The Formal Documents Required for a Functioning Pharmacy Business

Many pharmacy businesses (even some of the larger variety) often do not conduct important aspects of their business by having basic contracts/agreements in place for each activity.
You do not have to be a legal expert, when often all that is required is an exchange of letters confirming details of your mutual discussion and your understanding of those discussions.
Many businesses have templates established for the more important agreements, and these assist in ensuring all the important details are included.
They are often initially perused by a solicitor to ensure that no legal problems are built into the templates.

If you are in doubt about any specific agreement do not hesitate to get your legal adviser to review the completed agreement before attaching signatures.
This does not cost in the sense that it is always prudent to avoid future legal action, and that always pays.
The more common agreements or contracts that are established in pharmacies are as follows:

Offer of employment
This can be a simple letter (or template) to avoid future legal liability or misunderstandings with an employee.

The employee can then respond with their own letter of acceptance, or a small panel at the foot of the employer’s letter can include the following words and a space for a signature.
“I confirm that this is a true copy of a letter of offer for employment received by me on (enter date).
The offer is accepted by me under the terms and conditions outlined in this letter, including any attachments.
(signature and date)”
A brief job description can form part of the employment offer, or a more detailed job description can be sent as an attachment, with all pages of the attachment to be initialled by the applicant.

A good employment offer letter covers the following points:

* The particular job offer

* The responsibilities of the job

* The salary and the benefits –  the documents for payroll cannot be a lesser value than that
established by the appropriate Award covering the work on offer.

* That the employment is “at will,” meaning the employee can quit or the employer can terminate him or her at any time with appropriate notice.

* That the employee is required to sign a Confidentiality and Invention Assignment Agreement (discussed below)

* That the letter constitutes the entire agreement of the parties, and can only be amended in the future in writing, signed by the employer and the employee

* That any disputes will be handled exclusively by confidential binding mutual agreement or formal mediation (other than certain designated types of disputes, such as those related to worker’s compensation)

Confidentiality and Invention Assignment Agreements

Pharmacies these days are always seeking to keep “above water” through the development of systems or inventions.
Employees may be engaged in the intellectual input of a new system or may have access to a range of established systems within the pharmacy.
This intellectual inventory forms part of the intellectual capital of the pharmacy, which can be an important “edge” when looking at future survival, or may be the deciding factor in the goodwill component when selling your pharmacy.

I once wrote a computer program for a nursing home I serviced.
It was a simple program that calculated when a repeat for a patient prescription was due, and a weekly report was prepared for all items due, sorted by patient and doctor for presentation to a doctor.
I wrote it because the nursing home was 30 minutes away by car and they were frequently telephoning for urgent deliveries and “owing” scripts.
On implementation the telephone calls ceased almost 100 percent.
Some years later when I sold the pharmacy the nurse-manager for the home requested that my program stay with the new owner.
She admitted that the program had positively impacted on their staffing costs enabling them to replace two of their staff with a part-time evening nurse.
The program had identified the inefficiencies inherent in most nursing homes, but I did not know of that impact until I was about to sell the pharmacy.
The purchaser did not quibble about my goodwill value once he understood that this was the lever to retain a sizable value of nursing home dispensing that was absolutely secure.
On reflection, that type of invention should have been licenced to the purchaser for exclusive use rather than sold as a goodwill component (so that I retained future rights for development and marketing), but it does illustrate why the invention should not be able to be hijacked by staff for the benefit of others.
One small invention for a cost of less than $100 was able to preserve a goodwill value segment of $100,000 as part of a much higher overall figure.

Employees have access to a company’s confidential information.
Moreover, many businesses expect their employees to come up with ideas, products, business strategies, and inventions.

To make sure the employees keep the proprietary information of the company confidential, you should require them to sign a Confidentiality and Invention Assignment Agreement.
This agreement deals with the confidentiality issue, but it can also provide that the ideas, business strategies, and other work product developed by the employee belong to the company, and not to the employee.

If you expect to have venture capitalists or other professional investors invest in your company, they will expect that you have these agreements in place for all of your employees.

But it should also define what the employee rights are as well, because work clearly related to an invention or an intellectual product, created in private time and not involving any intellectual capital of their employer must be outside of this agreement free of any claim by the employer.

Service Contracts

If your pharmacy provides professional services (as opposed to selling a product), it needs to have its own good standard form Services Contract (which can be labelled many things, including an Agreement for Professional Services).
This type of agreement lays out the terms and conditions under which you provide services and specifically spells out your responsibilities and liabilities.
This type of agreement is likely to become more common as fee paying clinical services become established.
In the initial stages, it will be probably more cost-effective to establish services through using contractors, who will come fully equipped and educated to do a job better than you are able to do, through being pinned down with dispensing activity.
They will not fall under the Award for an employee, so a fee sharing arrangement will become the norm to allow creative development by both sides, and it will be cheaper for the pharmacy.
Because the pharmacy may not have sufficient work for a clinical services contractor, they will have to be able to work in one or more other pharmacies to build their income, as well as comply with other regulations involving contracting and taxation.

Having a good contract here is important.
You want to avoid misunderstandings and undue liability.
Ideally, this agreement gives you flexibility in completing the services, lists the fees for the job (and additional fees if you encounter unforeseen circumstances), and sets limitations on your liability (such as limiting that liability to the amount of the services fee).

Sales/Purchases Contracts

Many businesses sell products, and therefore need a good Sales Contract.
The Sales Contract lays out the price, terms, and conditions for the sale or purchase of goods, equipment, or other products.
Of course, some smaller pharmacies don’t need Sales/Purchases Contracts, but if your products sell for significant dollars and you are supplying a major client with special benefits and conditions, then you likely need a Sales Contract.
The reverse to a Sales Contract is the Purchase Contract and this is definitely required for large purchases, as suppliers are renowned for wriggling out of their deals.
Always ensure that the signatory to a Purchases Contract is at sales manager level, or above.

The actual Sales/Purchases Contract can take the form of fine print on an order form or an invoice, or it can be tailor-made for a particular sale/purchase.
You always want to start with your own form of contract.
The key terms in Sales/Purchases Contracts include price, price adjustments in certain events, responsibility for taxes, payment and credit terms, warranties to be given, disclaimers of various warranties, and liability limitations.

Confidentiality Agreements

Numerous instances arise in which you want to share confidential or proprietary information with another party.
You may want to show the information to get them interested in doing a deal with you, investing in your pharmacy, or working together on some strategic arrangement.
Producing an agreement to prevent the other side from stealing or using your ideas is very important in these situations.

The Confidentiality Agreement (also referred to as a “Non-Disclosure Agreement” or “NDA”) provides that the recipient of proprietary information holds the information in strict confidence and will only use the information for the purposes of evaluating whether or not to enter into a business relationship with you.
The key to this agreement is that you should enter into the agreement before any disclosure.

A good Confidentiality Agreement lays out the recipient’s confidentiality obligations, the exclusions from the confidentiality (such as information already in the public domain), how long the confidentiality obligation lasts, limitations on the use  of the information, and the right of the disclosing party to seek injunctive relief to stop the other side from disclosing the information.

The type of people or organisations you may need confidentiality agreements with include shopfitters (design elements), management or marketing consultants, software programmers, clinical services contractors and many others.

Web Site Terms of Use Agreement

Most growing businesses have established (or should establish) a Web site to market their company and their products.
Essential to these Web sites is a Terms of Use Agreement, which is intended to be a contract between the Web site owner and the users of the site and any purchasers of goods or services from the site.

A good Terms of Use Agreement is essential for avoiding legal liability to the site owner. The well-drafted agreement includes: limitations on how the site can be used, copyright protection warnings, disclaimers, liability limitations, disclosure on the site’s privacy policy in dealing with customer information, jurisdiction where any disputes must be brought (ideally, the home town of the site owner), and much more.

Letters of Intent

A letter of intent can be a very advantageous and quick way to get momentum for a deal. The idea for a Letter of Intent is for the parties to get a “handshake” deal on the major points, and then move to creating definitive legal agreements.

You need to be very careful about what you want to be binding or nonbinding in the letter. Most Letters of Intent are nonbinding and are merely expressions that the parties have a particular deal in mind and want to further negotiate to a definitive complete agreement.
Letters of Intent can also be binding contracts, however, so be careful what you say in these letters.
As a preventive strategy the words “Without Prejudice” should appear at the top of each and every letter of intent, and the content made binding under a separate contract.

Share Purchase Agreements

Start-up and emerging businesses often need to raise capital to fund their business. They often do this by selling shares in the company.
This also applies with pharmacy companies even though ownership is restricted to pharmacists only.

Share Purchase Agreements are the vehicle where share sales can be effected.
Such agreements can run from a few pages to 50 or more, depending on the investors and the complexity of the deal.

In most agreements, you need to carefully lay out the following: the type of the share sold, the price and number of shares, the representations and warranties of the investors, the representations and warranties of the company, the conditions to closing, the rights of the investors, and potentially much more.
This is an agreement on which you typically need advice from an experienced corporate lawyer.


A business lease for a pharmacy space is often one of the most significant contracts for a pharmacist.
The starting place for most lease negotiations is the landlord’s allegedly “standard” lease, which tends to be incredibly one-sided in favour of the landlord.

Because the lease can constitute a major commitment for the business, you have to watch out for all the “catches.”
Most important, you have to ensure that:

* The space fits your needs.

* The uses the landlord permits for the space are broad enough for your entire

* The lease term is sufficient, with a right to extend if possible.

* The economic terms are competitive.

* The lease clearly spells out the landlord’s obligations.

* You have some flexibility in assigning or subletting the lease.

* There is a limitation on pass-through operating expense and tax increases.

Loan Agreements

Many businesses enter Loan Agreements with banks or financial institutions and simply sign the lender’s “standard” form.
The standard form tends to be very one-sided in favour of the lender, with various restrictions on the borrower.

The borrower under a Loan Agreement needs to fully understand (and negotiate better terms than those contained in the standard form) a number of key issues, including the following:

* The total cost of the loan

* The security for the loan and if a third party guarantor, the rights of the guarantor

* The payment schedule

* The right to prepay the loan without penalty

* The flexibility on use of the loan proceeds

* The right to cure defaults

* The appropriate representations and warranties of the borrower

* The covenants that can trigger a default

The rights of a third party guarantor need to be restricted in key areas of information.
For example any enquiries as to your loan status must be restricted to yourself and not by direct communication with your lenders, even though the lenders may have to provide a letter of certification.
Your friendly pharmacy wholesaler as your guarantor might not be so friendly if they can see an opportunity to own or have some direct exclusivity for their marketing franchise that may be in conflict with your wishes.

The use of contracts and agreement increases with the size and diversity of the pharmacy.
The business model will also affect the number and type of formal documents needed.
For example, a chain model of a franchise involving different ownerships for each pharmacy creates complexity that needs formal documentation to ensure stability and eliminate potential for argument and dissension.

Also, there is a need to have all agreement types reviewed (including templates), at least once every three years to ensure relevance.
This should be a date on the quality assurance calendar to ensure it is not overlooked.
This article may be reprinted for use in your Policies and Procedures Manual.

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