Fellman – Seeking Fair and Enforceable Contracts
Attorney and longtime TRSA General Counsel Steve Fellman gave an overflow audience of more than 150 people an overview of contract law and antitrust compliance issues during a June 5 seminar sponsored by TRSA on the opening day of the Clean Show.
The free session for Clean Show attendees was held in room N 107-108, a classroom off the floor of the Clean Show at the Las Vegas Convention Center.
Fellman described the essence of contracts between commercial laundry operators and customers as a “meeting of the minds” as to what the expectations are for both parties to the agreement. The contract should set terms for the type of service provided for a set period in plain language that both sides agree to and can follow. Otherwise, the linen, uniform or facility services provider may find that if the customer violates the terms of the contract and the matter ends up in court, a judge may determine that the contract is unreasonable and, therefore, unenforceable.
For example, if a contract includes the payment of “liquidated damages” to the laundry for products such as mats or linens in an amount that a judge considers unreasonable, he could rule in favor of the customer and nullify the contact. “If that’s the situation, what’s the good of having a contract?” Fellman asked rhetorically.
Laundries can avoid these problems with clear language and reasonable terms. Contracts should be concise, current and signed by the current customer. Problems can arise if the contract originates with the owner of one business that is then sold to another party. Unless a new contract is drafted, a judge may consider the existing agreement unenforceable. For example, if a laundry had a contract to provide linens to an Italian restaurant and that establishment changed hands to a Chinese restaurant, a judge would likely rule would that contract wasn’t enforceable on the successor of the business.
A common hazard facing laundry operators with contracted customers is when a rival launderer encourages the customer to break the current contract so that the customer switches to the second launderer. While inducing such a breach of contract can give the first launderer a reason to sue the rival launderer for damages, such cases aren’t always clear cut, Fellman said. If a breach of contract case ends up in court, the customer may claim that the launderer’s service or quality were poor, or that he raised prices or added charges beyond what was called for in the contract. If these facts favor the customer, the judge may rule against the launderer. Again, clear contract language and compliance the agreement by both sides will increase the odds that the contract is legally enforceable. “What we want a contract to do for us as textile services companies, we want two things,” Fellman said. “We want first to have a relationship between our customers that’s a meaningful relationship that protects our investment and allows us to perform a service and have a happy customer. Second, we want a document that we can take into court and enforce.”
Fellman noted that it’s not improper for a competing laundry to seek new business from a customer that has a contract with another laundry – provided that he doesn’t encourage that customer to violate the contract. Doing the latter is considered breach of contract, and a launderer can find their business is liable for damages in such cases.
While it’s illegal to induce a customer to break a contract, any attempt by laundries to avoid vigorously competing for business can lead to a different kind of legal issue – a violation of anti-trust laws. Fellman pointed out that any attempt by laundries to set aside territory, fix prices between competing firms, or similar actions can lead to jail terms for laundry operators. One way to defend against this illegal activity is to have an anti-trust compliance policy on file with the company that explicitly states that no employee is permitted to engage in any practice that restricts competition. Fellman suggested that companies work with their counsel or TRSA to put together such a compliance document. Once it’s finalized, then they should have every employee sign the document. Taking this action can provide affirmative evidence if law enforcement authorities take legal action against an employer on charges of violating anti-trust rules.