Employment Law Compliance: What to Check When Buying a Dental Practice

When purchasing a dental practice, understanding and reviewing employment law compliance is crucial. The dental practice you are acquiring likely has a team of employees, and ensuring that all employment practices are compliant with relevant laws will help you avoid potential disputes, penalties, or reputational damage. Here's a guide to what you need to check when reviewing employment contracts, award compliance, and staff entitlements during the acquisition process.

1. Review Employment Contracts

Why it’s Important

Employment contracts outline the terms and conditions under which employees work, including their rights, responsibilities, and entitlements. Understanding these contracts helps ensure there are no hidden liabilities and that staff are treated fairly and legally.

Key Areas to Review

• Position and Duties: Ensure that job roles and duties align with the practice’s needs post-acquisition. Any changes should be communicated to (and agreed by) employees.

• Remuneration and Benefits: Verify that salaries, bonuses, commissions, and other benefits are clearly outlined and in line with market standards.

• Termination Clauses: Review termination procedures, including notice periods, redundancy clauses, and severance packages, to ensure compliance with the Fair Work Act.

• Non-compete and Restraint Clauses: Ensure any non-compete clauses are reasonable and enforceable.

• Dispute Resolution: Look for clear procedures regarding grievances, disputes, and conflict resolution between employers and employees.

Considerations for Buyers

• Transfer of Contracts: Check if employee contracts need to be transferred to you, or if there are no contracts, whether new contracts must be created after the sale.

• Employee Rights: Employees cannot be treated less favorably following a change in ownership under the Fair Work Act 2009 (Cth). Understand how the transfer of ownership affects employee rights.

2. Award and Enterprise Agreement Compliance

Why it’s Important

In Australia, many dental employees are covered by either modern awards or enterprise agreements that set minimum pay rates, working conditions, and other entitlements. Non-compliance with these legal standards could lead to penalties and employee disputes.

Key Areas to Review

• Modern Awards: Confirm which modern award applies to the dental employees at the practice (e.g. Health Professionals and Support Services Award 2020). This award outlines minimum pay rates, overtime, penalty rates, and other conditions.

• Enterprise Agreements: If the practice is covered by an enterprise agreement, ensure it’s still valid and compliant with Fair Work requirements. Enterprise agreements often provide terms more beneficial than modern awards.

• Classification of Employees: Ensure employees are classified correctly under the relevant award or agreement based on their duties and responsibilities. Incorrect classifications can result in underpayment claims.

• Hours of Work and Overtime: Review staff schedules and overtime arrangements to ensure compliance with the award’s provisions on work hours, overtime pay, and rest breaks.

Considerations for Buyers

• Pay Audits: Perform a pay audit to ensure that the practice has been paying employees correctly according to the relevant award or agreement.

• Record Keeping: Check that the practice has maintained accurate records of employee hours worked, wages paid, length of service and entitlements.

3. Employee Entitlements

Why it’s Important

Employees in Australia are entitled to a range of benefits under the Fair Work Act and other legislation, such as annual leave, sick leave, and long service leave. Understanding these entitlements before purchasing the practice ensures you can manage and budget for these costs appropriately.

Key Areas to Review

• Leave Entitlements:

• Annual Leave: Confirm that all employees have accrued the correct amount of annual leave and that it is properly recorded.

• Sick Leave: Review sick leave entitlements to ensure they are in line with the National Employment Standards.

• Long Service Leave: In most Australian states, long service leave is an entitlement after a certain number of years of service. Review employees' leave records and ensure that you are aware of any upcoming liabilities.

• Superannuation Contributions: Ensure that the practice has been meeting its superannuation obligations by reviewing payment records and verifying contributions. Non-compliance with superannuation obligations could result in hefty fines.

• Public Holidays and Penalties: Review the practice’s policies around public holidays and penalty rates to ensure staff are compensated correctly for working on those days.

• Workers' Compensation: Ensure that all employees are covered by appropriate workers’ compensation insurance, particularly if there have been any past claims.

Considerations for Buyers

• Accruals and Liabilities: Be aware of any accrued leave or other entitlements that may need to be paid out upon an employee’s termination post-acquisition. These costs can significantly impact the financials of the acquisition.

• Contractual Entitlements Post-Acquisition: When acquiring the practice, you will inherit responsibility for ensuring that employee entitlements are honoured. Make sure you are prepared to manage these obligations.

4. Workplace Health and Safety Compliance

Why it’s Important

Dental practices must comply with strict workplace health and safety (WHS) regulations, ensuring the well-being of staff and patients. Non-compliance can lead to fines, penalties, and workplace injuries.

Key Areas to Review

• Workplace Safety Policies: Ensure the practice has a comprehensive workplace health and safety policy, including risk assessments and safe work procedures for dental procedures.

• Injury Claims: Investigate any past workplace injuries or compensation claims, and ensure that the practice complies with Work Health and Safety Act 2011 (Cth) requirements.

• Training and Certification: Ensure staff have received the necessary training in infection control, radiology safety, and emergency procedures.

Considerations for Buyers

• WHS Records: Request copies of past injury and safety reports to assess the risk and history of workplace safety issues.

• Audit and Review: Conduct a WHS audit to ensure compliance with all federal and state regulations, as well as to identify any potential risks or areas for improvement.

Conclusion

Ensuring employment law compliance is a crucial aspect of acquiring a dental practice in Australia. By thoroughly reviewing employment contracts, an employee handbook (policies and procedures), award compliance, staff entitlements, and workplace safety, you can avoid costly disputes and legal issues post-acquisition. With proper due diligence, you’ll be well-positioned to run a compliant and successful dental practice.

Understanding the Legal Structure of a Dental Practice Before Purchasing

When buying a dental practice, one of the most critical considerations is understanding its legal structure. The structure determines the legal, financial and operational framework of the practice and has significant implications for taxation, liability and governance. Here’s a detailed look at the common business structures—sole trader, partnership/associateship and corporate entity—and their implications for potential buyers.

1. Sole Trader

What Is a Sole Trader Structure?

A sole trader practice is owned and operated by one individual who is solely responsible for all aspects of the business, including debts and liabilities.

Legal Implications for Buyers

• Transfer of Ownership: The buyer typically purchases the assets of the practice (e.g. goodwill, plant, equipment, stock, intellectual property) rather than the business entity itself.

• Liability: As the new owner, you’ll assume full personal responsibility for the practice's operations and debts.

• Simplified Transition: The transfer process is often straightforward, as there is no need to create new corporate structures or deal with existing corporate structures/shareholders.

Considerations:

• Ensure that all assets, including intellectual property and patient records, are properly transferred.

• Understand the implications of personal liability, including obtaining adequate insurance.

2. Partnership/Associateship

What Is a Partnership Structure?

A partnership involves two or more individuals or entities sharing ownership, responsibilities, and profits of the practice. Partnerships can be general (equal liability) or limited (varying liability based on contribution).

Legal Implications for Buyers

• Partnership Agreement: Review the partnership agreement carefully to understand your rights, obligations and exit options.

• Liability: Each partner is typically liable for the debts and obligations of the partnership, unless it’s a limited partnership.

• Control and Governance: Decision-making may require consensus among partners, which can complicate operations.

What Is an Associateship Structure?

·       An associateship involves two or more individuals or entities, however ownership of each associates’ assets remains with the individual - similarly profits of each individual retain with that individual. The actual associateship covers joint expenses (rent, employees etc) usually under an umbrella entity.  

Legal Implications for Buyers

• Associateship Agreement: Review the associateship agreement carefully to understand your rights, obligations and exit options.

• Liability: Each associate is typically liable for their own debts and obligations. There will be joint liability of the associateship, for example obligations pursuant to the premises lease.

• Control and Governance: Decision-making for joint obligations may require consensus among associates, which can complicate operations.

Considerations:

• Conduct thorough due diligence to identify ongoing disputes or liabilities involving current partners/associates.

• Confirm the terms for admitting or exiting partners/associates.

• Assess compatibility with existing partners/associates, as disagreements can impact the practice’s success.

3. Corporate Entity

What Is a Corporate Structure?

In a corporate structure, the practice is operated as a company, which is a separate legal entity from its owners (shareholders). This company can also act as ‘trustee of a trust’; as such the practice is operated as a company as trustee of a trust and governed by the trust, with underlying ownership held by the unitholders in the trust.

Legal Implications for Buyers

• Share/Unit Purchase or Asset Purchase: Buyers can either purchase the company shares/trust units or its assets. A share/units purchase involves acquiring the entire entity, including liabilities, while an asset purchase typically excludes liabilities.

• Limited Liability: Owners (share/unitholders) are generally protected from personal liability for the company/trust’s debts.

• Governance: Decision-making is governed by directors, with rules outlined in the company’s constitution, along with unitholders, with rules outlined in the trust deed. Governing ‘equity agreements’ are also commonly prepared, known as shareholder agreements or unitholder agreements.

Considerations:

Conduct thorough due diligence to identify liabilities, such as tax debts or pending litigation.

Review corporate documents, including the constitution, trust deed, trust register and share/unitholder agreements, to understand ownership and governance.

Ensure the company is compliant with ASIC requirements and other regulatory obligations.

 Key Factors to Evaluate Across All Structures

1. Liabilities: Regardless of the structure, ensure you identify and understand all potential liabilities, including debts, leases, and litigation.

2. Compliance: Verify compliance with industry regulations, such as AHPRA registration and privacy laws.

3. Transition Plan: Plan for a smooth transition, including the transfer of leases, licenses, patient records, and supplier agreements.

Choosing the Right Structure Post-Purchase

If you’re acquiring the practice through an asset purchase, you may have the flexibility to change its structure post-acquisition. For instance, you might decide to incorporate the practice to benefit from limited liability or set up a trust for asset protection and tax planning – however, it is best to set up your structure properly prior to acquisitions, as the process to ‘roll-over’ can be burdensome.

The Ultimate Legal Due Diligence Checklist for Dental Practice Acquisitions

Acquiring a dental practice can be a lucrative investment, but it comes with its own set of challenges, especially when it comes to legal due diligence. This process ensures you fully understand the legal and operational landscape of the practice you are purchasing and avoiding potential pitfalls down the line. Here's a comprehensive checklist to guide you through the due diligence process.

1. Corporate Structure and Ownership

Objective: Verify the legal ownership and corporate structure of the practice.

• Asset Sale Documents: Obtain the correct owners of the goodwill, plant and equipment, stock, intellectual property etc.

• Multiple Partner/Corporate Entity Documents: Obtain the company constitution, partnership agreements, or trust deeds.

• Ownership Records: Review share certificates, ASIC company extracts, or partnership interest documentation to confirm ownership.

• Third-Party Rights: Check for any third-party claims or disputes over ownership or assets.

2. Financial and Tax Compliance

Objective: Ensure the financial health and tax compliance of the practice.

• Financial Statements: Request audited financial statements for the past 3 – 5 years.

• Tax Returns and BAS Statements: Verify GST registration and review all lodged returns.

• Debt and Liabilities: Review loan agreements, overdrafts, and guarantees (that you are taking on as an ‘assumed liability’).

• Employee Superannuation Compliance: Ensure super contributions are up-to-date.

• Payroll Tax: Ensure alignment with payroll tax laws (review contracts (services facility agreements), billing practices, and payment processes (money flow).

3. Regulatory and Licensing Requirements

Objective: Confirm the practice complies with relevant healthcare and dental regulations.

• APRA and AHPRA Registrations: Verify the registration of the practice and individual practitioners.

• Radiation and Equipment Licenses: Ensure compliance with state-based radiation safety laws.

• Infection Control Policies: Confirm adherence to the Australian Dental Association's (ADA) infection control guidelines.

4. Employment and Services Facility Agreements

Objective: Assess workforce stability and ensure compliance with employment laws.

• Contracts: Review contracts for employees and professional dental practitioners.

• Awards and Enterprise Agreements: Confirm adherence to relevant employment awards (Health Professionals and Support Services Award) or agreements.

• Unresolved Disputes: Investigate any ongoing or past Fair Work disputes.

• Key Person Dependencies: Identify any reliance on key practitioners or staff.

5. Real Estate and Lease Agreements

Objective: Review the terms and conditions of the property used for the practice.

• Lease Agreements: Examine the lease for tenure, renewal options, and rental costs.

• Zoning Compliance: Ensure the property is zoned for healthcare or dental use and for at least the number of practitioners practising at the property.

• Maintenance and Repairs: Check obligations under the lease for repairs and upkeep.

• Fit-Out and Equipment Ownership: Confirm who owns any fixtures or plant and equipment included in the lease.

6. Patient Records and Privacy Compliance

Objective: Ensure patient data is handled according to Australian privacy laws.

• Privacy Policies: Review the practice’s compliance with the Privacy Act 1988 (Cth).

• Patient Record Ownership: Verify the ownership and transferability of patient files.

• Data Breaches: Investigate any past breaches and remedial actions taken.

• Software Licenses: Ensure practice management systems are licensed and compatible.

7. Contracts and Supplier Agreements

Objective: Identify obligations and liabilities tied to the practice.

• Supplier Agreements: Review contracts with dental suppliers, laboratories and other service providers.

• Referral Agreements: Examine any arrangements with external healthcare providers for compliance.

• Equipment Financing: Check for leases, loans or hire-purchase agreements on plant and equipment.

8. Insurance Policies

Objective: Ensure the practice has adequate insurance coverage (now and after acquisition).

• Professional Indemnity Insurance: Verify policies cover potential liabilities.

• Public Liability Insurance: Confirm coverage for patient or visitor claims.

• Workers’ Compensation: Review policies for compliance with state laws.

• Business Interruption Insurance: Check for coverage in the event of unexpected closures.

9. Litigation and Compliance Issues

Objective: Identify any pending or historical legal disputes.

• Litigation Records: Review any current or past legal disputes involving the practice.

• Regulatory Breaches: Investigate any breaches or warnings issued by regulatory bodies.

• Health and Safety Records: Check for compliance with Work Health and Safety (WHS) laws.

10. Valuation and Goodwill

Objective: Verify (with your accountant) that the purchase price reflects the practice's true value.

• Goodwill Assessment: Understand the value attributed to goodwill, including patient lists and branding.

• Revenue Projections: Compare current revenue with market trends.

• Post-Sale Restrictions: Review any non-compete and non-solicitation clauses to protect the acquired goodwill.

Final Thoughts

Due diligence is the cornerstone of any successful dental practice acquisition. By meticulously reviewing these key areas, you can make informed decisions and avoid unexpected surprises. Engage with legal (us), financial and industry experts (we know them, and can introduce you to them) throughout the process to ensure a smooth transition into ownership.

Maximising Practice Sales: Safeguarding Your Employees and Ensuring Fair Entitlements Adjustments for Seamless Practice Transitions

Are you considering selling your practice? Let's talk about one crucial aspect that can often be overlooked: your employees and their entitlements. These dedicated individuals, especially your non-professional staff, play a vital role in creating a positive patient experience.

As you navigate the sale process, it's essential to ensure that you and the purchaser handle employee entitlements in a fair and compliant manner. Transferring employees, who are typically valued assets, can contribute to the continuity and goodwill of your practice.

Purchasers often choose to retain these employees after the settlement date, while others may opt for non-transferring employees. It's important for both vendors and purchasers to be aware of their obligations under Fairwork regulations.

One key factor in the due diligence process is the full and early disclosure of employee entitlements. Vendors should be prepared to provide figures for accrued long service leave (7+ years), contingent long service leave (4-7 years), annual leave (including loading), and personal/carer's/sick leave. Practices with long-serving employees who haven't utilised their accrued leave can have significant liability figures, which may come as a surprise if not properly advised or understood.

To illustrate an efficient approach, let's consider an example: Dr. P is purchasing Dr. V's practice for $750,000. There are three long-serving employees and one employee with 4.5 years of service. Dr. P intends to retain the three long servers as transferring employees, while the 4.5-year employee will not continue after settlement. Dr. V will pay out the owed entitlements directly to the non-transferring employee. The transferring employees have primarily used their annual and long service leave but have accumulated $40,000 in sick leave. The sale contract should specify that Dr. P is responsible for paying sick leave when it becomes due. However, the actual liability may never materialize if a transferring employee resigns shortly after settlement (as sick leave is not payable upon termination). Nonetheless, Dr. P and Dr. V should reach a fair agreement to account for this uncertainty. They can adjust the purchase price by deducting a percentage of the sick leave liability, shared between them to mitigate the commercial risk. The transferring employees will then have their sick leave liability transferred to Dr. P, who will pay the necessary sick leave as required during their employment after settlement.

Adjusting accrued long service leave is relatively straightforward, but contingent long service leave requires careful consideration, such as opening trust accounts for nominal time periods before they become live liabilities. It's advisable to negotiate a specific adjustment that satisfies both parties and resolves the matter at settlement. You can reach out to Whitehead Legal for a discussion on this matter.

Here are some key takeaways for both vendors and purchasers:

Vendors:

• Keep employee records updated and be prepared to provide information about their service dates, hours worked, rates of remuneration, and detailed figures for long service leave, annual leave, and sick leave.

• Understand that adjustments in the purchaser's favor may be necessary and disclose the figures early while warranting their accuracy.

Purchasers:

• Treat your transferring employees with care and respect during the practice changeover.

• Ensure your lawyer conducts thorough due diligence on employee entitlements.

• Work closely with your accountant to understand the figures and adjusted allowances in your favor.

• If the employee entitlement figures are not readily provided, don't hesitate to inquire further, as it may indicate a potential issue.

• Thorough due diligence is crucial to gaining a clear picture of employee entitlements' status and ensuring that purchasers don't face unforeseen expenses in the future.

At Whitehead Legal, we offer Due Diligence Compliance Checks that not only uncover any issues but also assist in finding solutions. Contact Julian Whitehead, partner at Whitehead Legal, to discuss.