Legal Issues Every Fitness Business Should Know About

Legal Issues Every Fitness Business Should Know About Ron Weikers, Esq. CEO, YogaBalance Manchester, NH YogaBalance.info [email protected] Not...
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Legal Issues Every Fitness Business Should Know About Ron Weikers, Esq. CEO, YogaBalance Manchester, NH YogaBalance.info [email protected] Not legal advice. Consult with an attorney. Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Weikers: Fitness Business Legal Issues

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Legal Issues Every Fitness Business Should Know About 1. 2. 3. 4. 5. 6.

Contracts Checkup Insurance Checkup Legal Compliance Expanding Your Business Selling Your Business Protecting Your Intellectual Property

1. Contracts Checkup a) b) c) d) e) f) g) h)

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

1. Contracts Checkup

1. Contracts Checkup

a) Client Waiver (see attachment)

a) Client Waiver (see attachment)

1. What is Yoga? 2. Assumption and Reduction of Risk 3. Consult Physician / Physically Fit 4. Student Solely Responsible

5. Waiver of Right to Sue 6. Proper Conduct 7. No Physical Assists • Voluntarily Execution • Signature Block

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

1. Contracts Checkup b) Health Club Membership Agreement • Add pricing and other terms • Add right to cancel notice – State-specific – 12-month membership: 3- to 45-day w/refund

• Other cancellation rights, state-specific: – – – – –

General Client Waiver Health Club Membership Agreement Independent Contractor: 1099 Instructors Employment Agreement: W-2s Background Check Release Providers Using Your Space Business Partners Lease

Health club moves beyond X miles Member moves/changes job beyond X miles Member disability/death False advertising/statement Location closes/substantial change in operation

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Not legal advice. Consult with an attorney.

5.

In consideration for your participation in any class, workshop and/or clinic, and by signing this form, you, your heirs, your assigns and your legal representatives hereby forever release, waive, discharge, indemnify, hold harmless and covenant not to sue YogaBalance 1, LLC, and Namaste Holdings, LLC, and their owners, directors, officers, employees, agents, members, managers, instructors and representatives (collectively, “YogaBalance”) from all injuries, damages, losses, expenses, attorneys’ fees, settlements, liabilities, claims, suits and causes of action which may result therefrom, and which may affect you and/or YogaBalance.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

1. Contracts Checkup c) Independent Contractor: 1099 Instructors (see attachment) Identify Parties 1. Description of Services 2. Teaching Fees 3. Incentive Bonus 4. Term of Agreement 5. Termination of Agreement 6. Relationship of Parties 7. Right to Inspection

8. Restrictions 9. Waiver of Liability 10. Reasonable Care 11. Assignment 12. Partial Invalidity 13. Confidentiality 14. Entire Agreement Signature Block

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Weikers: Fitness Business Legal Issues

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1. Contracts Checkup

1. Contracts Checkup

c) Independent Contractor: 1099 Instructors (see attachment)

c) Independent Contractor: 1099 Instructors (see attachment)

8.

8.

Restrictions. In light of YogaBalance trade secrets and customer lists that will be disclosed to Contractor, Contractor shall not, during the term of this Agreement and for one (1) year thereafter, directly or indirectly: 8.1. Solicit or contract with any YogaBalance student for the purpose of providing any good, product or service that is unrelated to or does not involve YogaBalance; and/or 8.2. Provide Services at or on behalf of any health club, wellness center or Yoga studio other than YogaBalance within (X) miles of YogaBalance (“Facility”), provided, however, Contractor may provide private Services at a non-Facility company or for individuals, as long as the “YogaBalance” name is not associated with or used to solicit such lessons; and/or NOTE: 8.2 not enforceable in some states

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Restrictions (cont’d) 8.3.Solicit or contract with any YogaBalance student for the purpose of: (a) providing Services other than in conjunction with YogaBalance; or (b) the student’s enrollment in any classes at, or membership in, any Facility; and/or 8.4.Solicit or contract with any YogaBalance teacher for the purpose of providing Services to any person or Facility other than YogaBalance; and/or 8.5.Solicit or contract with any actual or potential YogaBalance corporate client or other off-site client for the purpose of providing Services.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

1. Contracts Checkup

1. Contracts Checkup

d) Employment Agreement: W-2s

e) Background Check Release Form: Employees and Contractors

Much larger contract than for contractors • “At Will” status • Specific duties • Restrictions • Confidentiality

• • •

Compensation, benefits Creative works belong to studio Legal boilerplate

Employment Manual: Even larger document Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

• Background checks required by some states, particularly if child care provided • Background checks required by insurers for abuse/molestation 3rd-party coverage • Federal Fair Credit Reporting Act limits – 7- to 10-year span consumer credit reports

• State law limits: – E.g., CA: 7-year span criminal backgrounds Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

1. Contracts Checkup

1. Contracts Checkup

f) Providers Using Your Space

g) Business Partners

• Massage / personal trainer • Talk to your insurer first! • Get a signed contract containing: – Rent or division of revenues – Maybe promise to pay for studio’s insurance premium increase – Indemnification of studio for 3rd-party suits – Warranty of reasonable care – Annual insurance certificate naming studio as additional insured Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Not legal advice. Consult with an attorney.

Financial Matters: • How much $ does each partner invest? • Additional capital contributions or loans? • How much profit does each get?

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Weikers: Fitness Business Legal Issues

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1. Contracts Checkup

1. Contracts Checkup

g) Business Partners

h) Lease

• Duties:



– Day-to-day management: Salary? – Big decisions? – Special projects: Fees? • Legal matters • Accounting & tax matters • Teacher training

• Fair dispute resolution mechanism • Good contracts help maintain friendships Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

h) Lease: After Taking Possession Promptly report problems: • Breach of contract • Implied warranties: Entire building, not studio Good repair Shelter, with working locks Heated in winter months Not infested with rodents, insects, mold, etc. Must stop other tenants from making too much noise, smoking or selling narcotics Undisturbed use of property

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

– Exclusivity!



Sign on behalf of LLC, and not personally

2. Insurance Checkup a) Commercial General Liability (“CGL”) insurance: 3rd party claims b) Property Insurance: 1st party (you) c) Worker’s Compensation

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

2. Insurance Checkup a) Commercial General Liability:

Be very specific Specify that they must meet code

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

1. Contracts Checkup



Rent and deposit Common area maintenance (“CAM”) Free months (?) Landlord Improvements (?) • •

– Anticipate anything that might reasonably arise

– – – – –

Negotiate: – – – –

3rd

Party

Covers: • Liability for “bodily injury” and “property damage” to a third party caused by an “occurrence” • Defense costs (i.e., attorneys’ fees) if you get sued, but insurer controls the defense Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Not legal advice. Consult with an attorney.

2. Insurance Checkup a) Commercial General Liability: 3rd Party

Excludes: • “Expected” or “intended” injury o Yoga adjustments = assault and battery (?) o Client waiver may get case dismissed. However, …

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Weikers: Fitness Business Legal Issues

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2. Insurance Checkup

2. Insurance Checkup a) Commercial General Liability:

3rd

Party

Also excludes: • Nutritional counseling • Communicable disease: mats and showers • Vitamins and supplements

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

a) Commercial General Liability: 3rd Party In case of injury: • Must provide notice to insurer of an “occurrence” • Perhaps create in advance a standardized “incident report”: o Sequence of events o Injured client’s statement(s) o Eyewitness observations Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

2. Insurance Checkup

2. Insurance Checkup

b) Property Insurance: 1st Party

c) Worker’s Compensation

• Required by landlord • Covers: o Damage to premises/building o Equipment o Furniture o Possibly lost income

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

• Covers wage replacement to injured employees • Required by state for employees o Also required for independent contractors in many states • About 2% of total payroll

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

3. Legal Compliance

3. Legal Compliance a) b) c) d)

Taxes Consumer Protection Health and Safety Licensing

a) Taxes

Withholding for employees: • Federal EFTPS Payment o o o o o

Quarterly or monthly if > $2,500 per qtr Payroll tax Social Security Medicare/Medicaid Federal unemployment

• State/Local: o Payroll o Unemployment Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Not legal advice. Consult with an attorney.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Weikers: Fitness Business Legal Issues

3. Legal Compliance

3. Legal Compliance

a) Taxes

a) Taxes

• Instructors contractors vs. employees? May result in back taxes, penalties and interest. • IRS test: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

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Worker told when and where to work Training given to worker Reimbursed expenses Worker’s investment in their own workplace May or may not work for others: FB page, website? Paid a wage or a fee: invoicing? Worker may profit or lose money Contract showing independent contractor Benefits given to worker Permanence versus specific project Work performed is key aspect of your business

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

• State contractor/employee tests: o Similar, often more condensed o More difficult to overcome state imposition of unemployment & payroll taxes

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

3. Legal Compliance

3. Legal Compliance

b) Consumer Protection

c) Health and Safety

Health Clubs: State-specific: • Must register with some states • Put pre-opening membership proceeds in escrow • Post surety bond to reimburse members if club shuts down: o Bond amount: ~ $50K to $350K bond o Premium: ~ 1% to 10% of bond amount

• Contractual cancellation notice: o Discussed in 1.b), above o Large type size/“conspicuous”

• Prohibitions: o Contracts > $X o Contracts > Y years Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

• Federal Americans with Disabilities Act: o Pathways: 32” wide + turning radius o Equipment clearances: 30” x 48” o Locker rooms: 5% must have 48” clearance o Restrooms: clearances, heights o Pool lift/sloped entry • Some states require: o Onsite defibrillator (“AED”) o Onsite CPR-certified worker at all times o Health inspection: food service o Safety inspection: child care Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

3. Legal Compliance

4. Expanding Your Business

d) Licensing

• Some states require: – Health club registration • See 3.b), above

– Department of Education registration: • Yoga Teacher Training

a) b) c)

Revised Corporate Structure Starting a New, Additional Location Purchasing Existing Business

– Registration fee as much as $2,500 – Annual fee $500 – Posting of bond

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Not legal advice. Consult with an attorney.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Weikers: Fitness Business Legal Issues

Page 6

4. Expanding Your Business

4. Expanding Your Business

a) Revised Corporate Structure

a) Revised Corporate Structure: Multi-Layer

Choose an Entity Type Personal Protection?

LLC

“S” Corp

LP





-GP

Sole Proprietor?



 < 100

No

Multi-Layer



No

No

Tax Flow Through?







Apportioned Decision Making?



Per share



Apportioned Investment and Profits?



Per share

No

Lower Legal Fees?



No



 “S” treatment



No

Tax Advantages?

Owner/"Member” 1

YogaJoint 1, LLC Studio

YogaJoint Holdings, LLC Mother Company

YogaJoint 2, LLC Studio

Member 2

YogaJoint 3, LLC Studio

Note: “C” Corp double-taxed, but > 100 shareholders OK Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

4. Expanding Your Business b)

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

4. Expanding Your Business

Starting a New, Additional Location

c)

Purchasing Existing Business

• Asset Purchase • Lease and contracts – See 1., above

• Zoning and ordinances – Walk-in commercial retail – Build-out inspection – Signage

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

– Buyer preferred – Buyer may be able to depreciate assets – Buyer may avoid most liabilities

• Stock Purchase – Seller preferred – Simpler, lower legal/accounting costs – Seller taxes may be lower Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

4. Expanding Your Business c)

5. Selling Your Business

Purchasing Existing Business

• Possible Valuation: – Owner is not manager: EBITDA multiple • Small co’s: 3x to 5x EBITDA

– Owner is manager: Seller’s discretionary earnings (“SDE”) multiple • Add owner’s salary back to earnings • 1x to 4x SDE + earnings • The higher the SDE, the higher the multiple

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Not legal advice. Consult with an attorney.

• Valuation: See 4.c), above • Get signed NDA/Confidentiality Agreement – If deal falls through, prevents use of information – Prevents disclosure of information

• Is Buyer Qualified? – – – –

Previous employment / business ownership Availability and source of funds Minimum monthly income requirement Commitment to/reason for interest in your business

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Weikers: Fitness Business Legal Issues

5. Selling Your Business • Prepare Your Business for Sale – Financial statement – Tax returns – Furniture, fixtures, equipment and inventory – Lease and contracts – Insurance – Client list: MBO reports – Employee/contractor list and agreements Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

6. Intellectual Property a) Trade Secrets b) Trademarks c) Copyrighted works

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Page 7

5. Selling Your Business • Deal Terms – Price: • Up-front • Periodic payments

– Consulting contract for you – Escrow – Liabilities – Non-compete against you

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

6. Intellectual Property a) Trade Secrets

• Elements: – Compilation of information – Which is not generally known by the public – By which a business can obtain an economic advantage over competitors – And which the business uses reasonable means to protect

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

6. Intellectual Property

6. Intellectual Property

a) Trade Secrets

a) Trade Secrets

• Student lists – Computer files sometimes “misappropriated” by departing workers – Federal and state crime

• Instructor/worker lists: contact information – Instructors poached by other studios/clubs

• Corporate customers

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Not legal advice. Consult with an attorney.

• Use reasonable means to protect – Use contracts with all contractors/employees – Limit MBO access rights – Disclose other info on “need-to-know” basis

• Display only instructor first names on website • Do not list corporate clients on website

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Weikers: Fitness Business Legal Issues

Page 8

6. Intellectual Property b) Trademarks

• Distinctive word, phrase, mark or sign that indicates source of products or services – “®” is used with all federally registered trademarks: • Don’t use “®” unless registered • Registration costs ~ $1,250 lawyer / ~ $500 LegalZoom

– “™” is used with unregistered marks to promote a product (common law protection) – “℠” is used with unregistered marks to promote a service (common law protection) Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

6. Intellectual Property c) Copyrighted Works • Copyright = exclusive right by author to copy, distribute and modify an original, creative work • Health club/yoga © works: – – – – –

Website Newsletters Training manual Books, music, DVDs, photos you produce BUT NOT unique exercise sequence

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Not legal advice. Consult with an attorney.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

6. Intellectual Property c) Copyrighted Works • You may apply for federal copyright registration, but are not required – However, must register if you sue infringer

• You may use “©” on any creative work, even if you do not apply for registration • Example of proper usage: Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.

Copyright © 2016 YogaBalance 1, LLC. All rights reserved.