construed as legal advice. If you have any questions please do not hesitate to contact us.