This is two brain radio. I'm Mike warden . I'm asking you to please hit subscribe wherever you're watching or listing my guest today, not outta the Matthew Becker. He is the owner of Jim lawyers.com . He's also the man on the scene in industrial athletics in Pittsburgh. He's gonna help you make sure your di Jim contracts don't get you into trouble with the law, because there are some things you might not have thought of.
So Matthew, the membership contract says you're gonna deliver to me a fatten cow on the first day of each month until the end of time, or I can take your car. So sign it, Matt, and let's start working out.
Oh , hold on Mike. I don't know if I like that term.
No , just sign it, Matt. I mean, you don't need a, you don't need a lawyer review this thing.
Does this comply with the law?
Well, how would you know?
Well, because I'm an attorney.
Ah okay . Well, no, one's actually ever read my membership contracts and come to think of it, Matt. I haven't read it either since I downloaded it and find and replaced my gym into the , you know, name into place on this thing I got from the internet. So you're saying there are some rules about these things.
Oh man, that would only be not so funny if it wasn't true, Michael, I
Didn't , I didn't did I really do that? I dunno . Let's sort it out . So Matthew bring us up to speed on contracts . I'm guessing it's a little bit more difficult than find your replace from the internet .
It is so
It out for
Us. I wanted to get on today , uh, to talk about it because , um, one of the services that we offer, well, it there's sort of twofold services. One is, is we review membership contracts. And the other one is that we, we provide form contracts, customized to individual members in their individual or gym owners , uh, in their, in their states.
And the more and more that we're seeing contracts that we're reviewing, we're noticing that almost all of them , uh, failed to comply with their individual state laws , uh, on, on a number of different issues. And this is also assuming that they have a written contract to begin with.
So I'm gonna ask you this right off the, the top talk. What are the , what kinda penalties are people looking at for bad contracts?
Oh man, I was gonna hit that at the end, after I scared you through everything else.
So just gimme a teaser, give me a short teaser then just so people are, are scared into listening. Yeah .
Could be anywhere from large civil penalties, meaning you gotta pay a whole bunch of money or some states even make it criminal penalties
Seriously serious. Okay . So let's , we'll , we'll leave that end , but just guys you're on the hook for money or other stuff . Talk to me about the issues let's let's solve some problems. Okay .
So first and foremost there's question as to whether or not you need to have a written contract. I, before I started doing Jim lawyers kind of assumed that every gym , these days has a written contract , uh, but turns out that they don't and that's problem . Number one , uh, because almost every state that we've reviewed minus one, maybe two, I'm still in the middle of my search, but one only one state thus far does not require some sort of written contract for prepaid memberships.
Okay . Is it Florida?
No, it's not actually Florida's yeah. It's actually it's Alaska. Alaska's the only state thus far I've found that does not have these statutes. Um , but All these other states say that you have to have a membership contract. If you are taking prepayments for entertainment. And then it's like, well, what kind of entertainment is this turns out that all of the gyms that we run, whether they're CrossFit, gyms, or power lifting gyms or Olympic lifting or yoga, Pilates or spin, it doesn't matter.
These are all considered health clubs or health spas or health studios that are defined as requiring under the law , uh, for your state to have a written contract. If you are taking recurring sometimes recurring, oftentimes pre-payments so what does that mean? All right , Mike, you come into my gym and I say, okay, Mike, that's going to be $150 a month and we take payment on the first of every month. Right? So you're gonna pay me on September
One . First one . I'm gonna pay you 2 0 5 . I'm paying you 2 0 5 , cause I know you're worth it. So I'm up in your AR continue .
So you're gonna pay me on September one for , to be able to come to the gym through eptember right. I'm not charging you on September one for the gym , for what you used in August. I'm providing you for what you're going to be using in September. So it's a prepaid contract. We may also see these for things like gyms that sell three month contracts, six month contracts, year long contracts. Okay. These are all considered prepaid contracts. Okay .
So if your state has some variation of a health club act, chances are it's gonna require you because your gym is defined under the statute to have a written contract. If you are charging members up front for services that they're then going to use, okay , or this could even go in for a personal training studio, let's say I sell you 12 personal training sessions up front for $60 a session. I charge you a lump sum of $720. And then we use all those 12 sessions, right? That's a prepaid contract.
So I'm , I'm gonna ask you the, the devil's advocate question here, because I know this is a bad business practice that I wouldn't actually do. Mm-hmm because I know I would lose money, but let's say I build at the end of the month for services rendered in the preceding 30 days or whatever, would that get me off the hook on some of this stuff?
Some of it, it would okay . Sometimes. Yes. Um, but yeah, I don't, I mean, I think the problem that you're gonna run into there is the person's just gonna leave and be like, I'm not paying . Um , but,
And that's exactly what I'm getting at . So like , you can do that, but man , you are gonna lose some money at times. I've definitely done that. And I've made that mistake.
The other problem that you run into there is if you're taking automatic repayments, other statu or other state statutes are still gonna require you to have this written agreement, even if, because you're taking these automatic repayments.
Um, and you know, just as a general practice note , uh, we always are taking automatic repayments that they have at least a membership contract that says they're allowed to take automatic payments from this person's, you know, checking account or debit card or credit card.
Okay . Okay . So it's likely that you need some sort of agreement. There might be some ways to weasel out of it, but they probably are gonna cost you some lost revenue. So maybe, you know, look at the agreement. So let's get back into it. But I wanted to ask that question before we got too far.
All good. All good. All right . So we have to have a written membership contract. Cool. We're all there. We're putting it in writing. So now what needs to be in writing? So that's where we start to, to look into these written contracts and we start to see massive legal holes. So first let's cover paid in full contracts or Piff contracts. Okay . Um, so , uh, you're looking to open up a gym and you're trying to get people to come in and pre-commit to your gym.
Like, and , and this is not, I don't wanna say this as , as a practice of two brain business, this is not, I'm just comparing it to the founder's program, right? That, that two brain suggests as you get people to try to commit before the gym opens. Now the big caveat to that is two brain does not suggest you take money from these individuals before your gym opens. And this is why, right?
Because your state, if they have a , a act like this or laws against this are going to say that if you take money up front and you are not open, yet you are now required legally to be open. Uh , we've seen it as short as 60 days to as long as 180 days from the day that you take money from the member. Okay . And that creates problems.
Okay . So what Matt's referring to is the founders club, which is a , a two brain system that allows Jims to open with members on day one. So you've got revenue and it's a whole campaign that allows you to recruit and, you know, acquire members before you open. And we've seen gyms open, profitable with like 80 members on day one. It's incredible. And so we're gonna , that system does exist for true billion clients.
However, if you're taking money in advance and I I'm gonna guess Matt, that this is something weird that probably happened back in the day where some gym was like, oh, pay me in full before we opened mm-hmm , you know, and you collect all this money and then, you know , puff was smoke in the night, the gym doesn't exist. Never existed, never opened. I'm guessing that kind of thing happened . These laws probably sprung up to prevent that .
That's exactly right . That's exactly right . So don't take money. You can't under, under your law under your statute , unless, you know, you're gonna be opening. And you know, these, these COVID days, we don't know that anything is ever going to open on the time in which we try to get that open .
Right . So you could do it if you were, if you were certain, like if you, if you knew your state statutes and you knew that like, so you had, you know , 80 days to open from the time you take money and you knew that you were gonna open in 30 days, no matter what, could you launch that ship?
Yes, you could. Yes,
You could. Okay . There you go. Mm-hmm but you have to know your statutes and you have to know your timelines or you're gonna be at risk.
Yeah , that's exactly right. The other issue that we run into with paid in full contracts is once you're open, if you're selling things like six month or year long contracts, sometimes even, you know, up to two year contracts and you're requiring somebody to commit for that amount of time, that's one issue or you're charging them all up front for that entire year. That's another issue. You know, you might say something like, well, it's $200. If you pay monthly, it's $175.
If you pay us in advance for six months, it's $150. If you pay us in advance for a year, that's that used to be a common thing. We encounter it every now and again, still, but that's a problem with those paid in full lump sum contracts. Sometimes they're gonna be violating your state laws.
Really? Why is that? How , what happens there?
Well, same thing that you just said with, with the instance of, of taking money before you open up your gym, this is the same thing where if I now charge you for a year and let's say you pay me $1,500 so that you come for the next year and six months into it, my gym closes and I'm out that there's a big problem
There. Now, is this, is this something that came up because the fitness industry has for years been populated by sketchy individuals? Or is this something that's common in any kind of service industry that has contracts and paid in fulls ?
Um, usually the state statute is gonna be written broadly enough to, in , to , to be any sort of what they call entertainment. Okay. Health clubs just often get lumped in there're into entertainment. Um, I know years ago the , the Pennsylvania one came about , um, because of like, do you remember valleys ? Does that name remember ? Does that ring about ?
Yeah , I know . Yep .
So valleys would come in and they would open up all these different gyms, these big gyms, or they would, they would tell people that they were opening. They would, pre-sell all this stuff they'd lock you into your long contract. And then, because they weren't , they were so big and it was so hard to get profitable.
They would all close and they would run and , and they would skip out with all these people's money so that I know that's why Pennsylvania started to enact it , but states have very similar statutes.
Yeah. So what, this is, is a , a layer of consumer protection that protects, you know, the Jim patrons, just as it protects laser tag, people who prepay their sessions or stuff like that. Right.
Yep . Yep .
OK . So you gotta cautious with that one . OK . Yeah .
All right . So that's paid in full stuff . The next element is cancellation and refund policies. And we love to say, you know , you get 30 days notice of cancellation and we don't issue refunds. And that's cool, except there's likely if your state statute says, so there's going to be individual instances that your state says you must provide the option to cancel and the potential of a probated refund. If one of these circumstances exists. Okay . And it's not enough. Sorry, Mike, go ahead.
No, no, I'm , I'm , I'm listening to that and thinking at the same time, cuz I've got an example. I think I'm gonna ask about after this, go ahead .
It's not enough just to say, you know , let , let's use an example. Okay . A common example is if the member, if the member is going to move and every state has different mileage, but let's just say it's 10 miles from the current location and any other location offering similar services, right? If the member moves 10 miles away, you have to provide them an opportunity to cancel their membership and receive a pro rated refund. Okay . And some gyms are gonna go well, okay.
If a member comes to me and says, they're going to move, then that's not a problem. I'll just agree to allow them outta their contract. State statutes are gonna say, no, that's not enough. You actually have to have that language in your membership contract that puts the member on notice that they have the ability to do
So you need, you need to have this stuff in your contract and you probably in your state, the average gym owner doesn't even have a clue about this stuff .
That's right . Mm-hmm that's
Right . It legally needs to be in your contract on pain of civil litigation.
That's other , the other aspect of these cancellations is what's called the buyer's remorse clause. The buyers remorse clause . Yeah. I know. I don't like that either. Nobody needs to be remorseful because they come in and buy a membership at my gym. Right. They should
Be , get healthy choice . That's right . Should celebrating and like announcing it on social media and tagging all your friends and telling them to come that's
But
It happens . So what do we do about it?
The different states again , are gonna provide different timelines and they'll range usually anywhere between three days and seven days. And so the state statute will say that if you sell one of these membership contracts, you have to provide an automatic right. To cancel and refund any money that has, has been paid. If the buyer decides again, within three days, within seven days, from the date of signing to contract that they no longer wanna participate.
The crux of it here is that not only does this language need to be in your membership contract, but most states say it has to be verbatim language. And so that means it's not enough just for me to go typing up some language and stick it in my membership contract that says, you know, like a one sentence, if you decide you don't wanna be a member here after three days, you can get a refund. It's that, that you can't do that.
There's gonna be a multi-paragraph section within your statute that you have to literally copy and paste into your membership contract.
Wow. Okay . So, you know, business owners there , the upshot of this is that the two brain principles of, you know, very close contact integration from, you know, when someone signs up getting high touch points , getting them integrated into your gym, doing all these things, to ensure that they don't have buyer's remorse is even more important in light of what Matt's telling you. Right ?
So when you get a person to sign on that dotted line and you just assume, ah , they're coming to the gym and it's great, that might not happen. And you might not be, we might be on the hook on that, especially with regard to this language, however, you can minimize the risk here by having the best intake program of all time . So not only do they, you know, they don't even consider buyer's remorse because they see so much value.
You're talking to them , you're integrating them , you're answering their questions. Your CSM has sent them a welcome package. You've booked their first session. They're in, they're happy. You've checked in with them. All those things are the make buyer's remorse, not a thing. So you do need to have this in your contracts, but you can prevent buyer's remorse.
Okay . And then different states we've seen have different layers than on top of their membership contracts as well. And then just cover a couple of them. Um , because they're a little less common that the things that we've talked to up to this point again, we've seen in , in , in every state except one , uh, and that's Alaska.
Okay. Every other state has some variation of the language that we've been talking about up to this point, N O other states we've seen , um, have more individualized things. Okay . So somewhere like Texas , uh, requires gyms with, with little exception, requires gyms to file. What's called a surity bond with the state. Okay .
And that is basically money that you have to pay the state as security even know they call it surity for security in the event that somebody decides to Sue your gym and you can't cover the lawsuit.
OK . So how much is that?
It, the , the it's vague. So the , the state statute will often say , uh, it's somewhere can range somewhere between 10,020 $5,000 , depending on the size of your gym and the amount of members that you have. Uh , and now what you can do is you can go to a 30 company and you can pay a percentage of that. And the cert company will post that for you . Okay . But most gyms don't have their cert bonds posted.
Wow. Okay . I didn't even, I've never heard of that for a Jim . Uh, so you would actually, in a place like Texas, you would actually have to build into your business plan for startup this bond that you have to just give to the state and they hold it. I'm sure . I am assuming they give you maybe some pitance of interest on it over the course of the term or something, but they just hold your money,
Just hold it and you can get it back and you can apply for exceptions. Um, but the exceptions are state specific and they're very limited. Um, so
Something no one knows about,
Or, you know, if we look at somewhere like Georgia, Georgia requires you to actually have your membership contract approved by the state's consumer protection agency else . No, no . We were on the phone with, we were on the phone with the Georgia consumer protection agency a couple weeks ago. And , and he was very happy that we are doing what we are doing because nobody files these things and they have to hunt him down. And then again, it's a , it's a violation of the law.
The contract is then void. If it hasn't been approved by the consumer protection agency in Georgia.
Wow. You know, and I'm gonna guess my fat and calf clause, isn't gonna make it past the Georgia approval board. OK . Uh , that that's, that is really interesting. And that's a new level of like, not a new level, but that's a level of bureaucracy that I don't know that a lot of gym owners know about , uh, off the top of your head. You've do you have any idea how long an approval process like that would take , like , is it gonna be like you months , two months, two weeks .
Oh ,
Okay . That's good . That's
The , that we're trying to do right now is to work with the local consumer protection agencies of each state and an effort to say, you know, the , these are what your contract there , this, and to draft for gyms, can you give us pre-approval on a lot of this language so that we can help gym owners get these things drafted without having to go back and forth and get every , each one approved all the time.
Wow. You know, and up in Canada here we can, we get the federal go to government to issue passports in a timely manner. So I , you Georgia's got it figured out if they can turn that around in a day .
yeah. Yeah. Uh , and then, you know, final layer on , on this that we've seen for individual states as , um, you know , like somewhere like Ohio, not only does it require that, that those paragraphs that I said for the buyers or Morse clauses, but then it also requires a one page form notice of cancellation that you have to hand to the member that says here's your three day right. To cancel.
And if you're going to do so, here's the form that you have to fill out and provide back to me that says that you want to cancel,
You know, and I get what they're doing there, protecting consumers, but even the inclusion of that form kind of gets them thinking. It kind sucks. Yeah .
I know. I know. And , uh, so
Your onboarding process becomes even more important.
Yeah. I I've , I've had a few very uncomfortable conversation with Ohio gym owners about, I'm just providing you what , what you have to have. I understand why you don't want to hand it to a gym member , uh, but loss that you have to have it.
Okay . So here , here's my
Question. Conversation.
I'm going to step out of my , uh, my role here and into a ignorant gym owner, which is not too far from what the actual I'm, I'm a gym owner in Idaho. I don't know where to start. I don't like digging up statutes and laws and contract issues. I don't have a clue what to do about this stuff, but I would like to cover my bases. What do I do
On me? go onto our website. Uh , so this, this is part of, of , of the services that we provide , um, is, is we like to say that we help gem owners fill their legal holes. Uh , and this is a big one, right? And whether or not you have a membership contract and then whether or not your membership contract even has all of this information in it, we're gonna help you plug those holes. We can review your current contract and tell you what you're missing.
Or most gym owners just ask us to completely draft a new form for them. And we're happy to do that. So we just make sure that it complies. We , we do the research, we make sure it complies with your state law. We have to submit it for approval. We do that. And what we give you back is it's an editable form that you can edit if you want, but you can also just turn key , use it right into your gym.
So guys, what, what Matt's selling here. I mean, you can do this by yourself. You can, you know, read the rules and you can go through the process and do all the stuff. It takes time. What's, Matt's offering his time and accuracy. He's gonna save you the time and he's gonna make sure that it's done, right. If you need help with this, Jim lawyers.com is the place, Matt, what's your email address?
Matt, Jim lawyers.com .
Is this something that's built into your service package or is this something a carte that people do? And if so , uh, what are , what kind of rate would something like this be ? And you can ballpark cause there's 50 different states . I'm sure, but just curious.
both. Um, we try to, we , we flat fee all of this. All , all of our services are flat feed . Um , so you know, what that means is, you know , if you call me up and you need a , a contract written, whether it takes me two hours or whether it takes me one hour, whether it takes me five hours, it doesn't matter. I'm gonna quote you the price and that's all you're gonna pay for it. Um, we try to batch some of this stuff together.
Like we have a , a start starting gym package that takes you everywhere from LLC to opening with your various legal contracts that you need to run your gym. Uh , but we can one off , you know , we can , we can allocate this stuff and it's gonna rain range you anywhere from , uh, you know, some of the contracts that we do can be as low as $275. Other agreements that we do can be upwards of about $700, depending on the complexity of the contract ,
Jim owners. I am one of you. I understand how this works. I probably could muddle through this process in the state that I'm operating in. However, the time that it would take me to do it would be quite a bit, if you're on the fence about something like that, do the math, figure out what your hourly rate is. And if it's like, you know, talk to Matt and if you can save that time, Hey Matt, to do it and then go sell some gym memberships, in fact, sell your founder's club. You can do thing .
Right, right. Cause you'll do it properly this time . And you , you won't get the government cracking down on you. So now we hinted at it. Talk to me about some penalties here. Let's scare people straight as we , uh, that's right . As are the end of the show here,
We have a fear based business, right?
Fear based business. I'm kidding . It'll die if you don't lift that weight .
but there is some potential here , uh, for, you know, the , the, when , when you're factoring in the cost of making sure that it is done correctly , um, because let's go minimum, you have a contract that doesn't comply with your state laws and somebody challenges it. Okay . We would hear, let's say they pay you for six months, but they don't show up. Okay , common issue. They've now paid you $1,200 and they're gonna turn around and say, I never used your services. I want my $1,200 back.
And you say, no, you signed a membership contract and you agreed that it would come outta your pay your , your , your pay or your bank account every month. And you've paid us for six months. It's not our problem. You didn't come in and use our membership contract and they get mad and they Sue you . Right ? Cause they want their $1,200 back. Well, first and it's most basic form.
If your membership contract does not comply with your state laws, then the contract is void and you're at least going to owe that person back their $1,200 . Okay . Now maybe , but maybe when the consumer protection stuff gets involved here, the they allow for what's called trouble damages. Plus attorney's fees. Trouble damages is a fancy lawyer way of saying three times or triple the damages.
So now that $1,200 membership lawsuit is now worth 3,600 plus whatever this person paid an attorney like myself for a thousand bucks to show up in court, you're now gonna be on the hook for that as well. So this $1,200 , you know, fee that you're fighting over , uh, now all of a sudden can come upwards of $5,000 , right ? That you ,
So you just , you said something that really just made me think about, about the whole, this whole process and its this, there are access only gym owners in the two bread family. And that access only gyms. If you're not selling coaching, they're a viable thing, right? They were just price lower cuz as valuable as a coaching gym. But if you're running an access only gym we know from industry data already that lots of people sign up in January and they leave by February, March. They're gone.
You would absolutely, in those situations beyond any else, you would need a contract there because you know, they might come back at you. Right? So if you're look and this is probably where that stuff comes from because it's these access only gyms where someone pays a year in advance never comes or the gym goes outta business. And you know, that's a really interesting situation, which I'm sure is mitigated in a coaching situation. You still need the contract and you need to follow it.
But that is very important. I'm guessing for gyms that are not selling coaching and are selling access,
Right . It's hard , it's hard . It's harder to come buy this stuff in a coaching gym , especially under two brain model . If you have a client success manager, that's reaching out to these clients at least every three months, you know, they're , mm-hmm , , it's gonna be hard for them to fall under the radar. Um, but yeah. And access only gyms. You're not contacting all of those members all of the time talking to them about their goals and, and everything else.
So yeah, they're gonna fall off the radar real fast. They're not gonna show up and then maybe we're gonna want their money back.
Yep . So that is a big one. Guys, if you were thinking about running that kinda gym or if you were running that kinda gym and do not have this stuff in place, talk to Matt soon.
Yeah . The worst we've ever seen is violation of a state statute. And I cannot right off the top of my head. Remember which state it was , um, said that it's a third degree criminal felony. If your membership contract violates state law,
What, so what , what level is third degree criminal felony? What is that?
Uh, so a felony is the top level of criminal. Um, I'm sure it comes with, I mean it would come with, with a potential prison sentence, but most states aren't gonna throw some first time offender into prison. Um, but you know, a felony is the top level of criminal offense. It's above a misdemeanor. A third degree is gonna be your lowest level of felony. Uh , but it is something that you will never be able to get off of your record.
Yeah. So you're you had a bad gym contract and now you're a convicted felon.
Exactly right.
That sucks.
Yep .
So that sounds to me like it's worth like 500 bucks to get that one sorted out
and lemme throw one last point in your mic . So if you're listening to all of this, I mean, first off now you have the knowledge. So you can't make this argument, but even if you wanna plead ignorance and you go into court and you say, sorry, judge, I didn't know. Right? Ignorance of the law is never a defense. You're a gym owner. You are expected to know this stuff.
And if you don't know this stuff, you're expected to find somebody like us who knows this stuff so that you actually can protect yourself. Because if you get sued or you get charged and you go into court and say, I didn't know , it's not gonna work.
Okay . So that guys , if you have a contract, get it reviewed either. Do it yourself, put in that leg work , spend the time, which will cost you money or talk to Matt, spend the money and get it done. Matthew, Jim lawyers.com is the best place. I understand that they can , uh, email you or even text message. You am I correct?
Yep . Yep . My cell phone's right there on the website.
Thank you so much for pointing this one out. I will not hold you to the fat and calf that I demanded at the beginning of the show. So you're off the hook on that.
Thanks Mike. I don't think I signed it anyway.
yeah , you were really, you were , you had buyer's remorse there. As soon as I brought that up, that was Jim lawyer , Matthew Becker on two brain radio. Thank you so much for listening on your way out. Please hit subscribe wherever you're watching or listening with my thanks now here's Chris Cooper with a final message.
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