Australasian Dentist Magazine Sept-Oct 2021

Category 140 Australasian Dentist Employees and their entitlements on sale of practice E mployees are an integral part of any practice especially non-professional staff who are the first face patients see on arrival or speak to whilst booking appointments. Long serving employees are usually regarded as enhancing a practice and its goodwill. Purchaserswill likely seek to engage the employees as transferring employees from the settlement date, as compared to not engaging them – non- transferring employees. Purchasers can select the employees they require as transferring employees. Both vendors and purchasers need to ensure their dealings with employees and their entitlements are also Fairwork compliant! Full and proper disclosure (early) Part of any practice sale/acquisition due diligence for purchasers and vendors is to ensure the employee entitlements are fully disclosed. Vendor’s should expect to disclose figures for accrued long service leave (7+ years), contingent long service leave (4 – 7 years), annual leave (plus loading) and personal/carer’s/sick leave. Figures for practices with a number of long servers who have not taken all their accrued sick leave over the years, let alone their long service leave and/or annual leave, are likely to be $high. This can cause concern during due diligence especially when a party has not been properly advised or fully appreciated the magnitude of the employee entitlements’ liability figure. So, how is this handled efficiently? Consider the following example: Dr P is purchasing Dr V’s practice for $750,000.00. There are 3 long serving employees and 1 employee who has been at the practice for 4.5 years. Dr P wishes to take the 3 long servers as transferring employees but Dr P elects that the 4.5 year employee will be a non-transferring employee. That employee will cease service at settlement and all owed entitlements will be paid out directly by Dr V. The 3 long serving employees have taken most of their annual leave and long service leave, but hardly any sick leave which has accrued to $40,000. The sale contract states that Dr P is responsible to pay the sick leave when it becomes due. But, the sick leave liability may never become a live liability as the transferring employee may resign from the practice a few weeks after settlement (and sick leave is not payable upon termination). Dr P and Dr V should nevertheless reach a fair agreement and the appropriate allowance should be made. The sick leave quantum was accrued on Dr V’s watch, so Dr V should agree to allowing and adjusting a percentage of the sick leave quantum in favour of Dr P as a deduction from the purchase price (at settlement). As this is an unknown factor, the protocol is that Dr V and Dr P will share the commercial risk for example; at 50/50, $20,000will be deducted fromthe purchase price, at 25/75 $10,000 will be deducted from the purchase price. Dr P then takes a transfer of the live sick leave liability after settlement and pays the employee the necessary sick leave as and when that employee needs to take the leave. This is called sharing the commercial risk because at the time of settlement no one is to know how much sick leave, if any, a particular employee will need to take during their employment. The adjustment of accrued long service leave is uncomplicated. The fair adjustment of contingent long service leave has its idiosyncrasies, EG the opening of trust accounts for nominal time periods prior to accruals turning into live liabilities can be burdensome. An agreed specific adjustment is best negotiated between the parties so that the matter is closed at settlement – call Whitehead Legal to discuss. Key takes for vendors and purchasers: Vendors: u What are the employee dates of commencement of service? u What are their days/hours worked per week? u What is their rate of remuneration? u Detail their long service leave, annual leave and sick leave figures – accept that there will need to be allowances at settlement in the purchaser’s favour It is critical for a practice owner to always keep the employee records updated – expect to provide the figures early to the purchaser and to warrant the figures are true and accurate Purchasers: u Be mindful as to how you treat your transferring employees. A practice changeover can be a stressful time for them too and they are entitled to have the comfort that their entitlements and continuity of service are being protected u Ensure your lawyer asks the proper due diligence employee entitlement questions u Make sure you and your accountant are comfortable with the employee entitlement figures and the adjusted allowances in your favour u If employee entitlement figures are not readily forthcoming, query why? This is likely a red flag. The due diligence process surrounding employee entitlements needs to be thorough to ensure purchasers have a clear picture of their transferring employees entitlements’ status and a purchaser is not burdened with unwarranted expense in the future. Our Whitehead Legal Due Diligence Compliance Checks should not only discover any issues, but also assist and manage solutions to any issues. u Julian Whitehead is a partner at Whitehead Legal and he exclusively advises health care professionals in their commercial matters throughout Australia. Julian can be contacted on 0411 406 151 or via email julian@whiteheadlegal.com.au or visit www.whiteheadlegal.com.au . Don’t forget to listen to The Health Lawyer Podcast with Julian Whitehead. LEGAL Julian Whitehead By Julian Whitehead