Gyms and membership agreements – what are your risks and how can you deal with them?
‘Unfair’ terms in gym membership agreements:
Gym membership contract documents must be carefully drafted to be considered ‘fair’ under the Australian Consumer Law, so that important terms can be enforced, and your business is protected against non-payment and other breach of contract. The membership agreement must be clear and concise, and there should be no confusion, uncertainty or doubt as to what the terms of the membership are. When deciding whether a term is unfair, the Court will consider transparency of the term within the contract, and how the term fits within the contract as a whole.
A term will be considered ‘unfair’ if it causes significant imbalance in the parties’ rights, if it is not reasonably necessary to protect a legitimate interest of the business, if it would cause significant detriment to the consumer and if it is contained in a standard-form contract (a pre-prepared contract that you use as a membership agreement for all members, where the terms and conditions are not open to negotiation.) If a term is found to be ‘unfair’, it will not be binding or enforceable, and your membership agreement will continue to operate without the unfair term (if possible).
Unfair term legislation protects consumers, and allows them or the Director of Consumer Affairs Victoria (CAV) to seek a declaration at VCAT that a term is unfair. An injunction may be sought preventing your gym from using the term in your membership agreements, and remedial orders may be ordered for any losses suffered due to the unfair term. CAV is likely to publicise the event by issuing media alerts and warnings, resulting in bad publicity for your business.
How to ensure your contract terms are considered ‘fair’, whilst also protecting your business against non-payment of membership fees and other breach of contract:
Review your standard-form membership agreement, and amend or remove any unfair terms from your contract. If you are uncertain about possible fairness of any term/s, seek legal advice so that you are confident your conditions can be enforced if necessary, and to avoid costly legal battles.
Ensure your contract includes a cooling-off period for membership agreements that continue for more than three months. The cooling-off period must be at least 48 hours, and if a client decides to cancel their membership you may charge a guest fee if they have used the gym in that time, and/or an administration fee of either $75 or 10% of the membership fee, whichever is less. You should require the cancellation is in writing. Set these details out clearly in your membership agreement.
The cancellation policy must be fair, clear, and flagged as an important term in the membership agreement so that the member is encouraged to take notice. If a member wants to cancel their membership, you may charge a fee, and you may require written cancellation – but you cannot require that a specific cancellation form is to be used (although you may provide one as an option). Cancellation must be available even if the member has outstanding fees owing, these moneys may be pursued once the contract is terminated. Cancellation must become effective upon receiving the member’s written notice allowing for a reasonable notification period. If the cancellation is occurring within the member’s minimum term of the contract, you cannot require a payout of the entire contract, or even 50%. The fee charged for cancellation must be a genuine pre-estimate of your provider costs for early cancellation.
Cancellation by you for breach of contract by member:
You may fairly end the gym-going relationship with a member if they fail to comply with your gym rules and regulations, or behave in a disorderly or offensive manner – although it is good business practice to talk to the member first and allow them to rectify their behaviour before cancelling their membership. If a member is guilty of payment default, notify them in writing with a defined and reasonable amount of time in which they must pay the amount owing – and spell this process out in the membership agreement. If the member fails to pay within time, notify them that their contract with you is ending and communicate that the matter might be referred to a debt collection agency if that is the case. You may ‘fairly’ contractually state that late fees of a specific amount are payable for late payment, but such amount must reflect the cost to your gym, and you may suspend access until fees owing are paid to date.
Your membership agreement should make room for consumers withholding payment where in circumstances where your gym does not fulfil its part of the bargain, or the member has another justifiable reason.
Minimum term contracts and automatic renewal:
Your members must be given the choice on the application form and contract between automatic renewal or membership ending at end of minimum term. The form must require member to ‘opt-in’ rather than ‘opt-out of automatic renewal. If a member is cancelling an automatically renewing, minimum term membership at the end-date of the minimum term, they should firstly be given notice that their minimum term is about to expire and then given the option to terminate their contract without any fee.
Unilateral variation clauses:
Clauses that allow your gym to vary goods and services whilst continuing to bind the consumer to the contract will generally be considered unfair. Your member has the right to receive goods and services they originally contracted for, and membership fees and terms of contract should not be changed during the minimum term. If there must be a change due to a verifiable occurrence out of your control, provide members with written notice in advance and allow them to terminate their membership without any fee if their membership could be negatively affected by the change.
Terms that exclude or limit your liability for loss or damage suffered by member due to your gym’s acts or omissions are likely to be ‘unfair’, and may be misleading or deceptive conduct. You may include a very limited liability clause if your clause also signposts the main statutory rights of the consumer – that they deserve full care and skill and equipment reasonably fit for specified purpose, and that they are entitled to refund or resupply of services for breach, as well as compensation for any loss.
If you would like to include clauses that limit liability for death or personal injury, it is advisable to seek legal advice to ensure fairness. The clause must state that you are asking the member to waive some of their consumer guaranteed rights – and must be brought to the member or guests’ attention before you supply any recreational service. You may require members to state that they know of no medical reasons that meant they should not exercise before allowing them access.
Make sure your agreement makes it clear to your member the procedure they can follow to defer, alter or dispute direct debit. Your gym cannot take direct debit amounts for anything other than regular membership fees unless relevant consent is given, and you must give your members 14 days notice before there can be any changes to direct debit (such as change of financial institution, day of week payment taken, and so on.)
This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation.
Published Aug 21, 2017
Jessica Kerr is the Director of Sinclair + May, a female-led, boutique commercial law firm based in Melbourne’s inner north. Sinclair + May work with small businesses to ensure their legals are in order. Book a free 15-min chat here to talk with one of our solicitors.Go back