Articles

Breaking Up Is Hard To Do - So Plan Now To Protect Your Interest

by John M. Brickman

Every experienced professional - - physician, dentist, chiropractor, psychologist, social worker, therapist, podiatrist, nurse, consultant, lawyer, accountant, designer, planner, engineer, or architect - - knows, often first-hand, the horrors of a practice fallen apart. Breakups cost practitioners lost income as well as sleepless nights and diversion from their primary mission, the delivery of professional services; they jeopardize the quality of patient care or client service, and heighten the risk of malpractice claims. Breakups always have been difficult and painful.

Business Pre-Nuptial Agreements

Especially at the outset of a relationship, professionals may prefer not to think about problems down the road. Discussing the risks and consequences of failure with a new colleague can be awkward. Yet just as professionals must plan together to deal with billing, leases, equipment, and malpractice insurance, they can do much to secure themselves against future problems most effectively before they enter practice together.

There are several reasons for addressing these difficult issues sooner rather than later. Deciding in advance how to handle issues that may arise later means that they can be treated dispassionately when no one has an ax to grind. Negotiation has a much different character when both sides seek neutral rules, not knowing what the future may bring. Resolving issues in advance of dispute saves time, serving professionals who want to practice their calling, not spend time in litigation. Early planning also saves money by avoiding dispute costs, attorneys' fees, and emotional (and sometimes consequent physical) wear and tear. And predictability itself has virtue because as it allows practitioners to share expectations about outcomes and act consistently.

Professionals working together should have written contracts prepared by lawyers experienced in drafting agreements for professional practices. Professionals often discuss agreements but delay final arrangements. The pressure of work sometimes overcomes good intentions so that agreements negotiated remain unsigned. That benefits no one. Agreements should be signed before the joint practice begins, whether the parties are partners or begin with an employment relationship that leads to proprietorship after several years.

What to Include

The agreement should set out the compensation for each participant, whether in percentage or absolute dollar terms, and should describe the economic arrangements that will govern the parties in case of breakup. Agreements typically -- and wisely -- include buy-sell provisions, defining in advance the payments due upon death, retirement, disability, or disaffiliation. The agreement should be negotiated in consultation with an insurance professional, to assure that death and other benefit provisions are structured to take advantage of available life and disability coverage and to avoid unexpected and unpleasant tax consequences. The agreement also should define the circumstances under which a multi-party group can expel a member, whether "for cause" (which should be defined) or otherwise, and should prescribe the economic consequences of expulsion.

The agreement should set out in detail the steps to be followed regarding patient or client relationships in case of partners' breakup. At a minimum, the partners should agree in advance that if a breakup occurs, all patients or clients of the practice (typically, those who have consulted or received service from the practice, usually within several years and perhaps since the practice began) should receive a letter informing them of the fact. The contract should recite the text of the letter, advising that the partners no longer are practicing together and giving the new addresses and telephone numbers at which they may be found.

Most critically, the letter should advise recipients that all have the right to continue with the practitioner of their choice. Absent an express agreement between the partners (and in some professions, even then), this is the law and no partner should dispute the principle. Typically, the letter also tells patients that their charts or files will be forwarded in accordance with their written instructions, which may be communicated by having the patient complete and return a form provided at the foot of the letter. Practitioners also may wish to agree that each party will hold a copy of the file to allow everyone to defend against a later malpractice claim.

Handling of phone calls is a key component of post-breakup relationships. The office telephone number is an important item of goodwill because many patients and clients call to see whichever partner is available. For practitioners who are equal partners, the agreement should require that the office telephone number be answered neutrally so that calls can be directed to the practitioner sought by the caller. If staff cannot accomplish this, or if tensions preclude cooperation, most local telephone companies will create an operator "intercept." This also can be arranged through a commercial answering service or created electronically using answering and call-forwarding equipment. In any case, the cost will be modest and the benefits substantial.

Many practitioners include "restrictive covenants" in their agreements, barring former partners and employees from competing in defined areas for specified periods. Although New York courts sometimes reject restrictive covenants limiting employees' later activities, covenants often will be enforced when the practitioners are professionals. Especially between equal partners, the best advice usually is to avoid covenants. Enforceability always is questionable and the clauses frequently generate expensive litigation that drags on and makes it more difficult for the affected practitioners to go about their business and get on with their professional lives. Because predictability is a virtue and everyone benefits from shared expectations as to outcomes, professionals usually are better served by steering clear of the uncertainties posed by restrictive covenants.

Experience shows that in disputes between practitioners, arbitration - - a binding process, typically conducted before a lawyer or other professional sophisticated in the subject at issue - - generally is preferable to litigation. Arbitration usually is faster and less expensive than a traditional lawsuit in court. The agreement should contain a broad-form arbitration clause, requiring arbitration to resolve all disputes. The only exception: either party should have the right to resort to court to seek an injunction if necessary to protect valuable rights while awaiting arbitration.

The Need for Experienced Professional Help

Practitioners often contemplate large incomes, sometimes even into the seven figures, as they enter into relationships that may define the balance of their careers. To cut corners up front invokes the old proverb -- penny-wise, but pound-foolish. To meet each of these concerns discussed above, professionals should consult lawyers experienced in preparing agreements among practitioners. While most lawyers can draw contracts, the complex -- and rapidly changing -- matrix of law, government regulation, professional ethical obligations, and in some fields, insurance company procedures governing reimbursement demand a lawyer sophisticated in the area. Attention to these details can avoid loss of income and, in some instances, even criminal liability, inadvertent or otherwise. An attorney sophisticated in the field also can advise practitioners on how to deal with issues of confidentiality, for example in connection with maintenance and forwarding of medical charts.

Practitioners should practice what they preach -- an ounce of prevention is worth a pound of cure. Especially in health care, but to some extent in every discipline, profound changes in financing and uncertainties about what lies ahead leave practitioners uncertain about the future, increasing the likelihood of a break-up. The time, effort and expense of advance planning for the legal and economic structure of a new practice, in consultation with skilled legal, insurance, and accounting professionals, can avoid the possibility of very substantial economic loss and emotional strain.

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