Employee Entitlements

Employees are an integral part of any practice especially non-professional staff who are the first face patients see entering the practice or speak to whilst booking appointments.  Long serving employees are usually regarded as enhancing a practice and its goodwill.  Purchasers will 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.

 Part of any due diligence for purchasers and vendors is to ensure the employee entitlements (“EE”) are fully disclosed.  Expect to disclose figures for  accrued long service leave  (7+ years), contingent long service leave  (4 - 7 years),  annual leave  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 EE liability figure.  So, how is this efficiently handled - 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 is to take the 3 long servers as transferring employees.  The 4.5 year employee is a non-transferring employee who 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 $40,000.00. 

• The sale contract states that Dr. P is responsible to pay the sick leave when it becomes due. But, sick leave may never become due to a certain transferring employee. Dr. P and Dr. V should 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. 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, $20,000 will be deducted from the purchase price, at 25/75 $10,000 will be deducted from the purchase price. Dr. P then pays the employee the necessary sick leave as and when that employee takes 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.

 Whilst the adjustment of accrued long service leave is uncomplicated, the fair adjustment of contingent long service leave also has its idiosyncrasies – call Whitehead Legal to discuss.

Vendors:

• What are the employee dates of commencement of service?

• What are their days/hours worked per week?

• What is their rate of remuneration?

• 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

• Always keep your employee records updated and expect to provide the figures early to the purchaser and to warrant the figures are true and accurate

Purchasers:

• Be mindful as to how you treat your employees, it can be a stressful time for them too

• Ensure your lawyer asks the proper due diligence EE questions

• Make sure you and your accountant are comfortable with the EE figures and the adjusted allowances in your favour

• If EE figures are not readily forthcoming, query why?

The due diligence process surrounding EEs needs to be thorough to ensure purchasers have a clear picture of their transferring employees EE 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.

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Importance of Town Planning

Regardless of whether you are buying, selling or starting up a practice, expect your lawyer to ask - what is the town planning status of the practice premises?  Is there an existing town planning permit? How long has the practice been carried on at the premises?  How many practitioners (dentists, veterinary surgeons, medicos etc.) can practice at the premises at any one time?  Is the current use an “as of right” use? Does the town planning permit restrict the operating hours?

 Buying a practice?

-        Part of your, or your lawyer’s, due diligence is assessing the status of the town planning permit.  Review the permit and ensure the actual use by the practice owner is not in breach of the permitted amount of practitioners (actually on site at the one time) and operating hours.  It is also important to distinguish a town planning permit from a building permit.

Selling a practice?

-        A practice without a permit will not necessarily frustrate a potential sale. Practice age and evidence of long and continued use is accepted as compliance in many situations and lawyers should be ready to advise their clients to not unnecessarily stress out if there is no valid permit.  This is of course subject to any clear and fundamental contraventions of the permit or usage of the premises.  Vendors should be willing to warrant that they hold all statutory certifications, licences, registrations, approvals, permits, consents and authorisations necessary for the carrying on of the practice at the practice premises.

 Starting up a practice?

-        Your lease, heads of agreement, agreement to lease, lease proposal, offer to lease (or whatever leasing agents wish to proffer to you)  must  be subject to town planning due diligence and the appropriate town planning conditions.

-        If you are planning to start up a practice, your permit needs to state:

• the usage (medical/dental/veterinary);

• the minimum amount of practitioners which you require to practise at any one time – if you need three (3), it must state three (3);

• the minimum operating hours and days – do you want to operate on weekends or in the evening? Ensure your permit allows it.

We are often surprised to see what actually issues from council town planning departments!

-        Remember – do not execute any document with a leasing agent or landlord which does not address the important issue of town planning permits or other permitted use. 

The due diligence process surrounding permits is sometimes misunderstood and often seen as an irritation by the vendor’s or landlord’s advisers.  Delays can occur in satisfying reasonable town planning queries without proper management and co-operation from all parties.  Our Whitehead Legal Due Diligence Compliance Checks should not only discover any issues, but also assist and manage solutions to any issues.

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