What Happens to the Staff When a Dental Practice is Sold?

Dental practices are bought and sold often in today’s marketplace.  You need to know the status of your employment when a dentist sells his or her practice.

What notice must you be given?  When must you be told?  What terms of employment might the new owner offer to you?  What is the difference between termination pay and severance pay?  As the owner of Canada’s largest dental practice appraisal and brokerage firm, I am asked these questions by the selling and buying dentists in almost every sale.  I will attempt to explain the practical side of these issues, not the legal aspects, so you are prepared in the event the practice you work in must be sold.

First, and most importantly, it should be mentioned that there are several reasons purchasers of dental practices are very interested in retaining the staff when they take over.  You are familiar with the patients, policies and procedures of the office and the new owner needs your help to integrate them into the practice.  Most buyers tell us that they will probably keep all of the existing staff members, often at the same rate of pay, hours and benefits, because they do not want to upset a smooth running practice.  They also know that the departing dentist will be enough change for the patients to digest and that changes in employees at the same time are not a wise idea.  Therefore, it is highly probable that your position will be secure in the event a practice is sold.

Therefore, it is highly probable that your position will be secure in the event a practice is sold.

Owners sell for many reasons including retirement, disability, relocation, a return to post-graduate school, and others.  They are entitled to sell their practice, but when so doing, they must honour their obligations to you under the law. There are two bodies of law that are relevant here:  (1) the Employment Standards Act (“ESA”) of Ontario, which is a statute enacted by the provincial legislature; and (2) the common law which is made by judges. It is important to realize that the ESA imposes minimum standards only.  Typically, the common law provides additional protections for employees.

There is usually some confusion in the minds of the dentists concerning the manner in which you should be notified and when notice should occur.  The ESA states employees with more than three months but less than one year of service are entitled to one weeks’ notice.  Employees with one year or more but fewer than three years of service are entitled to two weeks’ notice.  Thereafter, employees are entitled to at least one weeks’ notice, or “lieu” pay, for each full year of service, up to a maximum of eight years.  The ESA states that the maximum notice you are entitled to receive is therefore eight weeks’ notice, or pay in lieu, prior to the new owner taking over.  If you have been there fifteen years, you will only receive the maximum of eight weeks’ notice.  Notice may be provided in the form of written “working notice” or pay in lieu, at the option of the employer.

Many people make the assumption that they are also entitled to “severance” pay upon the sale of a practice, when in fact this is incorrect.  Severance pay only applies in circumstances that are usually not relevant for dental practices.  Therefore, severance pay is very rarely paid in dental practice sales.

Again, an employer is entitled to choose to provide working notice.  Therefore, termination pay would normally be paid only if you were not provided with enough notice prior to the closing date of the sale of the practice.  For example, if you have five years of service and the new owner takes over in two months, you could be notified of the sale five weeks prior to the closing and this would then meet the minimum requirements.  You would continue to work, with regular pay, until the closing.  In other words, you have been given adequate notice, and along with your regular pay, this is appropriate.  In the event the sale closes early, say in four weeks, you would then receive both four weeks’ notice and one weeks’ pay in “lieu” of the notice.

Beyond the minimum employment standards imposed by the ESA, the common law also dictates employers’ and employees’ rights and obligations.  At common law, the sale of a business has the effect of terminating the employment relationships with the employees of the business.  The common law imposes an implied term that neither party will terminate the employment relationship without reasonable notice.  A dentist selling his or her practice must theoretically also provide employees with common law notice before the sale.  Common law notice is typically more generous than ESA minimums.

However, an important principle of the common law is mitigation, meaning that an innocent party who has had its rights breached must make efforts to minimize its damages.  In the employment context, that means finding another job.  In the sale of a business situation, where the employee is offered a job with the new owner, an employee would, in most cases, have to take the proffered job in order to mitigate. An employee who failed to mitigate would be debarred from recovering wrongful dismissal damages.

Notice should always be delivered to you in a written form.  The owner will usually call a staff meeting to hand out the letter(s) and announce that they have made the difficult decision to sell.  We recommend that the new owner be introduced to the entire staff at that same meeting or at least very soon thereafter.  This will relieve any fears or curiosity you may have regarding who you will be working with in the future.  If you were to quit because you do not get along with the new owner, you may not be entitled to any pay.

Employees often wonder why they were not informed about the owner’s desire to sell the practice when the process began.  They sometimes feel insulted that they did not know the practice was put up for sale many months earlier.

There are several very important reasons why employees are not told in advance.  These reasons are mostly related to affecting a very smooth transfer of the patients to the new owner, and are intended to assure the practice will continue to be viable.  Choosing the correct time to announce the sale of a practice can almost guarantee that all employees will retain their positions.  A poorly timed notification to the staff and patients may adversely affect the practice.  A loss of patients and revenue may occur, resulting in the likelihood that the new owner will not be able to maintain all employees.

One reason that you will receive your written notice only when the practice has been sold related to any type of speculation about the owner’s health and /or finances (gossip) which may damage the value of the practice.  It has been proven that the occasional comment or word to a patient about a dentist selling, can spread like wildfire through a community.  This could cause a serious loss of patients.

Written notice is delivered to you only when the practice has actually been sold as it is in the interest of both the past and new owner to be certain that absolutely none of the patients have found out the practice was for sale until the proper letter has been prepared.  Patients should not be told about the sale until the name and qualifications of the new owner can be properly announced.  As dictated by the Royal College of Dental Surgeons of Ontario, dentists have regulations to follow when selling, and we want to be certain that they follow these rules.  In doing so, they may also preserve the value of the practice.

A properly timed letter of introduction and announcement may also prevent patients from leaving prior to the actual date of closing.  With respect, staff has been known to tell patients the owner is retiring or selling before the new dentist has been identified.  The patient then makes a conscious decision to seek out another dentist.  The likelihood that patients will remain with a practice goes up significantly when notification is delivered to them in the form of a personal letter from the selling dentist.  This letter will introduce the new owner in detail.  If patients know the owner is leaving but they do not yet know who will be taking over, they are tempted to go elsewhere due to this uncertainty.

Notifying you after the purchaser has been identified allows the current owner to alleviate any fears you may have of losing your job (which is highly unlikely) and seeking out a new position.  Please remember, the purchaser believes that you are a valuable asset and if you quit because you were worried about your job, the business could suffer disruption while it was for sale.  Staff turnover while being offered for sale, can damage the value of the practice and result in lower selling prices.  Turnover may also worry the purchaser as they assume something may be wrong if staff is leaving.

We advise new owners not to make immediate changes that would lessen your commitment to the practice and patients.  We encourage all dentists to respect the contribution that staff makes, which adds to their success.

In summary, it makes good business sense for the selling dentist to notify the staff/employees only when the new owner has been identified.  The selling dentist should give you proper notice, or pay in lieu of notice, and he or she should honour their obligations to you under the law.  In most dental practice sales, the new owner will ask you to remain with the practice because you are a very valuable asset!

ODN & AA Journal  – July-September 2001