In this article, we will look at various components that you should require in an employment agreement. If you are working without a written agreement, then you can learn about why you should have a written document and items that should be contained in it. Written agreements are critical when you have a dispute.
Why should you have a written employment agreement?
According to James F. Wilson, DVM, JD, disputes over the terms of employment agreements occur frequently and require considerable management time and emotional effort to resolve.
Although some practice owners do not offer employment agreements to their associates, there are some very important reasons to do so. Relying on two parties’ memories to align regarding the details of discussed employment compensation and benefits is risky. Differences in perception and interpretation of the elements of such a verbal agreement are common. Although all involved undoubtedly have good intentions, trust can easily be broken and the damage to relationships can be permanent.
A contract is defined as a written or spoken agreement, especially one concerning employment, sales or tenancy, which is intended to be enforceable by law. In employment, such a contract is also known as an employment agreement. To be enforceable, an employment contract, whether verbal or written, must have a clear offer of employment, an acceptance of the offer, a “meeting of the minds” over the terms of the offer and a consideration (compensation) for the work performed.
The agreement contains the conditions of employment and describes compensation and benefits. By having a written agreement, both employer and employee clearly understand the accepted terms of employment and can refer to the document if necessary.
What are the key elements of an employment agreement?
The key elements of an employment agreement include the length or term of the contract, compensation, duties and work schedule, emergency duty requirements, vacation or other time away from work, benefits, a non-compete clause and conditions of termination.
Expecting all these segments to be clear without a written document is wildly optimistic. By proactively considering all situations that might arise, expectations are set and questions or concerns that arise can be worked through while the issues are still theoretical. A written document memorializing the understanding of the terms of employment allows all parties to be confident they will not be surprised.
How long is a contract typically in effect?
The term of an employment agreement is generally either a designated length of time, such as 12 months, or “shall continue until terminated as hereinafter provided.” Having a set number of months allows a natural time for renegotiation, but also might cause some trepidation that the contract will not be renewed or will not be renewed with the same terms.
What about compensation?
Compensation is in the form of salary, or a base salary with the opportunity for a production bonus, or straight commission based on revenue production. The employment agreement will define the method and details of the compensation arrangement, including whether any part of emergency fees generated will be paid to the veterinarian attending the emergency.
The most common compensation method is straight salary, according to the 2015 AVMA Veterinary Compensation Report. However, the 2016 AVMA AAEP Equine Economic Survey indicated that more than two-thirds of equine practitioners prefer a base salary with the opportunity to earn a production bonus. Such an arrangement can be a significant source of additional income.
When determining the percentage of collected gross revenue production to use for compensation, practices must consider their unique situations. However, the total cost of employing a veterinarian should never exceed 25% of their revenue production. This expense includes payroll taxes, Workman’s Compensation insurance, benefits (licenses, professional liability insurance, memberships, continuing education, vacation, etc.) and compensation.
How are duties and schedule defined?
Duties and schedule are usually described in general terms, such as “Employer hereby employs Employee, and the Employee accepts such employment, to render veterinary medical services. Employer determines the specific duties to be performed by Employee. Employer shall also determine the assignment of clients to Employee, and Employee must perform services for such clients assigned to her. Employer shall determine hours of employment within reasonable standards within the profession.”
Although this legal language sounds harsh or all-encompassing, it simply details the relationship between employer and employee. There are distinct disadvantages to narrowly defining the duties that are to be performed by an associate or the hours worked, due to the possibility of needs changing in the veterinary business due to unforeseen circumstances such as an injury or illness. Despite this, some agreements specifically call out a laundry list of tasks; then, the final task is “performing such other duties as may be assigned by the Employer.”
Scheduling and the number of hours worked can be so variable that they are rarely called out with any specificity. Typically, “the Employee shall provide such weekday, evening, weekend, holiday and emergency coverage as shall be reasonably assigned by Employer, and Employee agrees to work the hours needed to accommodate the needs of the Employer and its clientele and will work equitably with other practice veterinarians to meet such needs.” Other language could simply call out “hours of employment within reasonable standards within the profession.”
Should emergency duty be included in the contract?
Some description of the expectations for emergency duty should appear in the employment agreement. Requirements for emergency duty might specifically state that duty will be shared equally among the practice’s veterinarians or could state that the emergency duty schedule “shall be determined by the Employer, and the Employee shall provide such emergency coverage as shall be reasonably assigned by Employer.”
Having what seems to be vague language in the agreement allows the employer to manage unexpected situations, such as emergency coverage if an injury or illness occurs among the team members. If an associate has questions about how the language in an agreement would apply, it is important to clarify these concerns.
What about vacation and other paid time off?
Time off from work is also covered in most employment agreements. Some practices offer sick days, personal days, vacation days and time away for continuing education, and call these out specifically in the contract. Others utilize a Paid Time Off (PTO) system where time away is not designated. Still others make no note of time away in the agreement and utilize an employee manual to designate how this is handled.
Regardless of which way the employer handles time off from work, both parties should have a clear understanding of the expectations. Most employment agreements state the number of days of vacation to which the associate is entitled. It is recommended that “days” be used instead of “weeks,” as equine veterinary practices have broad vacation could mean four days in some contexts and seven days in another. To minimize misunderstandings, it is best to be very clear. If PTO is accrued, the employment agreement might state the method of accrual, or that could be left for an employee manual.
Are benefits catalogued in an employment agreement?
The provision of benefits varies widely between practices, but typically they are specifically called out in employment agreements. Benefits that are offered by an employer might include:
- professional liability insurance
- professional licenses
- memberships (AVMA, AAEP, local VMA, etc.)
- continuing education
- health insurance
- disability insurance
- retirement plan (401k, SIMPLE)
- sick/personal days
- discounted veterinary services/medications
- maternity Leave
In the 2016 AVMA AAEP Equine Economic Survey, 720 respondents indicated the benefits they received as associates or purchased if they were practice owners. The benefit that respondents reported as most frequently provided was continuing education expenses (85.97%), followed by liability insurance (79.58%), licenses (78.75%), association dues (76.94%) and continuing education leave (65.0%). A little over half of practices (52.08%) provided health insurance and paid vacation leave (51.94%). The chart on the previous page illustrates the results.
Benefits might or might not be described in detail in the employment agreement, but most contracts indicate whether a benefit is provided by the employer, or whether an employee is responsible for that cost. For example, “Employee will directly pay and be responsible for Employee’s professional license fees for New Mexico and Arizona, as well as dues and membership fees for the AVMA and AAEP” or “Employer shall directly pay for professional liability and license defense insurance insuring the Employee for professional errors, omissions, negligence, incompetence and malfeasance upon such terms and in such amounts as Employer shall deem adequate but not less than $1 million per claim/$3 million per aggregate.”
Some practices choose to utilize an employee manual to describe benefits so that necessary changes can be made without the need to sign new contracts. Because of this, generally any employment agreement language is vague. For example, “The Employee shall have the option of accepting a medical insurance plan if such a plan is offered by the Employer and the Employer shall pay a percentage of the cost associated with such plan.” An employee manual is also the appropriate place for stating the practice’s policies for time off for bereavement, jury duty or military service.
What should the contract specify if there will be use of an employee-owned rather than practice-owned vehicle?
If an associate will be using his or her own vehicle, the employment agreement should describe this and provide a detailed account of compensation for such. Most practices utilize the annual IRS reimbursement rate for mileage in this case, but some states offer a different published rate that might be lower.
The published rate that will be used must be stated, along with the parameters for submitting mileage and the method of payment. For example, “The Employee shall provide a vehicle from which to practice. The Employer, at its sole expense, will provide such veterinary equipment and supplies that the Employer deems necessary (excepting vehicle and vehicle cabinets) as needed for the practice of veterinary medicine. At the termination of this agreement, Employee shall return all such equipment and supplies in good condition within 24 hours. The Employer will reimburse the Employee for mileage incurred for business purposes according to the rate established by the Internal Revenue Service (IRS). The Employee must maintain a mileage log in accordance with IRS regulations, and submit that log at the end of each month to the Employer. Mileage will be reimbursed monthly, no later than the 15th of the month following the month submitted.”
What about maternity leave?
Understanding available maternity leave is increasingly important as the demographics of the profession change. It is important to establish the practice’s policy regarding maternity leave. If this is not expressly written in the employment agreement, employers will still want to determine their stance, and female associates should inquire if they anticipate the need for this benefit.
Although the federal Family Medical Leave Act (FMLA) provides up to 12 weeks of unpaid leave during a 12-month period to care for a newborn, adopted or foster child, or to care for a family member, or to attend to the employee’s own serious medical health condition, the law only applies to private employers with 50 or more employees. However, the FMLA also allows states to set standards that are more expansive than the federal law, and many states have chosen to do so.
A typical maternity leave clause might read: “No salary will be paid during any period of maternity leave beyond the Employee’s accrued and unused accumulated vacation, personal and sick leave days. However, the position of associate veterinarian shall be held open for return of the Employee for a period of 12 weeks following the birth or adoption of an infant. If Employee has accepted the option of a medical plan through the Employer, if such a plan is offered, the Employer will continue to honor any Employer obligation to fund said plan during any period of maternity leave granted.”
Isn’t maternity leave just another type of disability leave?
Yes, it is. For this reason, it is prudent to state your disability leave policy in the employment contract, especially if you state a maternity leave. Your disability leave must not be more generous than your maternity leave policy, or you could face a discrimination suit.
What about non-compete agreements?
Non-compete clauses are also termed restrictive covenants, and for the employer, they are one of the most important parts of an employment contract. By introducing and encouraging the formation of strong client-doctor relationships, the practice owner is assuming a risk that his or her business will be harmed if the associate leaves.
Non-compete clauses can take several forms. They can include a radius of distance from the practice’s physical address as well as a length of term, or they can specify that the departing doctor cannot perform services for any clients seen by the practice as of the departure date for a specified length of time. Some specify terms for a buy-out of the non-compete. The important factors in a non-compete clause include: What is reasonable? And will it stand up in court?
Each individual practice will vary in what is reasonable in terms of distance. It is unusual for a length of time to exceed two years unless it involves a former owner of the practice. Terms of a buy-out of the non-compete usually include payment of a percentage of the revenue earned by the departing employee in the previous 12 months, or payment of a percentage of future revenue earned from the practice’s clients.
Often the language of a non-compete seems draconian and harsh, and many associates hesitate and become fearful at this point. It is important to understand just what the agreement means in terms of future opportunities, and for both parties to be comfortable with the restrictions.
Under what conditions can termination occur?
Conditions of termination for cause are standard, and typically include if the employee becomes disqualified to practice veterinary medicine, fails or refuses to faithfully or diligently perform the duties of his/her employment and the provisions of the agreement, or dies.
Most agreements also state that either party can give the other written notice of some number of weeks in advance of the date of which a termination of employment is to take effect. Most commonly this is 12 weeks, but if the employee is terminated by the employer for cause, the employment tends to end immediately and the salary is simply paid for the stated period. States frequently have statutes about lawful termination, which must be determined and followed.
Should negotiation of the terms of the contract be expected?
Negotiation of the terms of an employment agreement is so common that it should be expected. The initial contract document is essentially a draft of the offer, after which negotiations will refine the final agreement.
As an employer, being able to begin an employment relationship with an associate that will yield a long-term rewarding tenure requires investigating what he or she values the most in the terms. Being flexible and looking for common ground is the best approach. If you have been chosen as the candidate to whom an offer of employment is made, remember that the practice has identified you as the veterinarian they want on their team. You do have some leverage in negotiating the terms of your employment. You don’t have to simply sign a contract without discussion.
Having a conversation about the terms of an employment agreement is a negotiation. Most people feel anxious about these interactions and wish they could avoid them. Every individual has a preferred communication style, and these innate differences can influence negotiation success. (Read “Negotiate Like a Pro” on EquiManagement.com to learn more about communication styles.)
An essential concept for all negotiators is that of BATNA, or Best Alternative To A Negotiated Agreement. Because of their awareness of their true “bottom line,” negotiators with a thorough understanding of their BATNA have power and confidence, and generally they are more successful in achieving their goals.
If you know your BATNA, you know when to stop negotiating and walk away.
Take-Home Message
When negotiating an employment agreement, employers should seek to understand the prospective associate’s challenges, and candidates should remember to consider the practice owner’s or owners’ perspective.
Both parties should be comfortable asking for time to consider the offer or counter-offer, and associates should have an attorney or consultant review the agreement.
Don’t be afraid to politely ask for what you think is fair, and offer to renegotiate after one year if significant concessions were made by one side. After that time, the new employee might have added considerable value to the practice.
