To contract or not to contract?

You are starting a new dojang and you like the idea of contracting with your students.  Some places sell the idea of “no student contracts” but you see the benefit of a consistent revenue stream over time.  Not to mention, you can better plan the curriculum for the students and it is easier to set long term goals when you know they are signed up for the long term.

There are pros and cons.  Let’s just say, however, that you have opted to rely on the pros and you want a good contract.  There are vendors who collect payments for you (many that specialize in martial arts and many that don’t) who may offer you “their form”.  You should be cautious however.  There are pitfalls associated with this, since they are merely giving you a form.  And many dojang owners do not have the expertise to modify a form correctly.  If you do use a form that is provided to you by a thrid-party, there are a few things to consider.

First, the term (i.e., the length) of the contract is important.  Many US jurisdictions have laws known commonly as the “Health Club laws” which may impact the terms and conditions you are allowed to offer.  In some states, Pennsylvania for example, there is common law which has interpreted the relevant statute and martial arts studios do not have to comply with the provisions of the PA Health Club Act (see Commonwealth of PA vs. Tiger Schulmann’s Karate Centers).  However, in other states like North Carolina, martial arts studios are explicitly included in the definition of “Prepaid Entertainment Contracts (Chapter 66, Article 21) and there are a number of requirements which may be applicable depending on how the contract is structured.

Second, how are you going to collect the fees payable under the contract?  Many dojangs accept credit cards, checks or cash.  Additionally, many use third party billing firms (ranging from PayPal to EFC).  But, did you know that many states have requirements about the information that may be recorded as it relates to credit card information?  And many states have laws that address the disposal of any non-public personally identifiable information, such as a credit card number or bank account number.  There are many other state specific considerations: Delaware has recently adopted a new law (a good synopsis is here; the text of the law itself, here) which will become effective January 1, 2015; California has a law which prohibits the addition of a surcharge when a consumer chooses to use a credit card instead of cash (California Civil Code section 1748.1).

Assumption of the risk is basically the theory that a participant in an activity, who understands all the risks of such participation, can’t hold someone else responsible for injuries received while participating after they learn the risks and decide to do it anyway.  But, those statements in contracts which note that martial arts is dangerous and the purchaser agrees to undertake the lessons at their own risk, may have limits (a great 50 state survey can be found here).  So – these clauses should be drafted carefully.

Some other topics to consider and review with your attorney when drafting your contract:

• Do you provide after-school type classes? Review the day care laws to ensure you are not inadvertently running classes which may cause you to be considered a day care.
• Do you provide transportation to and from classes?  Ensure the necessary permission is contained to note you may be driving students.  Also review your own insurance to ensure you have appropriate coverage for this.
• Does you state require any specific disclosures (i.e., storage or destruction of personal data; use of sub-contractors; etc.).
• Are there specific credit-card (or similar) laws which may require additional provisions?
• Does your state have a Health Club law?  If so, are you included and what are the specific requirements?
• Are you required to have a bond, as a result of one or more terms of your contract?
• Does your school offer classes in different states?  If so, consider carefully all applicable law and choose the governing law and venue jurisdictions carefully.
• What are your cancellation of contract policies going to be?  These should be appropriately reflected in the contract.
• Verify the age of majority for executing a contract in your state.  (There are a few states where it is older than 18; if so, verify the age for valid execution of a contract).
• Do you collect health related information about your students in the contract?  If so, verify the applicability (or lack thereof) of various medical information related laws such as HIPPA.  (If you collect such information, even outside the contract, you should also verify!)
• If you are using a payment vendor, clearly explain this in the contract, and include any information related to the levying of any late fees.
• Are fees clearly identified?
• Is your relationship to the WTSDA clear?
• Have you clearly stated what is included in the contact? e.g., two classes per week and all test fees until Cho Dan Bo.