We have expressed, on many occasions, the importance of having doctors on binding written contracts to ensure the continuity of their services to your practice and to protect your goodwill.
Contractor or employee?
Don’t forget, how hard it was and how much it cost to recruit them! The doctor patient relationship cultivated by contracted doctors with patients of your practice must be maintained and patient numbers protected. The value of your practice is directly related to the income of your practice which is of course directly related to goodwill. ‘Goodwill’ may be defined as the propensity of a patient to return to the practice for further treatment and is a directly relevant to determining the market value of your practice for the purposes of obtaining finance and of course, is directly related to Practice Incentive Payments available to your practice.
Maintaining a commercially practical relationship with medical practitioners in your practice is essential. A well-drawn contract may be used to ensure that the relationship of the medical practitioner to your practice is clearly defined as a contractor and principal as opposed to a PAYG employee.
In previous blogs we have discussed the importance of not only entering into a contract with the medical practitioner which not only contains a clear statement by the parties acknowledging that the medical practitioner is a contract and not an employee but also ensures that the doctor contracts with the medical practice as a trustee of a trust or a director of a company or a combination of both.
The capacity in which the medical practitioner contracts with your medical practice is, of course, a matter for the medical practitioner to determine on advice from their financial advisors. However, the importance for the medical practice is that where the medical practitioner contracts as the trustee of a trust or a director of a company or a combination of those things it is clearly established that the medical practitioner cannot later assert they were an employee of your medical practice.
An unsuccessful defence of an audit conducted by the ATO instigated by a disgruntled medical practitioner could be financially disastrous for the medical practice. And ATO audit may result in your medical practice being characterised as the PAYG employer of a medical practitioner and result in a direction by the ATO to the medical practice to account for alleged arrears of superannuation and unpaid PAYG withholdings tax. As you can appreciate, a medical practitioner receiving a substantial income who makes such a claim, if successful, could cause an extraordinary financial impost on your medical practice.
Unfair contract terms are coming!
Now that you have convinced the medical practitioner to sign a contract what must you look out for?
From 12 November 2016, amendments to the Australian Consumer Law (formerly the Trade Practices Act) by the addition of the small business and unfair contract terms amendments that will enable a medical practitioner to argue that they are aggrieved whereby they were required by you to sign a contract which was presented to them on a ‘take-it or leave-it’ basis. That is, the medical practitioner will allege that they had little or no opportunity to negotiate the terms and conditions of the contract, that the terms of the contract are unfair and that the medical practitioner should be relieved from one or more of the provisions contained in that agreement. What is ‘unfair’ is not defined in the Act but determined by the Court on a case by case basis.
It is essential therefore that any contract entered into with a medical practitioner or any entity e.g. a trust or company incorporated by the doctor for the purposes of the contract that supplies services to your medical practice is appropriately drawn so as to avoid any adverse impact of the small business unfair contract terms amendments to the Australian Consumer Law.
Whilst the amendments will not apply retrospectively to contracts entered into before the commencement date they will apply to contracts which are renewed on or after the commencement date or if the contract is varied in some manner on or after the commencement.
If you operate a medical practice and you wish to enter into a contract with a medical practitioner or an allied health services provider, contact Mr Michael Beirne by telephoning (07) 54 79 1500 to determine whether the new laws apply to your practice and how the changes can be used to your advantage.