Employment and Non-Compete Agreements

Why Are Employment Agreements Important?

The short answer is that they make your practice more valuable.

And here’s why:

Many veterinarians conduct their practice without a non-compete or employment agreement. They work for years to build their practice, but when they go to sell their business, they are faced with the harsh reality that their practice may not be worth what it may appear to be worth on paper. Why is an employment agreement and/or a non-compete agreement so important for a professional practice?

Such types of agreements are critical to two very important parties involved in the purchase or sale of a professional practice- the potential buyer and the lender. An employment agreement is a contract between the employer and the employee setting forth the parameters of the employment. A non-compete agreement is a contract between the employer and the employee wherein the parties agree that the employee will not directly compete against the employer once the employment is terminated for a defined period of time and a defined geographic location. The employment agreement does not necessarily include a non-compete, however it is good practice to include a non-compete.

The non-compete agreement is essential for any buyers and lenders because any employees who are employed by the seller could promptly leave the practice and open up another practice directly across the street and take all the clients or patients with them. A large part of what is purchased when a practice is sold is not the actual equipment, such as chairs, computers, and medical supplies, but the patient files. A buyer will not want to pay and a lender will not want to finance good money if a former employee is positioned to take the practice’s greatest asset- the patients.

If you are operating your practice without an employment agreement or a non-compete, when you attempt to sell your practice, you will be frustrated with the low offers you receive. However, any broker will be able to tell you this happens all the time. Contact an attorney to assist you in preparing and implementing an employment and non-compete agreement so you can capture the true value of your practice.