I know how you feel. I am a lawyer and I know how you feel. You hear the word "contract" and your eyes glaze over. The harsh reality is that in the same way that non-dentists have to make time for the tedious and expensive distractions of dentistry and dental hygiene, dentists have to focus, from time to time, on contractual issues, to stop the wheels falling off!
This article is intended to provide an easy to read guide on a few easy steps to keep on top of the paperwork.
So a couple of basic observations, to warm you up. It sounds crazy, but there are almost no legal safeguards in place that prevent a cheeky service provider from ripping you off. Certain basic safety nets exist to prevent sharp practice being applied to individuals. For example, we have the Sale of Goods Act, which requires suppliers to consumers to meet certain minimum standards, including fitness for purpose and merchantable quality. These standards do not usually apply to transactions with businesses. And even if you are a sole practitioner, you count as a business, not an individual.
A client of mine was disappointed with the standard of the cleaning carried out by his practice cleaning contractor. He gave the contractor a month’s notice. He hired a replacement cleaner. At the end of the one month period, the old contractor stopped work and the new cleaner started. The dentist was surprised to receive a bill, shortly afterwards, for a six month notice period and not the one month notice period. The reason for this was because the Contract with the cleaning company provided for a six month notice period.
Another client bought a photocopier. It came with a maintenance agreement that was free for the first 12 months, followed by a fixed 4 year term at £2,000 per annum. This effectively amounted to buying the photocopier three times over! Don't sign it.
So how can you guard against these unreasonable provisions? There are two ways. Firstly, you can actually take the time to read the Contracts and refuse to be bound by unnecessary and unreasonable terms. This is surprisingly simple and not nearly as unpleasant or as insurmountable as it may appear.
The other alternative is to refuse to be bound by standard terms at all. I have recently sold a house. The estate agent wanted me to be bound by his standard trading terms. I told him that I was very pleased to give him the business, but I would not be bound by his standard trading terms. Rather, I would be bound by a very simple Contract: if I sold my property to a person introduced to him during his 3 month period of exclusive agency, I would pay him a commission of 1% of the sale price, plus VAT, payable within seven days of the date of completion of the sale. No, more, no less.
So-called hire agreements, for example telephone systems. You will be offered various options, which will probably never include a simple cash purchase with no strings attached, at a competitive price. I recently installed a telephone system with about 15 extensions and a basic Panasonic switchboard. The electronic equipment cost about £800, the handsets cost another £900 and the installation was about £700 to include all the wiring and programming. Not cheap, but very different to the experience of a client of mine, who installed a similar system, with a £1,000 capital outlay, hired for a fixed term of 5 years at £2,500 per annum. Mental!
Now for the slightly trickier examples. Employees. An absolute minefield. You might imagine that if an employee’s face does not fit, you can shake their hand, tell them that it is not working, and gently suggest that they move on to another opportunity.
Well, imagine is the right word! The reality is that most employees can do anything they want, secure in the knowledge that they can’t be sacked. If you want them to leave, you can of course tell them to leave, but you will be looking down both barrels of an unfair dismissal claim. In turn, this could cost you anything from several thousand pounds to several hundred thousand pounds.
To make matters worse, any dismissed qualifying employee, which in broad terms is an employee who has been on the payroll for two years or more, is presumed to have been unfairly dismissed unless the employer can prove otherwise.
So the moral of this story is to keep your employment papers up to date and not to take any disciplinary action along the lines of termination of employment, without first consulting a solicitor.
And Associates? We had a Practice Owner client in the Slough area a few years ago who did not work at the Practice himself. It was an exclusively private Practice. He did not bother with Associate Agreements, because, well, why should he? Nobody does. They are not worth the paper they are written on and, besides, he had managed for 20 years without silly documents like that.
He made the mistake of telling the Associates about his plans to sell, in the hope that it might encourage the Associates to purchase the Practice. They chose not to.
So the Seller accepted a very full offer from a prospective purchaser introduced by one of the brokers and moved on speedily towards exchange of contracts. Unfortunately, the Associates then announced and executed their immediate departure, simultaneously settting up in the property next door, on a Lease, hastily fitted out by a very grateful fit out specialist.
Outcome? An unsaleable practice with no patients, as they had all gone next door!
The moral of the story: make sure you have signed Associate Agreements, with fully enforceable restrictive covenants, which would have prevented such action.
The largest asset of the Dentist is likely to be his Goodwill. It needs to be protected from opportunistic Associates. It also needs to be protected from HMRC.
The most popular commercial activity for dentists these days is incorporating the Practice. Obviously, this is done for one reason and one reason only: to save tax. It can be very effective, but you have to do it right. You need to get a valuation, you need to document the transfer of the business from the individual(s) to the Company and you need a transparent paper trail.
If you do it wrong, or cut corners, you are vulnerable to an attack from HMRC, who will suggest that it was an ineffective transfer and will tax you and penalise you for getting it wrong.
You are generally vulnerable to an attack from NHSE, who will may argue that you have breached your NHS Contract and that your Contract is therefore vulnerable to immediate termination.
And just for good measure, if your Associates or even yourself are not paid by the NHS Contract holder, so perhaps by the Company, which does not hold the NHS Contract because the individual still holds the NHS Contract on trust for the Company, you run the risk of becoming ineligible for superannuation contributions and completely ruining your retirement plans.
Russell Abrahams, Solicitor, Abrahams Dresden LLP
Abrahams Dresden articles and guidance notes are for general information purposes only and generally state the law as at the date of publication. The information may not be relied upon as legal advice. We are of course always happy to advise directly on specific issues arising.