LAS VEGAS — What does a laundry and linen service company want a contract to accomplish?
Steve Fellman, principal in the Washington, D.C., law firm GKG Law, and general counsel for TRSA, the association for the linen, uniform and facility services industry, says a contract should accomplish two things: Create a relationship with the customer and have the ability to be enforced in court.
“We want a relationship with our customers that is a meaningful relationship that protects our investment and allows us to perform a service and have a happy customer,” he says. “Also, we need a document that when it’s presented to a judge, the judge will look at it and say, ‘This is reasonable, this makes sense, and this is something that I feel fair in ruling on behalf of the company.’”
What good is a contract? What should be in a contract? And what makes sense: How can a textile services business sell it to a judge and sell it to the customer? Fellman shared some of his expertise on contracts at the Clean Show during a session called Customer Contracts: The Good, The Bad and The Ugly.
Obviously, a contract is an important document. The customer is agreeing to purchase and install a substantial inventory of uniforms or linens, and the business needs to protect the investment it has made, Fellman says. In order to properly service the account, the customer needs to fully understand what an operation expects from the customer and what the customer can expect from the operation.
“It needs to be a true meeting of the minds, and it should be written in a document,” he says. “In the worst-case scenario, you need to sue your customer, your contract is the document you’re going to present to the court as a basis for your lawsuit. You have to look at your contract and say is this something my lawyer can present to the court and the judge will say, ‘Yes, that’s a fair, reasonable document.’”
Today, the “document” in question may not be a piece of paper. It may be an online contract that is electronically signed.
“There may be a contract document and they don’t sign it,” says Fellman. “They look at it and they check here that they’ve read this. Did they read it? What’s your experience with online purchases? No one reads it. They just check. Is that legal? In most cases, it is now. But is it enforceable? That brings us to who is the judge, what is that judge going to do?
“All these things are things that you’re going to have to consider and as you move forward, you’re going to have to look at the laws of the various states, what do they say with regards to electronic documents. We’re moving into an electronic age.”
Using contract terms is a way of lessening the customer’s chance to get out of a contract on an unreasonable basis, Fellman says. Clauses he says to consider:
- Notice of breach requirement. That means if the customer feels there’s been a breach, it has to notify the laundry and give a reasonable opportunity to correct.
- Payment for lost goods.
- Buyback or liquidated damages.
- Responsibility. Fellman advises to write into the contract that if there is a catastrophic event, the laundry is not responsible. It’s not responsible for hazardous waste, if the customer provides goods that are soiled with it. Make no representation for flammability of garments.
- Reasonable delivery schedule; make sure that’s defined.
- Pricing and delivery updates.
- Choice of law. Where will the contract be enforced?
- Arbitration, if desired.
- Reasonable automatic renewals vs. evergreens. Evergreen contracts keep renewing. A reasonable automatic renewal, in Fellman’s view, is preferable because that forces the laundry, eventually, to get a new contract. An evergreen contract, the older it becomes, the more difficult it becomes to enforce. Some states don’t allow evergreen clauses.
- Automatic surcharge for rising costs (but Fellman says a company has to prove that a rise has occurred).
- Reasonable liquidated damages for a five-year contract.
- Standards of service.
Another important factor to consider, according to Fellman, is who is negotiating the agreements? The route salesperson? A professional sales team?
“If you have a program and explain the program to the customer, the customer understands all the things that go into that program,” he says. “Then you have a better chance of letting the customer understand what its responsibilities are and what you’re actually agreeing to do. You’re doing a lot more than providing six sheets every other day.”
Fellman stresses that laundry operators need to keep detailed records. That includes complaints received regarding service and delivery, and how the company responded. Also, note misuse of linens by the customer and the customer’s demand for extras.
“Explain that you’re selling a system, not just a pickup and delivery service,” he says. “Communicate and give the customer an ‘up the command ladder’ option for complaint resolution. And I think the customer is happy if they understand that if they do have a problem, there’s someone they can talk to other than the driver.”
In the end, a contract should help to avoid litigation.
“Litigation is very, very expensive,” Fellman warns. “The only real winners in litigation are the lawyers. Litigation often takes years to resolve and you end up, in today’s world with electronic discovery, you have to turn over all of your computers. It’s something to be avoided at any cost. Even if you arbitrate, it takes time and it takes money.”
The best thing to do is to develop contracts in a form that are reasonable and enforceable, he says. Laundry managers should teach employees how to use contracts for the company’s benefit and avoid cases that involve potential antitrust issues and situations where there’s inducement of breach of contract.
“I think if you follow those steps, you’re way ahead of the game and you have a good basis for protecting your investment,” Fellman says.
Basically, he says a laundry needs to develop a system for identifying problems before the customer becomes so unhappy that it wants to quit. If a legitimate problem surfaces, the company needs to be willing to resolve that problem with the customer and make sure other customers don’t have that same problem.
“You want to create a culture where the customers know they can get their concerns addressed promptly and fairly,” Fellman says. “And remember the old saying, ‘An ounce of prevention is worth a pound of cure.’”
This article is for informational purposes only and should not be construed as legal advice. Laundry operators should consult their attorney of choice when creating customer contracts.