Associate Agreements from the Principal’s Perspective: Part 2


David Rosenthal


April 19, 2017

April 19, 2017

There are many issues to consider when hiring an associate dentist. An associate agreement (Agreement) is the legal contract that details the arrangements between the dentist who owns the practice (Principal) and the associate dentist (Associate) hired to work at the practice. In volume 78 of The Professional Advisory I wrote about associate agreement from the Principal’s perspective. This is Part 2 of the article, which continues to explore those issues from the Principal’s perspective.

RemunerationThe Associate is typically paid based on a percentage of the Associate’s collected billings. The standard going rate for general dentistry is 40 per cent of collected billings. A specialty practice Associate may command a higher percentage. From the Principal’s perspective, paying the Associate on a monthly basis is easiest as third party laboratory invoices are typically received on a monthly basis.

The definition of collected billings in the Agreement is critical. Collected billings typically means the gross billings for dental services rendered by the Associate to patients of the dental practice for which payment has been received by the Principal, after deducting laboratory fees. The definition of collective billings should also specify whether the Associate’s gross billings includes the dentist examination fee for dental hygiene services where the examination has been performed by the Associate.

Patients often pay for dental services by credit card. Credit card companies charge approximately two per cent as a processing fee. Although two per cent credit card processing charges may seem like a minor amount, this can become a large expense over the long run. So in addition to deducting laboratory fees, another deduction might be credit card processing fees incurred by the Principal to collect such payments.

Note that the definition refers to collected billings. If a patient does not pay an account, then it is not included in the calculation of collected billings. The Associate is not paid the percentage until the invoice is actually paid by the patient. If a bad debt is incurred for a fee previously included in the Associate’s gross billings and paid to the Associate (such as a patient’s cheque not being honoured at the bank), the Agreement should specify that such amount is deducted from the amount then owing to the Associate, or the Associate must repay the amount to the Principal.

The Agreement should specify the Associate agrees to endorse any patient or third party (insurance company) cheques to the Principal so that billings and collections will be done through the Principal’s accounting system and bank account.

Non-Solicitation and Non-CompetitionThe most valuable asset a Principal owns is the patient list. To protect that asset the Agreement should contain a non-solicitation covenant whereby the Associate agrees not to solicit patients (or staff) of the practice. The Agreement should also include a non-competition covenant whereby the Associate agrees not to compete with the Principal within a specified geographic radius for a specific time period after the Associate ceases to work at the practice. The comments below are intended only for general practitioners since there are different rules that may apply for specialists.

A non-competition covenant will only be enforced if it is reasonable both in geographic scope and time limit. That may be only a few kilometres in a densely urban practice or 10 kilometres or more in a rural setting. The amount of time the clause remains in effect is also important. In the case of a new Associate, there will likely not be a threat if the Associate leaves the practice within a trial period of three months, and generally only a minor threat if they leave within one year.

A “phased-in” non-competition covenant is reasonable. It could provide the non-competition restriction:(i) does not apply to the Associate for the first three months of the association;(ii) applies for a period of one year after termination if the Associate departs within one year;(iii) applies for a period of two years after termination if the Associate leaves after one year.

Termination of AgreementIf the arrangement is not working for whatever reason the Principal must be able to terminate the arrangement promptly, typically upon one to three months notice, and not be obligated to retain the Associate for an extended time period.

Sale of PracticeIdeally the Agreement will provide that the Principal can assign the Agreement to a third party purchaser of the dental practice upon notice to the Associate, and further provide that the Associate consents to such assignment. Not having an appropriately written and signed Agreement between the Principal and Associate can be a serious detriment and obstacle when the Principal sells the dental practice.

In summary, a properly drafted written associate agreement is essential from the Principal’s perspective. The Principal should consult with his or her professional advisors to ensure the Agreement contains the appropriate provisions to protect the Principal’s dental practice.