The amorphous buy-in offer

The amorphous buy-in offer

Beware of potential misunderstandings about sensitive partnership issue

One of the more stressful times in a veterinarian's employment relationship is contract-signing or contract-renewal time. Emotions tend to run high as each party tries to get what they need and want from the other without offering more to the counterparty than they can afford in terms of time and money.

During this period, many things are said and implied which may be vague and/or unintentional. This doesn't necessarily mean that the participants are intentionally misleading but, with excitement and enthusiasm running high, promises and offers are sometimes made which, in a time of subsequent reflection, may be misinterpreted or overestimated in terms of the other party's commitment to see things through.

Sometimes these discussions involve things such as health insurance or malpractice coverage. The boss will say that he will see to it that the new or renewing associate gets "the same quality coverage I have." He may neglect to mention initially that all associates at the practice pay half the cost of this super policy.

A promise of malpractice coverage may be made, but what the medical director may neglect to mention is that the coverage paid for by the practice is malpractice liability that covers the hospital and its ownership against malpractice by the associate. But coverage protecting the associate against his or her own malpractice may not be paid by the hospital, or it might be paid only for the lowest limits available.

Nowhere, however, does there exist a richer source of mutual misunderstanding in contract negotiations than in the implied or inferred offer of buy-in or offer of partnership in the practice business.

In order to be as fair as possible to owners and to associates desiring to buy in to a veterinary practice, I would like to describe the thought processes as I have identified them in the many such deals I have helped arrange. Then, I will describe some specific realities for associates to consider in dealing with a less-than-concrete offer of eventual partnership.

The way in which misunderstandings usually unfold in this area is as follows: Springtime arrives, and practice owners are faced with the need either to add an additional associate or to replace one who decided to move on.

A new graduating class is emerging, and the hospital owner is now in the situation of having to contact veterinary colleges and classified advertisers in an effort to arrange interviews (of which there are likely to be many).

Eventually, the applicant pool narrows itself down, and the final discussions begin between potential associate and potential employer. By now, the owner may be sick and tired of taking all the time required to go through this process and begins to think hard about how nice it might be to have a permanent doctor instead of a string of nomadic associates who never seem to stay put very long.

So when the final interviews occur, that vague desire to "take on someone more permanent" translates into a vague verbal suggestion of eventual possible partnership made to one or more of the finalists for the associate position. The owner usually mumbles something along the lines of "...and if the chemistry is right, in a couple years we would look at the possibility of a buy-in..."

But what is said and what is heard may well be quite different.

The owner is simply thinking out loud. He is speaking "mid-daydream," imagining the new grad sitting before him turning out to be just as committed, just as hard-working, just as patient-focused and just as bottom-line oriented as he is (or fancies himself to be). He imagines, "if this guy is as together and on top of it as he seems, maybe I might just someday be willing to offer him a share of the practice..."

The associate hears something different. The words are the same, but he begins to model an imaginary future with this practice, one where he works hard and shoulders responsibility and even takes on a fair share of management duties, probably without extra pay. The goal, of course, is to develop "sweat equity" and score points with the owner such that, in a few years, he can cash in on that "offer" to buy a portion of the practice's equity.

The years pass. And the associates are rarely as "with-it" as the owners see themselves, so the owners continue to expect more each year from the associates.

The young doctor does his best to meet increasing expectations, thinking that surely this must be the path to partnership. The owner, on the other hand, believes that he is entitled to this extra work because the associate's pay raises keep coming. In fact, if the associate brings up the subject of a buy-in, the owner cringes inside, perhaps thinking to himself:

1. "This guy doesn't do nearly as much as I had to do when I started this place. I can't believe he keeps bringing up my offhand comment about partnership."

2. "Geez, Louise, if I really did take him or anyone else on as a partner, I would have to include that person in decision-making. I just don't know if that is a price worth paying just to get another vet to stay here."

This set of mutual misunderstandings is not difficult to envision. It may even be predictable. But it may lead to an ever-increasing undercurrent of resentment. In many instances, even if a partnership does eventually develop, it may well be a rather unpleasant one. That is especially true if it came to pass because the owner just caved into the "nagging" and then regretted the decision.

So how can this oh-so-common scenario be avoided?

Surely there is no shortage of associates wanting to hear buy-in language during interviews. There are also plenty of practice owners who throw partnership talk around as if no one on the other side of the table is really listening. To keep contract talks and re-negotiations on the right track, keep these simple realities in mind:

FIRST: The associate should recognize that it does take a year or more for the owner and his practice staff to know if there is indeed a workable "chemistry" between the new hire and the established animal hospital.

On the other hand, there is no reason why this "honeymoon" should go on forever.

It is wise for associates to mention their interest in eventually buying into a practice at some point before signing on at a clinic. That way, the boss at least knows that it is in the back of the young doctor's mind.

SECOND: A first or second contract renewal probably should contain some written language about the intention of the parties to discuss a buy-in possibility during the subsequent 12 months. Such language is actually just unenforceable surplus print in an employment agreement, but it forces the owner to think realistically about the goal in the associate's mind.

THIRD: By the third contract renewal, the parties really need to face the question of whether this particular associate will have any genuine opportunity to purchase an equity stake.

I suggest that, as a condition of continuing to work for the practice, the associate request a written promise (with an accompanying non-disclosure statement) to be able to access the hospital's prior tax returns, profit-and-loss statements and employee W-2 forms for several past years.

If the owner balks, the "offer" begins to look awfully speculative. If a commitment to provide access is agreed to, it indicates trust on the part of the owner, which would be a prerequisite to any true offer anyway. At the same time, the associate can look over the books and figure out if he/she really wants to be an equity participant.

My strongest suggestion is that owners and associates who discuss eventual potential partnership not wait for years to pass and resentment to grow.

Young doctors need to move on with their careers and their dreams. Practice owners, at the same time, need to be realistic and focused about their retirement and exit strategies.

EVALUATION KEY

THE ASSOCIATE should recognize that it does take a year or more for the owner and his practice staff to know if there is indeed a workable "chemistry" between the new hire and the established animal hospital.

On the other hand, there is no reason why this "honeymoon" should go on forever.

It is wise for associates to mention their interest in eventually buying in to a practice at some point before signing on at a clinic. That way, the boss at least knows that it is in the back of the young doctor's mind.

Dr. Allen is president of the Associates in Veterinary Law P.C., which provides legal and consulting services to

veterinarians. Call (607) 754-1510 or visit info@veterinarylaw.com