ALEXANDRIA, Va. — The start of a new year affords many opportunities for businesses, among them the acquisition of new customers.
At the heart of these partnerships lies a document outlining the responsibilities that both parties must adhere to—a contract.
The Textile Rental Services Association (TRSA) explored this topic in relation to the textile rental services industry in a recent webinar titled What’s New in Customer Contracts for Textile Services Companies, which featured Steven John Fellman, member of TRSA’s general counsel and attorney with GKG Law.
CONTRACT BASICS
Speaking in general terms, Fellman defined contracts as a written document describing the agreements that both parties enter into, and should explain to the customer what is expected from them, and what they can expect from the business.
“The responsibilities of each [party] should be clearly laid out in the contract and it should be signed and dated by authorized representatives of the parties to the contract,” he says.
So how does this translate to the textile services industry?
“You’re going to be agreeing to purchase and install substantial inventory of uniforms and linen, and you need to be able to protect that investment,” says Fellman. “The only way [to] properly protect that investment is if you have a contract, and the contract is one that can be enforced by a court.”
Being straightforward in defining a contract’s terms and agreements is crucial, according to Fellman, who stresses that if the contract is not enforceable in court, it “really isn’t worth anything.”
CONTRACT DISPUTES
Not every partnership that a customer and a business enters into will be “smooth sailing.” Somewhere along the way, a customer may complain about various aspects of the service, among them its price.
“Once a consumer believes that they can buy the same service at a cheaper price, the customer is going to look for a way to go with the competitor, provided that the customer isn’t really happy with your services,” says Fellman.
In other cases, according to Fellman, it could be about the quality of the service itself.
“There are many cases where the customer is really not getting the service to which he or she is entitled. If the customer is not getting the service, the customer will look at ways to see how they can get out of that contract.”
In cases of dispute, Fellman explains, “The judge assigned to look at that contract reads the contract and asks himself, ‘What are the responsibilities of the parties, and is the contract reasonable?’ You may say that that’s not what the judge is supposed to do [but] the judge is supposed to apply the law.”
“The judge will look to be fair and will try to settle disputes on a basis of what’s fair for everybody, what’s the best thing,” he adds. “In many cases, what’s a middle ground that’s reasonable?”
CURBING CUSTOMER DISPUTES THROUGH CONTRACT TERMS
Though he advised that laws can vary from state to state, there are various contract terms and clauses that a textile services provider can add when drafting a contract for a prospective customer to curb contract disputes.
Among them, a notice of breach requirement with an opportunity to correct a problem.
“Under this type of clause, the contract provides that if the customer feels that your service is not what it should be, or your delivery is not according to the schedule that’s necessary, the customer has to notify you of the problem,” says Fellman. “Then, you have a certain amount of time to correct it.”
If the clause is present in the contract, Fellman explains, the judge will ask if the customer has ever notified the operator in writing regarding their dissatisfaction with the service.
“If the customer does not notify you, then the judge will very well hold that the customer had an obligation to notify you.”
One other clause highlighted was in regards to an operation’s pricing and delivery updates, saying that operators should have the right to be able to increase service price periodically.
“If you don’t provide that right in your contract, then the price that’s set in your contract is the price that’s going to be there the entire term of the contract,” Fellman says. “There have been some states where law says if you increase your prices, you have to provide notice to the customer, and then the customer has an opportunity to object. If the customer objects to the price increase, then you have to either keep the price where it is, or decide you have the right to cancel the contract.”
In relation to pricing, he also spoke about surcharges. “If you have pricing terms such as energy surcharges, or surcharges relating to environmental matters, you have to be sure that those charges are based on energy usage or environmental cause.”
One other aspect Fellman touched on was the importance of keeping a contract up to date.
“In this respect, we recommend you have all your contracts that are basically one-year contracts re-signed at least every three years,” he says. “Generally, the court likes to see a fairly recent document.”
In terms of a contract’s duration, some operators and customers may enter into an automatic renewal, or an “evergreen” contract, which Fellman says operators should be mindful of.
“Some states now have prohibited evergreen clauses [which is] basically an automatic renewal without any notice, and it goes on forever,” he says. “Courts have reasoned that that’s unfair. Some courts have provided that before an evergreen clause goes into effect, you have to notify the customer a certain amount of times to object.”
Check back Thursday for the conclusion!
Have a question or comment? E-mail our editor Matt Poe at [email protected].