Five Legal Pitfalls to Avoid in 2015

March 2, 2015

By: Jonathan M. Hill, Esq.

New Years is a time for honest reflection and (hopefully) decisive action.  As a health club owner, it’s easy to look at what you can and should be doing in 2015 to boost your profitability.  What you’re probably less proactive about is what you can and should be doing to protect the money you’ve already made.  I’m talking about risk management.  Nobody likes to “talk legal” because it’s viewed as a “cost center” and not a “profit center,” but mistakes in the legal arena can be very expensive to fix.  Your best prescription to avoid having to write those checks is to avoid making the mistakes.  As we move into the busy season, here are five legal pitfalls to avoid:

You don’t get your agreements in writing. 

It would seem like common sense to get your business agreements in writing, but there are many out there who still believe a handshake is enough.  While it’s certainly admirable of you to think that someone’s word might be “as good as gold,” reality would dictate that many-a-dispute could have been avoided (and a fortune saved) if the parties had simply reduced their understanding about a deal to writing.  A contract is, at its core, simply law created between two or more parties.  So long as certain basic parameters are met in the contract’s creation – for example, the parties aren’t drugged, under the influence or under-aged (capacity to contract); the parties have the proper authority to enter into the contract (authority); the parties aren’t being forced to sign against their will (duress); the parties aren’t lied to or tricked into making the deal (misrepresentation); and the substance of the agreement isn’t against the law (illegality) or against public policy (unconscionable) – courts will generally uphold the contract as written.  It’s critically important to be clear when drafting the language of an agreement.  Both sides should know exactly what they’re giving up and what they’re getting in return.  A well-written agreement should be understandable to anyone who reads it, not just your lawyer.  Use plain English, be direct and to the point, and don’t overcomplicate matters.  Say what’s supposed to happen.

You’re not paying overtime to employees who should otherwise be making overtime.

Wage and hour laws can be complicated.  Even if you think you’re complying with the Fair Labor Standards Act (FLSA) – the overarching federal law which governs pay practices in the workplace – the particular state where your business operates may have laws on its books which elevate the federal standard (California is a good example).  While entire books have been written on the subject of overtime, for purposes of this article, I have two take-aways: first, employers in the fitness industry can easily fall prey to misclassifying their staff as “exempt” to the FLSA’s overtime requirement when, in fact, certain employees should be classified as “non-exempt” and paid time-and-a-half for working over 40 hours a week.  And second, wage and hour lawsuits can be very expensive to defend, especially when brought on behalf of an entire group of similarly-situated employees (the dreaded “class action”).  In order to properly claim an exemption to the FLSA – there are several of them, the “big three” being exempt administrative, executive and professional employees – it’s not enough just to give someone a fancy title like “manager” and pay them a salary.  The salary must meet a minimum weekly threshold; but, equally important, the employee’s actual job duties must support the claimed exemption.  When it comes to wage and hour compliance at your health club, you’re well advised to take an hour or two to speak with an employment attorney with expertise in this particular area. 

You’re not keeping up with the changes in minimum wage law.

Beginning in 2015, more states than ever before will be raising their minimum wage.  As of January 1, 2015, 28 states and the District of Columbia will all have minimum wage rates higher than the federal baseline rate of $7.25 per hour.  These states include: Alaska ($7.75), Arizona ($8.05), Arkansas ($7.50), California ($9.00), Colorado ($8.23), Connecticut ($9.15), Delaware ($7.75), Florida ($8.05), Hawaii ($7.75), Illinois ($8.25), Maine ($7.50), Maryland ($8.00), Massachusetts ($9.00), Michigan ($8.15), Minnesota (depends on the size of the employer), Missouri ($7.65), Montana ($8.05), Nebraska ($8.00), Nevada ($8.25), New Jersey ($8.38), New Mexico ($7.50), New York ($8.75), Ohio ($8.10), Oregon ($9.25), Rhode Island ($9.00), Vermont ($9.15),  Washington ($9.47) and West Virginia ($8.00).  In the New Year, especially if your business is located in one of the states above, make sure that you’re not behind the times and that you’re in compliance with the state and federal minimum wage laws.   

Your health club agreements aren’t in compliance with your state’s regulatory requirements.

Most states have laws which regulate the contractual relationship between a health club and its members.  These laws – usually found under a state’s “Health Club Act” or “Health Spa Statute” – dictate everything from whether you must obtain a bond or get registered with the State’s regulatory body, to what sized type and font must be included for certain required provisions in your membership agreements.  It’s a tedious process to fly-speck your club contracts, to be sure, but it’s a necessary process since the penalties associated with non-compliance can be severe.  If you operate health clubs in several states, it’s important to remember that when it comes to regulatory compliance, it’s not one-size-fits all.  Each state may have its own provisions, including the specific verbiage it wants used, and your club contracts need to reflect this. 

Your response to complaints about sexual harassment is either non-existent or inadequate.

Health clubs make for fertile grounds for a sexual harassment complaint.  Whether allegations of sexual harassment involve a member of your staff, or it involves a client in your gym, how you respond to a complaint of sexual harassment is critical.  With some exception, liability can usually be avoided if you have a good sexual harassment policy at your club, and you enforce it.  A good sexual harassment policy will include a process whereby the gym/employer investigates what exactly happens, and remedies the alleged harassing behavior accordingly.  When the alleged harassor is a gym employee, as the employer, you have the right to temporarily suspend an employee pending the outcome of a thorough investigation.  And, if you determine wrong-doing or inappropriate conduct by an employee, you have the right to take disciplinary action up to and including termination.  But, if the alleged harassor is a gym client, your “control” over the situation necessarily involves the client’s membership, and your ability (hopefully per the terms of your membership agreement) to suspend the membership or revoke it altogether.  The worst thing you can do when faced with a complaint of sexual harassment is to do nothing.  Again, a policy against sexual harassment, uniform enforcement of that policy, a fair investigation process, and a decisive remedy to end alleged harassment are all key components in derailing a potential sexual harassment suit. 

Jonathan M. Hill is the Chief Legal Office for Gym HQ, LLC, a company providing back-office services to fitness industry clients, and he is the Managing Partner of the Hill Law Group, LLC, a firm specializing in the representation of health clubs, fitness studios and personal training companies.  Jonathan can be reached at jhill@hill-law-group.com.