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Beware of boilerplate employment contracts

Adopting these contracts without the assistance of counsel can be deleterious to the health of your business

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If you are a practice owner in need of an employment contract for a new associate, you may reflexively turn to the internet to see if you can find a “model” document. Or you may obtain one from a colleague or veterinary association. But adopting “boilerplate” employment contracts without the assistance of counsel can be deleterious to the health of your business.

Many important employment laws vary from state to state. Even where the employment laws of two or more states are similar, there are often nuances that affect substantive rights and obligations. These subtleties often arise in judicial opinions interpreting the law and, as such, almost certainly would not be obvious to practice owners.

What’s more, state legislatures have been making dramatic changes to employment laws in their jurisdictions with increasing frequency. This has further debunked the concept of the one-size-fits-all employment contract and contributed to the need for experienced employment counsel when it comes to drafting these agreements.

Sweeping changes

Massachusetts provides a shining example of how quickly the legal landscape can change in a particular location. On Aug. 1 of this year, the Bay State enacted a sweeping noncompete reform bill that became effective only two months later on Oct. 1.

In the blink of an eye, newly executed noncompetes in Massachusetts will be invalid and unenforceable unless they specify the employer keeps the individual on payroll during the restricted period at a rate of “at least 50 percent of the employee’s highest annualized base salary paid by the employer within the two years preceding the employee’s termination.”

Yes, you read that correctly. The employer—including veterinary employers—must pay the former employee half of his or her salary to sit on the sidelines. (Alternatively, the law allows for “other mutually agreed upon consideration,” but unless such amount is equivalent in value to 50 percent of salary, the noncompete, if challenged, could be struck down.)

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But that is not all. A Massachusetts noncompete entered into on or after Oct. 1 will be invalid and unenforceable if it suffers from any of the following deficiencies: (a) it is not in writing; (b) it is not signed by both the employer and the employee; (c) it does not expressly state the employee has the right to consult with counsel before signing; and (d) it was not given to the employee by the earlier of a formal offer of employment or 10 business days before employment began.

Further, any such noncompete will be invalid and unenforceable as to nonexempt employees (i.e. employees entitled to overtime pay under the federal Fair Labor Standards Act) and employees of any status who have been terminated without cause or laid off.

Protecting yourself

With this illustration in mind, let’s return to our discussion of the dangers of using boilerplate employment agreements. If you are a practice owner in Massachusetts, chances are most “canned” or “model” employment contracts will be oblivious to the new legal requirements, resulting in your practice’s noncompete provisions being invalid and unenforceable.

By the same token, if you are a practice owner elsewhere in the country who happens to be using a “canned” or “model” employment contract from an up-to-date Massachusetts source, you may unwittingly commit your practice to greater noncompete obligations than would be required by the law of your state.

Getting it right with noncompetes is critical for at least two reasons. First, a legally compliant noncompete should protect your practice’s trade secrets and client goodwill. And second, if you are planning your exit strategy, you may have no choice but to sell at a deep discount if your veterinary staff is not covered by valid and enforceable restrictions. To be sure, prospective buyers may balk if your doctors could freely join a nearby practice and then lure clients away.

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Other subjects that bear on employment contracts but can vary dramatically from state to state include:

  • whether unused vacation must be paid out upon termination of employment;
  • whether premium pay must be given to employees who work on Sundays or holidays; and
  • whether employees are entitled to paid or unpaid time off for family and medical exigencies.

This is just the tip of the iceberg, though. The list goes on and on.

If you are presently using employment contracts with your associate veterinarians, you should ask yourself these questions:

  • “Do I know where this document came from?”
  • “Do I understand what’s in it?”“Does this agreement comply with the laws of the state where my practice is located as such laws are currently on the books?”

If your answer to any of these questions is “No,” “I don’t know,” or “I don’t remember,” it may be prudent to engage experienced employment counsel to review, and if necessary, revise the agreement. You have invested too much in the success of your practice to protect this valuable asset with generic, do-it-yourself contracts. Button them up, and you will sleep better at night.

If you have questions about labor, employment, or business laws affecting your veterinary practice, submit them to questions@toddnewmanlaw.com. Selected questions may be addressed in upcoming articles.

Todd A. Newman, a Cornell Law School alum, works closely with veterinary practices. He is president and owner of a Salisbury, Mass., law firm (toddnewmanlaw.com) that focuses on business, employment, labor, and litigation matters.

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