> ## Documentation Index
> Fetch the complete documentation index at: https://dso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Draft dentist employment agreements

> Who employs dentists and hygienists, compensation models and the quota/bonus red line, malpractice and tail coverage, and why DSO noncompetes are structurally fragile.

State law determines which entity must employ dentists, hygienists, and other clinical personnel. Their employment agreements address compensation, malpractice coverage, duties, and restrictive covenants. Production-based clinical compensation deserves particular attention because it has appeared in major dental enforcement matters.

## Prerequisites

* The PC formed and able to employ
* State employment tax registrations complete
* Malpractice coverage arranged
* Counsel confirmation of current noncompete law in the state

In states where the dental-practice act reserves employment of dentists or other clinical personnel to a licensed practice, place those workers with the professional entity. Texas, for example, includes employing a dentist to practice dentistry within the statutory definition of practicing dentistry. The underlying doctrine also appears in *State v. Bailey Dental Co.* (Iowa 1931).<sup>1</sup> Do not assume that a secondment or staffing arrangement changes the result. Check the state's rules for hygienists and other clinical personnel separately.

## Compensation models

| Model                                            | How it works                                                                                                     | Compliance edge                                                                            |
| ------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ |
| **Straight salary**                              | Fixed base                                                                                                       | Cleanest                                                                                   |
| **Daily guarantee vs. percentage of production** | The associate earns the greater of a per-day minimum or a stated percentage of their **own** adjusted production | The dental norm; fine for the dentist's own personal services                              |
| **Percentage of own collections**                | A percentage of what actually collects on the dentist's own work                                                 | Common; define the adjustment base (PPO write-offs, refunds) precisely                     |
| **Base plus quality bonus**                      | Fixed plus incentive on clinical metrics                                                                         | Consider clinical measures such as recall completion and chart audits, rather than revenue |
| **Production quotas or revenue-target bonuses**  | Minimum patient/procedure counts, per-office revenue goals, sales incentives                                     | **Never. See below.**                                                                      |

### The red line: quotas and production bonuses

Paying a dentist a percentage of their own production is the industry norm. Paying clinical staff to hit **targets** is the fact pattern behind the largest dental enforcement actions on record:

* The Kool Smiles/Benevis False Claims Act settlement (\$\$23.9 million, 2018) involved clinics that pressured dentists to meet production goals, disciplined "unproductive" dentists, and paid cash bonuses based on revenue generated. The allegations also included medically unnecessary pulpotomies, crowns, and extractions on children.<sup>2</sup>
* The New York AG's 2015 Aspen Dental settlement addressed revenue-oriented pressure on clinical staff. The California AG's 2026 Aspen settlement bars direct sales incentives to clinical employees and requires an end to revenue-based compensation for clinical staff. The AG reported that hygienists had received $50 per clear-aligner sale to new patients and $100 per sale to existing patients.<sup>3</sup>
* Wisconsin **bans quotas by statute**, even though the state otherwise permits many DSO arrangements. A dentist employment contract may not impose minimum patient or procedure quotas, and parallel subsections extend the prohibition to dental therapists and hygienists. Wis. Stat. § 447.06(1g), (1m), (1r).<sup>4</sup>

The through-line: production pressure on clinical staff is read as the DSO practicing dentistry through the compensation plan, and where Medicaid claims result, as the DSO *causing* false claims. Keep every incentive tied to the individual's own personal services or to genuinely clinical quality measures, and keep the DSO out of designing it.

Referral-law exposure is less common in dentistry than in many medical specialties, but it still matters. Stark rarely applies to a typical dental group. The federal Anti-Kickback Statute can reach Medicaid business, and state kickback and fee-splitting laws may apply more broadly. Review compensation that varies with referrals to an affiliated oral surgeon, imaging center, or lab. See [Stark and anti-kickback](/concepts/compliance/stark-and-anti-kickback).

## Malpractice coverage

The provision dentists read first and administrators most often get wrong.

|                     | Occurrence                                                               | Claims-made                          |
| ------------------- | ------------------------------------------------------------------------ | ------------------------------------ |
| **Covers**          | Incidents occurring during the policy period, whenever the claim is made | Claims made during the policy period |
| **After departure** | Covered                                                                  | **Not covered** without tail         |
| **Cost**            | Higher premium                                                           | Lower premium, plus tail cost later  |
| **Tail needed?**    | No                                                                       | **Yes**                              |

**Tail coverage** (an extended reporting endorsement) covers claims made after a claims-made policy ends for incidents that occurred while it was in force. It can cost a substantial multiple of the annual premium.

The agreement must state **who pays for tail**, and under what circumstances:

* The employer pays on termination without cause
* The dentist pays on voluntary resignation
* Split, or waived after a vesting period
* Some agreements have the employer pay in all cases

**Unaddressed tail is a common and expensive dispute.** A departing dentist facing a five-figure tail bill they didn't expect is a dentist who becomes adversarial, and if that dentist is your friendly owner, the dispute is over the entity holding your payer contracts. Address it explicitly.

## Restrictive covenants: fragile twice over

DSO noncompetes are weak in two independent ways, and drafting can only fix one of them.

Start with the legality of the agreement stack. When the OCA agreements were held void for corporate-practice violations, the Fifth Circuit declined to sever and enforce the noncompetes. In *Dr. Allison* (Ill. 1935), a lay dental corporation's noncompete was also unenforceable because the corporation's own business was illegal.<sup>1</sup> A restrictive covenant may therefore fail with a defective underlying structure.

Corporate-practice enforcement can also affect restrictive covenants. The 2015 New York Aspen settlement required elimination of specified noncompete and nonsolicitation restrictions, and the 2026 California Aspen settlement bars specified noncompetes for clinical staff. A covenant imposed by an entity that does not lawfully employ the dentist may become evidence in the control analysis.<sup>3</sup>

The FTC's Non-Compete Rule was vacated in 2024. The FTC dropped its appeals on September 5, 2025, and the rule was removed from 16 C.F.R. Part 910 effective February 12, 2026. Noncompete regulation is therefore primarily a state matter.<sup>5</sup> California has a long-standing general prohibition, and a growing number of states restrict healthcare-worker noncompetes. Several 2025–2026 statutes are physician-specific and do **not** cover dentists. Oregon's SB 951, for example, excludes dentists from its definitions. Check whether the law in each state reaches dental employees before relying on it.<sup>5</sup>

Alternatives that generally survive where noncompetes don't:

* **Non-solicitation** of patients and employees, reasonably limited and drafted for the PC's benefit
* **Confidentiality** and trade secret protection
* **Notice periods**. A workable notice requirement is often more useful than an unenforceable noncompete, especially for hygiene-recall continuity.
* **Repayment of signing bonuses or relocation** on early departure, where lawful

## Steps

<Steps>
  <Step title="Confirm the PC is the employer, and is registered as one">
    Register for state withholding and unemployment insurance in the state of practice for both dentists and hygienists.
  </Step>

  <Step title="Choose and document the compensation model">
    Benchmark against dental compensation survey data. Confirm that compensation does not depend on quotas, targets, or referrals. Limit incentives to the individual's own services or appropriate clinical-quality measures.
  </Step>

  <Step title="Specify duties, schedule, and clinical authority">
    Including that clinical judgment rests with the dentist, consistent with the MSA's carve-out.
  </Step>

  <Step title="Address malpractice explicitly">
    Carrier, limits, occurrence or claims-made, and **who pays tail under which circumstances**.
  </Step>

  <Step title="Check current noncompete law before drafting restrictive covenants">
    Confirm whether the state's statute covers dentists specifically, then draft state-specific variants rather than one national form.
  </Step>

  <Step title="Set termination provisions">
    With and without cause, notice periods, and immediate termination for license loss or exclusion.
  </Step>

  <Step title="Cross-reference the transfer restriction for the friendly owner">
    Read the employment agreement and transfer restriction together because termination of employment is often a transfer trigger.
  </Step>

  <Step title="Have the dentist's own counsel review, for the owner at minimum" />
</Steps>

## Verify it worked

* [ ] The legal employer for each dentist, hygienist, assistant, and other role matches the governing state's ownership, employment, supervision, and scope rules
* [ ] Compensation benchmarked and documented
* [ ] No quotas, revenue targets, or sales incentives anywhere in the plan
* [ ] Nothing varies with referral volume or value
* [ ] Malpractice coverage specified, with tail responsibility stated
* [ ] Restrictive covenants checked against current state law, including whether it covers dentists
* [ ] State-specific variants used for multi-state groups
* [ ] Termination for license loss or exclusion is immediate
* [ ] The friendly owner's agreement cross-references the transfer restriction
* [ ] Annual review calendared

## Common failure modes

| Failure                                                 | Consequence                                               |
| ------------------------------------------------------- | --------------------------------------------------------- |
| DSO listed as employer of clinical staff                | Direct CPOD violation                                     |
| Production quotas or revenue bonuses for clinical staff | The Kool Smiles/Aspen fact pattern; FCA and CPOD exposure |
| Hygienist sales incentives                              | Enjoined by name in the California Aspen settlement       |
| Tail responsibility unaddressed                         | Expensive dispute on departure                            |
| One national noncompete form                            | Unenforceable or unlawful in several states               |
| Compensation tied to referrals to affiliated providers  | AKS and state kickback exposure                           |
| No immediate termination on exclusion                   | Continued employment of an excluded individual            |
| Friendly owner's agreements not cross-referenced        | Termination without a share transfer                      |

## Sources

1. *State v. Bailey Dental Co.*, 211 Iowa 781, 234 N.W. 260 (1931); Tex. Occ. Code § 251.003(a)(4) as applied in *In re OCA, Inc.*, 552 F.3d 413 (5th Cir. 2008), [opinion](https://caselaw.findlaw.com/court/us-5th-circuit/1452605.html) (severance refused); *Dr. Allison, Dentist, Inc. v. Allison*, 360 Ill. 638, 196 N.E. 799 (1935), [opinion](https://www.casemine.com/judgement/us/5914a4ddadd7b049346c0956) (noncompete unenforceable, ancillary to illegal corporate practice). Annotated on [DSO & dental case law](/reference/legal/dso-case-law).
2. DOJ, [Dental management company Benevis and Kool Smiles clinics to pay \$\$23.9 million to settle False Claims Act allegations](https://www.justice.gov/opa/pr/dental-management-company-benevis-and-affiliated-kool-smiles-dental-clinics-pay-239-million) (Jan. 10, 2018).
3. N.Y. AG, [Aspen Dental Assurance of Discontinuance](https://ag.ny.gov/press-release/2015/ag-schneiderman-announces-settlement-aspen-dental-management-bars-company-making) (June 18, 2015); Cal. AG, [Aspen Dental settlement](https://oag.ca.gov/news/press-releases/attorney-general-bonta-announces-settlement-aspen-dental-over-corporate-practice) (May 7, 2026).
4. Wis. Stat. § 447.06(1g), (1m), (1r). [Statute (PDF)](https://docs.legis.wisconsin.gov/statutes/statutes/447.pdf).
5. FTC, [Federal Trade Commission Files to Accede to Vacatur of Non-Compete Clause Rule](https://www.ftc.gov/news-events/news/press-releases/2025/09/federal-trade-commission-files-accede-vacatur-non-compete-clause-rule) (Sept. 5, 2025); removal of 16 C.F.R. pt. 910 effective Feb. 12, 2026, [Federal Register](https://www.federalregister.gov/documents/2026/02/12/2026-02866/revision-of-the-negative-option-rule-withdrawal-of-the-cars-rule-removal-of-the-non-compete-rule-to); state status summarized from Katz Banks Kumin, [Noncompete agreements: status of laws nationwide](https://katzbanks.com/employment-law-blog/noncompete-agreements-whats-the-status-of-laws-restricting-them-nationwide-march-2026-update/) (March 2026). For Oregon's dental carve-out under S.B. 951's definitions, see [DSO laws by state](/reference/legal/dso-laws-by-state). **Verify current state law before drafting.**