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Breaking the Law?

Club operators may commit a crime without even realizing that they acted illegally.

Freeze! Up against the wall! Spread 'em!

If any of these police cliches sound familiar, it's most likely because you like cop movies, not because you've actually been arrested. Still, as someone who is more interested in exercising than Mirandizing, you'll want to make sure that your club doesn't run afoul of the law.

Generally, the law's involvement begins after a grievance is filed. So one way to avoid legal troubles is to avoid complaints. Sheila Adkins, public affairs manager for the Council of Better Business Bureaus Inc., says the most common complaints made against health clubs are pressure to sign long-term contracts; conflicts between what the club salesperson says and what the contract states; unauthorized charging and billing errors; and refusal to cancel contracts due to a change in residency or illness.

Granted, none of these transgressions will lead to a S.W.A.T. team raiding your club. However, they could create bigger problems. For example, if a club refuses to cancel a contract and the member refuses to pay, the club can't take matters into its own hands. Adkins cites cases where angry club employees have called members to threaten their credit ratings. Bad idea. "It's against the law to call and harass for payment of money," Adkins notes.

While these common complaints may paint a dismal picture of the club business, keep in mind that "not all member complaints are justifiable and reasonable," according to Adkins. Frank Napolitano, vice president of special programs for Town Sports International and a former trial attorney, agrees. As an example, he points out that overcharging can actually be the fault of members. Say a contract requires that the member give 30-day notice before cancellation. If the salesperson explained this to the member, who then signed a contract stating this stipulation, then the member has no right to complain if he's charged for that 30-day period.

Some consumers may complain about clubs, but Napolitano believes that, when it comes to business practices, this industry has cleaned up its act. Instead, the legal problems that operators face nowadays often stem from a misunderstanding of the regulations that affect all small businesses.

One legal area that can cause confusion is music licensing, a source of headaches for many club operators. Licensing fees compensate songwriters and copyright owners for the use of music. In the United States, three organizations handle the collection of these fees: BMI, ASCAP and SESAC.

When do clubs have to pay for music usage? It depends. Any club under 2,000 square feet can use a radio without paying a licensing fee. Larger clubs have to pay when they use seven or more loudspeakers throughout the entire facility or five or more in a single room.

If you pay an outside service to broadcast music into your club, then you usually don't need to worry about licensing. "Frequently when clubs have purchased music through a service, the service pays the licensing fees," Napolitano says.

However, this fee doesn't cover CDs. All clubs, regardless of size, must pay a licensing fee for playing CDs, tapes and other recorded music, a popular practice in group exercise areas. Unfortunately, a single CD may contain songs that are licensed by BMI, ASCAP and SESAC. "You may wind up with three different licenses," Napolitano says.

Clubs that play copyrighted music without paying the appropriate licensing fees could face hefty fines. However, Jerry Bailey, director of media relations with BMI, says that licensing organizations would rather resolve issues outside of court. They only take legal action when clubs absolutely refuse to cooperate. And that legal action can be costly. Fines can amount anywhere from $750 to $30,000 for each copyrighted song performed without a license, according to Bailey. If the infringement is willful-meaning you knowingly and repeatedly break the law-the fine could be $150,000.

How much does compliance cost? It varies. BMI bases its licensing fee on a number of factors. Will the music be used in the background or as part of a class? What is the number of participants in a week? What is the square footage of the club?

In a survey conducted a few years ago, IHRSA found that the average club paid $250 annually for music licensing. That may not seem like much, but Helen Durkin, director of public policy at IHRSA, notes that club operators still resent that they can't turn on a radio without a fee attached. "You are paying money for something you always thought was free," she says.

Music licensing isn't the only form of legal compliance that can cost clubs. You must be aware of the insurance your state laws require. A health club may need everything from bonding to worker's comp, depending on the state. "If the state says you have to carry it, you have to carry it," reminds Andrea Pugliese, owner of Andrea Pugliese Insurance, a company that works exclusively with health clubs.

For the most part, clubs do obey state laws, Durkin believes. But operators still run into problems. "I think that in fundamental, substantial ways, clubs are complying with consumer protection laws," Durkin says. "They are getting tripped up on different interpretations or glossing over specifics."

For example, a state may require that club contracts contain exact language. A club operator may decide to include language that he thinks is worded better than the state requirement. That's a mistake. "If they don't follow that to the letter of the law, the contract is voidable," Durkin notes.

Even momentary lapses in compliance-including those that are perfectly logical-can lead to fines. Durkin relates this story as a lesson. State laws can call for signage that details everything from contract fees to safety tips. One club, in the process of painting, took down its required signage. An inspector walked in, saw the signs weren't up, and fined the club.

When looking at state law, you may want to call on a lawyer to help you put together a waiver that will stand up in your state. However, if you have children as members, keep in mind that some states don't allow parents to sign away a kid's right to sue. (Speaking of children, remember that a contract isn't valid unless the member is 18 or older; a 17-year-old can sign a contract, then void it.)

In addition to a thorough understanding of state consumer law, club operators must familiarize themselves with regulations such as the Americans with Disabilities Act (ADA) and the Fair Labor Standards Act. Even OSHA (Occupational Safety & Health Administration) can't be ignored.

OSHA may not seem applicable to a health club, but Napolitano points out numerous situations where OSHA regulations pertain to this industry. Any area that uses chemicals which can damage the eyes-such as a pool-must have an emergency eyewash station. Also, employees who are likely to come into contact with body fluids (e.g., lifeguards and daycare employees) must take OSHA training for blood borne pathogens.

To be fair, OSHA looks at three levels when considering the risk of blood borne pathogens. The first level includes hospitals and other places where the risk of contact is high; the third level includes offices and other businesses where the risk is extremely low. Clubs fall under the second level-where exposure to body fluids is possible, but not likely.

OSHA doesn't go after the second level as aggressively as it goes after the first, but that doesn't excuse clubs completely. Durkin points out that disgruntled employees have reported their clubs to OSHA. This can lead to an OSHA audit.

OSHA may not be major concern for clubs, but the ADA definitely is. Unfortunately, there isn't much case law involving the ADA, so understanding the regulations can be difficult. Generally, any new building must be ADA compliant. Things get grayer when it comes to existing facilities.

"The ADA itself is not a clear as it could be on when retrofitting is required," Napolitano notes.

As a rule, retrofits are only necessary when they are economically reasonable. The trouble is, what's economically reasonable for a club chain may not be reasonable for a small club. Furthermore, a disabled person's idea of a reasonable request may differ from a club operator's.

Durkin knows this from experience. She once testified before the ADA's access board. As part of her testimony, she told attendees about a club that needed to rebuild its sauna to accommodate wheelchairs. She said that the club would sooner remove the sauna altogether because it wouldn't be worth it to make all those changes, then have to deal with the liability of putting a metal wheelchair in a sauna. "I thought I gave reasonable testimony and I was booed by people in the audience," Durkin recalls.

Similar animosity between business owners and ADA reps is not uncommon. That's why Durkin suggests a friendly approach. When the ADA recommends construction, try to be as cooperative as possible. Take the initiative. Work with an architect and develop a plan that you can present to an ADA auditor. For example, explain to the auditor that making your club completely accessible now would be cost prohibitive, but that you and an architect have come up with a five-year plan to make the changes gradually. Work with the auditor, and he'll be much more receptive and pleasant.

ADA regulations go beyond construction. They also affect the hiring of new employees. "There are certain things you cannot do in the hiring process because of the possible discriminatory effect," Napolitano says. "You cannot require an individual to come in and pick up an application. You must be prepared to mail it." Why? Because if a disabled person comes in for an application, the employer may look at the person and decide he isn't right for the job.

During a job interview, the ADA forbids certain questions. Suppose the job candidate explains that he is a recovering alcoholic who is in the process of treatment. Some case law suggests that alcoholism is a disability, according to Napolitano. For that reason, you can't explore lines of questioning that deal with the candidate's alcoholism. For example, you can't ask the person if he ever missed work because he is an alcoholic.

Before you even get to the interview stage, reread the job description for the position you wish to fill. Unless you state specific physical requirements in a job description, you cannot use these requirements to bar someone from getting the job. Also, you must make sure that the physical requirements are sensible. The requirements can't state that someone has to be able to stand to do a job; they can state that the person must be able spot 150 pounds without dropping the barbell.

Familiarizing yourself with the ADA will lessen the likelihood of legal trouble during hiring. Understanding the Fair Labor Standards Act will keep you out of trouble afterwards.

The Fair Labor Standards Act deals with issues such as minimum wage and overtime. Seems straightforward enough, but the act can get complicated. Take this test. You schedule an aerobics instructor to teach a class between 10 to 11, then again from 12 to 1. How many hours do you pay her for? Two? Wrong! You pay her for three. The instructor cannot use the time in between the first and second class gainfully. So she's entitled to pay.

Employees are also entitled to overtime pay-even if you told them not to work overtime. And you can't alter a work record without an employee's signature. "If you say to a person, 'You can't work overtime,' and they work overtime, you can discipline them, but you have to pay them," Napolitano says.

Also, just because an employee handles different duties doesn't mean he should be paid as if he has more than one job. A person who works 20 hours as a personal trainer and 30 hours on the floor is still entitled to overtime. A club may treat those jobs as two separate positions, but the government will audit as one.

In addition to overtime payment, the government will look at workers you call independent contractors. Independent contractors can save you money (they handle their own taxes), but make sure you can defend their classification. Do your homework and structure the compensation appropriately in case the government challenges you.

This advice can apply to anything a club operator does. When you do your homework, you make informed business decisions. By researching regulations, you'll remain out of the reach of the long arm of the law.

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