The worker classification of relief veterinarians has been a hot button issue for many years. Traditionally, relief veterinarians and veterinary practices have preferred the classic independent contractor arrangement. However, given recent changes in worker classification laws and the legal risks associated with misclassification, it is a good time for both relief veterinarians and veterinary practices to revisit their independent contractor agreements to determine whether currently classified independent contractors are, in fact, properly classified.
As a brief background, on April 30, 2018, the California Supreme Court issued its opinion in Dynamex Operations West, Inc. v. Superior Court (“Dynamex”), adopting new standards for determining whether a California worker should be classified as an employee or an independent contractor for the purposes of wage orders adopted by California’s Industrial Welfare Commission. On January 1, 2020, California Governor Gavin Newsom signed AB 5, expanding the application of Dynamex and making it more difficult for California workers to qualify as independent contractors. While this new standard has upended many traditional independent contractor industries, the California legislature acknowledged that some industries should be exempt from the AB 5 standard and, instead, the traditional analytical standard (known as the “Borello” test) should apply. Thus, AB 5 may have codified the Dynamex ruling, but it also carved out several exceptions, including for veterinarians.
AB 5 requires the application of the “ABC Test” to determine if workers are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission’s wage orders. Under the ABC Test, a worker is considered an employee and not an independent contractor unless the hiring entity satisfies all three of the following conditions: (A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; (B) the worker performs work that is outside the usual course of the hiring entity’s business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
By contrast, the Borello test relies on multiple factors, including whether the potential employer has all necessary control over the manner and means of accomplishing the result desired (although such control need not be direct, actually exercised, or detailed). This factor must be considered along with other factors, including but not limited to: (1) whether the worker performing the services considers themselves as being engaged in an occupation or business distinct from that of the employer; (2) whether the work is a regular or integral part of the employer’s business; (3) whether the employer or the worker supplies the instrumentalities, tools, and the place for the worker doing the work; (4) whether the worker has invested in the business; (5) whether the worker hires their own employees; (6) whether the employer has a right to fire at-will; and (7) whether or not the worker and the potential employer believe they are creating an employer-employee relationship. Under Borello, no single factor controls the determination. Instead, the test relies on 13 different factors requiring consideration of the totality of circumstances attending the relationship. Accordingly, relief veterinarian classification can be complex, and subject to a case-by-case determination.
Both the Borello multifactor test and the ABC Test create a rebuttable presumption that the worker is an employee, and the hiring entity thus bears the burden of establishing that the worker is an independent contractor. The ABC Test is designed to be more predictable than the multifactor approach used under Borello. While AB 5 itself may not have changed the classification test applicable to veterinarians, the analytical landscape has shifted, and there are practical implications to understand for relief veterinarians.
You may ask, what is the big deal? Particularly if the worker wants to be classified as an independent contractor and the parties have agreed to this classification, and little to no risk flows to the worker. The party that bears the risk is the employer. In the event the worker is in fact misclassified, the employer could face significant liability—even if both the employer and employee both agree to the classification. Employees are entitled to certain rights that independent contractors do not typically enjoy, such as overtime, benefits, meal and rest breaks, and more. Furthermore, federal and state agencies may look back to determine if employers correctly withheld taxes, disability, and other payments, and paid for workers’ compensation benefits.
In the veterinary industry, many practices rely on relief veterinarians and the classification of these relief veterinarians as independent contractors. This article does not conclude that all relief veterinarians must be employees. Instead, it is a reminder to review any and all independent contractor agreements and their performance to determine whether these veterinarians may be classified as independent contractors. With recent legislation adversely impacting independent contractor designations in multiple industries, many current independent contractors have been given a moment to pause and ask whether they are in fact properly classified. Again, the penalties associated with misclassification can be high and can lead to significant employer liability.
The bottom line is that although AB 5 has been in effect for nearly three years, California veterinarians are still largely left guessing whether their classification is proper under the Borello standard. Given the trends discussed above, it will likely become increasingly difficult and risky to classify workers as independent contractors. Consequently, it is important for practitioners utilizing relief veterinarian assistance to revisit their relationships to determine whether an independent contractor classification is correct. In uncertain cases, consult qualified legal counsel!
The nature of business is personal. Changes in personnel, project outlines, or business models cost businesses time and money to bring about, ward against, or stop. Any individual involved in business will likely have seen claims for interference with relationships, either prospective or contractual. But, what do those claims really mean and how viable are they in a capitalist society where free markets are held in such high esteem?
Defendants in lawsuits will typically see these claims pleaded as one of three major categories: intentional interference with prospective economic advantage, intentional interference with contractual relations or contract, or negligent interference with prospective economic advantage. As the name would suggest, the first two are more concrete and require a showing that the bad actor was aware of the existence of a contract or relationship and took affirmative steps to interfere with that relationship. The latter is more nebulous and looks at business relationships that were likely to occur and are based on a “should have known” standard.
California Courts apply a careful analysis when considering each of the aforementioned claims. As set out in Jenni Rivera Enterprises, LLC v. Latin World Entertainment Holdings, Inc. (2019) 36 Cal. App. 5th 766, 782, the elements of a cause of action for intentional interference with contractual relations are “(1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.”
The court in Rand Resources, LLC v. City of Carson (2019) 6 Cal. 5th 610, 628-629 discussed the similarities between intentional interference with contractual relationship and intentional interference with prospective economic advantage:
The two intentional interference claims share many elements—principally, an intentional act by defendant designed to disrupt the relationship between plaintiff and a third party. (Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 944 [81 Cal. Rptr. 3d 282, 189 P.3d 285] [stating that an intentional interference with prospective economic advantage claim requires, among other…]things, “an intentional act by the defendant, designed to disrupt the relationship”]; Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 55 [77 Cal. Rptr. 2d 709, 960 P.2d 513] [laying out the elements of an intentional interference with contract claim, one of which is that the defendant undertook “‘intentional acts designed to induce a breach or disruption of the contractual relationship’”].)
One key distinction between claims for interference with contractual relations and prospective economic advantage is the requirement of an “independent wrongful act.” (Crown Imports, LLC v. Superior Court (2014) 223 Cal. App. 4th 1395, 1404, citing to Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1158–1159 and Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 392–393.) An “independent wrongful act” requires a showing that “the alleged interference must have been wrongful by some measure beyond the fact of the interference itself.” (Ibid.) This means there must be some other wrong, separate and apart from the interference.
One court defined the distinction between intentional and negligent interference with prospective economic advantage as one that boils down to an evaluation of the defendant’s intent. (Crown Imports, LLC v. Superior Court, 223 Cal. App. 4th 1395, 1404, fn. 10.) In contrast, a claim for negligent interference with prospective economic advantage is established when a plaintiff demonstrates:
(1) an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff; (2) the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship.
(Venhaus v. Shultz, 155 Cal. App. 4th 1072, 1078.)
Competing Policy Considerations
When evaluating these claims, Courts weigh other policy considerations as well. When found in the context of an employment case, Courts give credence to the well-respected American value that employees are free to move between employers. (Redfearn v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989 (overturned on other grounds in Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130).) Stated another way, a former employee of a company has the right to engage in competitive business for themselves and enter into business in competition with the former employer, provided it is fairly and legally conducted. (Reeves v. Hanlon (2004) 33 Cal.4th 1140.) As a rule, Courts disprove of efforts by employers to squelch this freedom of movement.
For both negligent and intentional interference with contractual relationships, Courts are understandably protective of the rights of contracting parties. The right to contract freely is another right enjoyed by society and those without legitimate social or economic interests should not interfere in the expectations of contracting parties. (Applied Equipment Corp. v. Litton SaudiArabia Ltd. (1994) 7 Cal.4th 503.)
These policy considerations comprise the basis for the defenses of these types of claims. While wrongful conduct that amounts to interference in contracts or business relationships can be inappropriate, these causes of action can prove to be amorphous because there are special considerations afforded to defendants, which are not considered in a stricter breach of contract or defamation-type claim.
Using the Framework
The causes of action are inextricably intertwined and, without counsel to assist in guiding a defense, these claims can often blend together. Small business owners looking for the first time at a lawsuit alleging these claims will undoubtedly see many of the elements amongst them on repeat and have questions. Looking at some recent examples of how courts are evaluating these cases can be helpful. In Richards v. Farmers Ins. Exch. (2023) 2023 Cal.Super. LEXIS 42051, a Court found a demurrer to claims for intentional interference with an economic relationship with a probable economic benefit was inappropriate. The Richards court found the Complaint adequately stated an intentional interference in a discrimination case that alleged supervisors at Farmers had taken the plaintiff’s clients from her and gave them to younger agents of a different race; in so ruling, the Richards court found a likely economic advantage because of the length of time the Plaintiff had them as clients. (Id. at *10.)
In Yang v. Paz Am 1300 (2023) 2023 Cal.Super. LEXIS 40196, a motion for summary judgment was granted when the Yang plaintiff could not demonstrate an independent wrong; even though the plaintiff argued the defendants had separately breached a fiduciary duty to a third party. (Id. at *14.)
In crafting a defense to the family of interference claims, there are two common types: 1) the Anti-SLAPP Motion and 2) an argument no independently wrongful conduct took place. An Anti-SLAPP motion is used to attack meritless causes of action that are inappropriately based on acts of freedom of speech. (Baral v. Schnitt (2016) 1 Cal.5th 376.) As discussed above, there are competing interests when evaluating intentional or negligent interference claims. To the extent the alleged improper conduct arises from a protected freedom of speech act (e.g., advertising, working as an employee, or soliciting business), a business owner who finds themselves a defendant in cases with these claims should look first at whether an Anti-SLAPP Motion to strike that cause of action is appropriate.
In addition, a defendant in an interference with prospective economic advantage (either intentional or negligent) claim must have committed some independent tort, separate and apart from the interference. Oftentimes, plaintiffs make tenuous claims about the existence of the independent tort. If the conduct alleged is not sufficient as a matter of law, a well-timed demurrer early on can serve to narrow the issues and get rid of frivolous interference claims. Be sure to retain qualified counsel early on to have sufficient time to evaluate whether one of these defenses will protect your business.
Wilke Fleury is extremely proud to have two attorneys recognized in The Best Lawyers in America and three attorneys recognized in the Best Lawyers: Ones to Watch in America! Best Lawyers has been regarded by lawyers and the public for more than 40 years as the most credible measure of legal integrity and distinction in the United States. Congratulations to this talented group!
Since 2003, the Centers for Medicare & Medicaid Services (“CMS”) has conducted the Recovery Audit Contractor (“RAC”) program. As the program has expanded, provider audits have increased significantly.
What is a RAC audit and who is subject to it?
RACs are private entities that CMS contracts with to identify underpayments and overpayments to providers. RACs have a primary objective to recoup overpayments by reviewing claims submitted by providers for “which payment may be made under the State Plan or a waiver of the State Plan to identify overpayments and underpayments.”
This means, if you are a healthcare provider, you may be subject to a RAC audit when you submit a claim to Medicare or Medicaid. Physicians, DME suppliers, hospitals and other facilities are all potentially subject to RAC audits, Currently, these audits are performed by large contractors like Performant, Cotiviti, and HMS Federal Solutions, depending on which region you are located in
How is Performant compensated and how often are audits conducted?
Payment to RACs are made on a contingent basis for collecting overpayments or underpayment from the amounts recovered. Historically, the contingency fee rate for individual contractors has been anywhere from 8 to 12 percent. Performant, specifically, has been awarded a renewed 5-year contract in 2022 and has increased its audit sector.. Public data from CMS indicates an upward trend in RAC audits.
Limitations on the number of records audits can request.
Providers under RAC audits need not be passive: contractors like Performant have a limited number of records they can request in a 45-day period. A RAC may only request records on 10 percent of all paid claims within a 12-month period, every 45 days.
Defenses to RACs
Providers under audit may also challenge certain RAC findings by arguing:
Audit Scope: The auditor does not have authority to audit the claims at issue under either the Medicare reopening regulations or the RAC Statement of Work, both of which set timeframes for reopening paid claims.
Waiver of Liability: Even if payment for claims is deemed not reasonable or necessary, payment may be rendered if the provider did not know and could not have been reasonably expected to know that the payment would not be made.
Treating Physician Rule: The provider is in the best position to determine the applicable Medicare billing rule.
Provider Without Fault: A provider is “deemed to be without fault” with respect to an overpayment if the overpayment is made “subsequent to the fifth year following the year” of initial determination.
Errors in Process and Procedure for Estimating Overpayments: Complex audits require a rigorous degree of planning to determine precise results. Nonconformance to such guidelines can cast doubt on the accuracy of contractor estimates.
If you are experiencing an RAC audit by Performant, or another audit contractor, you should take care to consult an experienced healthcare attorney to help you identify defenses and strategies.
Earlier this month, employers across this state were able to breathe a sigh of relief due to a long anticipated California Supreme Court ruling. On July 6, 2023, the Court held that employers do not owe a duty of care to prevent the spread of COVID-19 to employees’ household members.
In Kuciemba v. Victory Woodwork, Inc., Robert Kuciemba was a worker who claimed he had contracted COVID-19 while at the workplace. As a result of the alleged exposure, Mr. Kuciemba alleged he subsequently transmitted COVID-19 to his wife, who was later hospitalized and placed on a ventilator. As a result, in late 2020, Mr. and Mrs. Kuciemba filed a lawsuit in state court against the employer. Mr. Kuciemba’s wife asserted claims for negligence, negligence, per se, premises liability, and public nuisance. Mr. Kuciemba asserted a claim for loss of consortium. The case was removed to federal district court where it was dismissed in May of 2021. The 9th U.S. Circuit Court of Appeals took the case on appeal before posing its questions to the California Supreme Court.
After nearly three years since the initial filing of the case, the Court determined that Mr. Kuciemba’s wife could not proceed with her claims. The Court reasoned, “although it is foreseeable that an employer’s negligence in permitting workplace spread of COVID-19 will cause members of employee’s household to contract the disease, recognizing a duty of care to nonemployees in this context would impose an intolerable burden on employers and society in contravention of public policy.” The Court focused its ruling on the potentially negative consequence of imposing such a duty on employers. The Court ultimately reasoned that the negative consequences would outweigh the benefits by creating an enormous burden, on not only employers, but the court system and the community.
Although the COVID-19 state of emergency in California has ended, the Court was also concerned with what its decision could mean in the future stating, “… if a precedent for duty is set in regard to COVID-19, the anticipated costs of prevention, and liability, might cause some essential service providers to shut down if a new pandemic hits.” That is, if employers who provide essential services knew they could be liable for employees’ household COVID-19 claims, they could be reluctant to provide those services in the future.
Employers should be relieved that this long awaited liability question has been put to rest for now. Employers should still adhere to and maintain all safety protocols mandated by state and local law.
The fourth appellate district published an opinion earlier this year in Smalley v. Subaru of America, Inc. (2022) 87 Cal.App.5th 450 that serves as an excellent refresher on requirements of the “998 Offer,” or a statutory offer to compromise pursuant to Code of Civil Procedure (“CCP”) §998.
In Smalley, set in the context of a Lemon Law action, Defendant Subaru made a 998 Offer for $35,001.00, together with attorneys’ fees and costs totaling either $10,000.00 or costs and reasonably incurred attorneys’ fees, in an amount to be determined by the Court. (Smalley, supra, 87 Cal.App.5th at 454.) Plaintiff objected that the offer was not reasonable and the case proceeded to trial. At trial, a jury found in favor of Plaintiff and awarded him a total judgment award of $27,555.74 – far short of the $35,001.00 offer. The trial court found Plaintiff had failed to beat the 998 at trial and that Subaru’s earlier 998 offer was reasonable. Plaintiff appealed the post-judgment order awarding Plaintiff pre-offer costs and Defendant post-offer costs on the grounds that the 998 was not reasonable in that it did not specify whether Plaintiff would be deemed the prevailing party for purposes of a motion for attorneys’ fees. The fourth district affirmed the trial court’s order and engaged in a helpful review of 998 requirements.
A statutory offer to compromise has three basic requirements:
(i) must be in writing
(ii) must contain the terms and conditions of the settlement
(iii) must include a provision allowing a plaintiff to indicate his or her acceptance. (Smalley, supra, 87Cal.App.5th at 455, citing Code of Civ. Proc., §998(b).)
The 998 offer must be unconditional, but may include non-monetary terms as well. (Smalley, supra, 87Cal.App.5th at 456.) The terms of the settlement must be sufficiently specific to allow the recipient to evaluate it and make a reasoned decision as to whether to accept the offer or the risk of not accepting. (Ibid.) In addition, the 998 offer must be sufficiently clear that the recipient of the offer can “clearly evaluate the worth of the extended offer.” (Id. citing McQuiddy v. Mercedes-Benz USA, LLC (2015) 233 Cal.App.4th 1036, 1050.) The Smalley court observed there is no rule that a 998 offer identify who is to be the prevailing party; further, a court may not impose additional requirements or limitations that do not appear on the face of the statute. (Id. citing Rowland v. Pacific Specialty Insurance Company (2013) 220 Cal.App.4th 280, 288.) For this reason, the failure to include costs and expenses in a 998 offer does not necessarily invalidate it. Nor does the law require a response by an offering party when the offeree raises objections about the offer.
Once it is determined the 998 offer was valid, the burden shifts to the offeree to demonstrate the offer to compromise is nonetheless unreasonable or was not made in good faith. In a situation where the actual judgment is more favorable to the offeror than the offer to compromise, it is prima facie evidence of the reasonableness of the offer. In considering reasonableness, the Smalley court looked at two questions:
1. Was it in the realm of reasonably possible results at trial?
2. Did the offeror know the offeree had sufficient information to assess the reasonableness of the offer?
In assessing these two questions, the Smalley court noted later discovery of facts known to the offeror at the time of the offer which shed additional light on the value of the case could potentially affect a court’s evaluation of the reasonableness of the offer. As no such facts were discovered in the case before the court, it was comfortable affirming the order.
The Smalley case is an excellent refresher on the use of these statutory offers and stands to reinforce the underlying takeaways surrounding how to make effective use of this powerful litigation tool. Always make offers to compromise clear and sufficiently detailed such that the offeree can make an adequate assessment of the value of the offer and the risk involved in not accepting it.
Wilke Fleury is extremely proud that 18 of its incredible attorneys have been selected as 2023 Northern California Super Lawyers or Rising Stars! Super Lawyers rates attorneys in each state using a patented selection process and publishes a yearly magazine issue that produces award-winning features on selected attorneys. Congratulations to this talented group:
The California Board of Pharmacy (the “Board”) is a member of the National Association of Boards of Pharmacy (the “NABP”), and as a member of the NABP the Board has certain reporting requirements to the NABP. This article sheds light on why you should care about the Board reporting to the NABP.
● What is the NABP Clearinghouse?
The NABP Clearinghouse “is a national database of disciplinary and administrative information from NABP’s member states and jurisdictions. It houses information reported by the member boards of pharmacy on actions taken against wholesale distributors, pharmacies, pharmacy owners, pharmacists, pharmacy technicians, and interns. That information is used to:
 Determine the acceptability and qualifications of pharmacists who request the transfer of examination scores and licenses into other states or jurisdictions; and
 Screen applicants for [NABP’s] Drug Distributor, Digital Pharmacy, and DMEPOS Pharmacy Accreditation programs.”
● When is the Board required to report a licensee to the NABP?
Therefore, if you are currently licensed in multiple states or may want to become licensed in multiple states in the future, the NABP reports are vital to the licensure process as reports may affect your license eligibility in other jurisdictions. Furthermore, understanding the Board’s reporting requirements and the impact of that reporting to other boards of pharmacy is critical in determining whether to pursue an appeal.
If you find yourself needing help, you may wish to contact an experienced healthcare attorney to help navigate this difficult terrain.
Complex laws and regulations provide employees with certain rights and options during medical leave. It is the employer’s responsibility to ensure they understand the nuances of medical leave law to ensure not only compliance, but an easy transition for a medical concern the employee may face in their life. The laws related to medical leave have developed over time and cannot be found in a single statute. Instead, there are numerous applicable and overlapping statutes at both the state and federal level.
The Family Medical Leave Act (“FMLA”) is administered by the U.S. Department of Labor and provides job protected leave to an employee who is absent from work because of the employee’s own serious health condition or to care for specified family members with serious health conditions, as well as for the birth of a child and to care and bond for a new child. In order to be eligible for FMLA leave, an employee must: (1) work 1,250 hours during the 12 months prior to the start of leave; (2) work at a location where 50 or more employees work at that location or within 75 miles of it; and (3) have worked for the employer for 12 months.
The California Family Rights Act (“CFRA”) is administered by the California Civil Rights Department. The CFRA provides up to 12 weeks of unpaid leave in a 12 month period. The CFRA allows eligible employees to bond with a new child, or to care for themselves, a family member, or a designated person with a serious health condition. In order to be eligible for CFRA leave, an employee must: (1) work 1,250 hours during the 12 months prior to the start of leave; (2) work at a location where 5 or more employees work; and (3) have worked for the employer for 12 months.
Many employees and employers assume that because the basic principles of FMLA and CFRA are alike, they should be administered the same. However, this is a common misconception. While both FMLA and CFRA provide up to 12-weeks of job-protected leave and have nearly identical eligibility requirements, there are significant differences that employers and employees should be aware of.
The CFRA provides protections to a larger portion of the workforce and leave will be granted for more familial relationships, including to care for a domestic partner, a grandparent, a grandchild, sibling, or designated person with a serious health condition. Under the FMLA, a covered family member is limited to a spouse, child, or parent.
The CFRA has strict limitations regarding employer requests to medical providers. Under the CFRA, medical certification forms cannot seek the identification of symptoms or diagnosis of an employee’s serious health condition from the healthcare provider. Whereas under the FMLA, employers may request a diagnosis of an employee’s serious health condition when necessary.
Under both the CFRA and FMLA, certifications from a medical provider may be requested considering the above caveats. Under the FMLA, employers may require second and third medical certifications for employees or family members if the employer has a “reason to doubt” the validity of a certification. FMLA recertification may also be required every six months, even if the original certification has not expired. Whereas under the CFRA, employers may require certification for a employee’s medical condition only and may only require recertifications when the original certification expires.
The nuances associated with CFRA and the FMLA are vital for both employers and employees to understand and, as such, should consult with an experienced employment attorney to navigate the complex laws associated with medical leaves.
Selling a California pharmacy is significantly more complicated than the sale of other businesses. In addition to all of the typical business sale considerations, pharmacy sales require approval from the California Board of Pharmacy (the “Board”) of any transfer of 50% or more of the beneficial interest in that license prior to the closing. Additionally, due to the highly regulated nature of pharmacies, both on a state and federal basis, the pool of prospective buyers is dramatically smaller than with other businesses. Below are a few of the most important areas to be considered by pharmacy owners before moving forward with selling their business:
It is critical for sellers to leave themselves a long runway to complete their transaction. Licenses are not transferable to new owners. Therefore, buyers must seek a new license before the close of a transaction. The Board requires approval of changes in ownership before the change occurs. Additionally, change of ownership applications must be filed with the Board at least 30 days prior to closing. If a change of ownership application is not approved by the Board pre-closing, the Board may impose fines and issue citations to the parties. A temporary license should be considered where closing timelines are compressed and may be issued at the discretion of the Board based on the specific facts of the transaction.
The sale of a pharmacy corporation can be structured as either an asset sale or a stock sale. An asset sale is where certain business assets are acquired by the buyer and the seller maintains ownership over the corporation and the remaining assets. In a stock sale the buyer acquires all of the shares of the corporation and takes over complete ownership of the business. In general, a stock sale is preferrable to a seller because the buyer takes over responsibility for the entire business. Conversely, buyers generally favor asset sales because they can pick and choose the assets they want and the seller remains responsible for any skeletons in the closet. In either a stock or an asset sale, the parties will need to work together to clarify who is responsible for what after the sale.
It is important for sellers to understand that they remain on the hook for any pre-closing licensing issues with the Board. For example, if a seller had failed to satisfy a required notification requirement to the Board and this failure comes to light post-closing, the Board may impose a fine on the seller. Therefore, a careful review of any potential license issues is critical prior to any sale.
● Tax and Legal Advisors
Sellers can find themselves with a surprise tax bill where taxes are not a primary focus of the transaction. Experienced tax advisors can be invaluable when sellers evaluate potential deal structures. Tax advisors should be brought into the mix early so that sellers can make fully informed decisions relative to the tax impact of the sale of their business. Additionally, sellers should retain their own, independent legal advisors to guide them through the complex selling process. Too often sellers rely solely upon the buyer’s advisors for crucial legal advice. It is a mistake to assume that buyer-paid attorneys, no matter how well-meaning, can fairly, and aggressively, represent sellers’ interests as well.
Like many businesses, a successful pharmacy is the result of years of work and relationships that the business owners and their teams have cultivated over time. Because of this, the hand-off period can be critical to the ongoing success of the business. The parties should work closely to clearly determine the post-closing role, if any, of the seller. Moreover, considerations should be made on whether there will be a change to the Pharmacist-in-Charge (“PIC”) position post-closing. California law requires that the Board be notified within 30 days of when a PIC ceases to act as the pharmacist-in-charge, and a replacement PIC must be approved by the Board. Additionally, consideration should be made as to whether the buyer will continue operating at the same location, or if a change of location will occur. Under California law, a change of location must also be approved by the Board prior to any change. Therefore, it is important to have these discussions early as the ultimate decision may be based on a third-party landlord.
Who will buy your pharmacy? Current employees and business partners can make attractive prospective buyers as they already are up to speed on running the business. Marketing to employees and partners is generally permissible. Alternatively, you may consider selling to a large pharmacy chain. Business brokers can be helpful in identifying additional buyers outside of a seller’s network.
If you are considering selling your pharmacy, you are not alone. Contact an experienced healthcare attorney to help navigate you through the sale of your business.
Wilke Fleury LLP is excited to announce the addition of two new partners – Kathryne E. Baldwin and Aaron R. Claxton! Ms. Baldwin and Mr. Claxton are talented additions to the firm’s leadership. Each of them brings unique capabilities to Wilke Fleury’s partnership.
Kathryne E. Baldwin’s practice focuses on corporate and business law with a specific focus on litigation and insurance coverage matters. She obtained her undergraduate degree in Philosophy of Science & Logic at California State University, Sacramento. While in college, Kathryne worked for her family’s Sacramento-based business, developing strong ties in the community and gaining a first-hand understanding of the operational issues facing corporations and businesses. Kathryne is a graduate of the University of Pacific, McGeorge School of Law. During law school, Kathryne was a member of the nationally ranked McGeorge Mock Trial Competition Team and a semi-finalist finisher in the regional competition as a second year in 2015 and a finalist as a third year in 2016. Kathryne also served as a board member to the McGeorge Women’s Caucus organization during all three years of law school, her final year as President. Additionally, Kathryne was a member of the Federal Defender Clinic representing indigent clients charged with misdemeanors in federal court.
Aaron R. Claxton provides creative solutions to complex problems in healthcare and corporate law. Aaron’s practice focuses on Knox-Keene Act licensed health care service plans, insurance regulatory matters and healthcare transactions. Additionally, he represents health care providers, including physicians, dentists, veterinarians, optometrists, pharmacists, DMEs, FQHCs, MSOs, IPAs and Employee Assistance Programs. He assists health care organizations with regulatory and compliance matters including licensing, contracting, policies, acquisitions and litigation. Aaron also counsels clients on issues pertaining to Medicaid, Medicare, HIPAA and antitrust laws in health care.
“We are really excited to welcome Kathryne and Aaron into the partnership. They are talented and thoughtful, and bring a wonderful energy and perspective to the table,” said Steve Williamson, Managing Partner. “They are excellent lawyers and great people. We are proud to have them onboard, and confident they will help the firm thrive as we begin our second century.”
Wilke Fleury LLP is a thriving mid‐sized general practice law firm located in California’s capitol. Our attorneys offer broad expertise, creativity, and strong ties to local businesses, families, and individuals, making Wilke Fleury LLP one of the region’s most respected and long‐standing law firms. Our support of local charitable organizations, universities, law schools, political interests and the community reveals the character of the firm and our sincere commitment to the Sacramento region.
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