Gym-Owning Lawyer on Music Licensing (and Much More)

20220113-becker-blog

Mike (00:01):

Ever wish a lawyer who owned a gym would give you an hour of time? Matthew Becker of gymlawyers.com is that guy. And he’s here with Chris Cooper to answer common questions. First up, the issue everyone is always asking about: Are music licensing fees legit? Matthew also covers AEDs and more. Now here’s Coop.

Chris (00:20):

Welcome to Two-Brain Radio. Joining me today is Matthew Becker. And aside from owning a gym, Matt is a lawyer, Matt, welcome to Two-Brain Radio.

Matt (00:29):

Good morning Coop. Thanks for having me on.

Chris (00:31):

Yeah man. And so Matt has recently founded gymlawyers.com to help out gym owners. There’s never been a greater need for an attorney in the gym space with the context of a gym owner, but what really made you wanna kick off gymlawyers.com?

Matt (00:44):

Thanks Coop. I’ll liken this back to your help first model, right? Always try to figure out a way that you can help somebody else. I was a lawyer like I got my law license in 2010. About two years later, three years later, I opened my gym. Then I did both full-time attorney and gym owner for about seven years, then started to transfer over into the gym more full-time and started to close my law practice. And then literally at the time that I closed my law practice, you and I spoke and we had talked about the need for at least legal education or some sort of legal services in relation to micro gyms. So it just seemed like that was the next area by which I could help. I’ve been working with my Two-Brain mentor on getting me more and more out of the day to day operations at my gym to more into a tinker program or the tinker portion of my entrepreneurial journey. So this just seemed like the next opportunity to give back and help, try to figure out how I can help gym owners avoid things that can really hurt or destroy their businesses.

Chris (01:59):

That’s awesome. And so in the new book that’s coming, Start a Gym, Matt you’ve contributed heavily. And today we went into Gym Owners United, our public Facebook group. And we said, who has a question that they would love to ask an attorney if they can? And so Matt’s generously agreed to give us an hour here and answer some of those questions. Are you ready to go?

Matt (02:20):

Yeah, yeah, let’s do it.

Chris (02:22):

Awesome, man. First one’s a big one and it’s about ASCAP and music licensing. And I think almost every gym owner now, at least in North America has gotten one of these emails and it’s like, you have to start paying us licensing fees or royalties on the music that you’re playing in your gym. Should we take these things seriously? Like how should we respond to these man?

Matt (02:42):

This is such a dreaded question and thanks to everybody who submitted the questions on the Facebook group. Cause you know, it was really great to see what everybody needed some help with. But man, this just had to be the first question. Right? So let me go back and sort of start this from a general standpoint, because I can remember about three years ago when I didn’t know what the heck ASCAP was and I got the email and then I started getting the phone calls and I started freaking out about ’em. So, and in the event that somebody is listening to this and they have not, they’ve been lucky enough to not deal with this yet. Let me give you a little heads up of what it is. So bottom line is musicians make music and when they make music, they have a right to be compensated for the music that they make, it’s copyright.

Matt (03:33):

  1. You know, same thing with you and your books, everything’s copyrighted you can’t just take it and use it for your own advantage. So anytime a business is going to use music for anything more than background music, that music is considered to be enhancing the business. When it enhances the business, you as a gym owner or the business owner who is getting the enhancement from the music need to pay for the use of that music, you essentially need to be compensating the musician. The difficulty is determining exactly what it means to be using the music to enhance your business. Now I’ve talked to about three or four different patent attorneys about this, and none of them really wanna dive into the issue because no, it doesn’t seem to be that big of a problem. So no gym owners have actually been sued.

Matt (04:25):

At least not that I’m aware of. No gym owners have actually been sued for the copyright infringement. So nobody has ever really challenged to determine whether or not somebody like a CrossFit gym or powerlifting gymais using it within the definition is prescribed by the patent laws. So if you are a gym owner and you have run into this actually legally beyond just ASCAP, please reach out, I have a ton of questions. But anyway, this is where companies like ASCAP come in. So the musician says you use my music to enhance your business. I should be compensated for that. ASCAP contracts with these musicians to say, we’re going to protect your copyright. Then ASCAP reaches out to you as the business owner and says you are using the music that this musician pays me to protect. So you need to pay me for the right to use that intellectual property.

Matt (05:20):

So ASCAP just, I think they literally just like Google gyms and they just go down the list and call everybody. And you know, it’s funny, the time that I got contacted by ASCAP was when I actually started showing up on Google. So, you know, no good deed or whatever goes on punished, I guess, maybe I should say with success comes problems. So just expect that with success comes problems, right? As I show up on Google, all of a sudden, ASCAP reaches out to me. So how does this relate to us? Well, unfortunately, I’ve never also met a micro gym that doesn’t use music to enhance their business. I talked to a gym once who said, what if I play classical music? Is that technically using it to enhance my business?

Chris (06:11):

What if I use it to harm my business, Matt? Will they pay me?

Matt (06:12):

Is anybody from ASCAP gonna come over and prove that we don’t all just work out in silence? But the bottom line is we all just turn it on and turn it up. And away we go and unfortunately, you know, those paid for services like Apple and Spotify and Pandora, even though you’re paying to use it, that does not include the right to actually use it for commercial purposes. Those are usually just all like family purposes. So you don’t get the right just because you pay Spotify. What do I pay $12 a month or whatever in order to pay to play it. So by the letter of the law, the answer is, yes, this is legit, as a gym owner, as a business who is using somebody else’s intellectual property to enhance your business, you technically do need to pay for it.

Matt (07:06):

However it doesn’t end there. This is gonna get trickier. Now, all of a sudden, so simply paying ASCAP their $500 plus a year, doesn’t actually give you the right to play the music off something like Spotify or Pandora or Apple music. And the reason for this is different bands are gonna contract with different copyright protection companies. So you pay ASCAP your $500 and you go back into your gym the next day and you put on Spotify. And one of the bands that comes up on Spotify pays another service for protection and not ASCAP, you’re still technically violating the law. So there are various fixes out there for this problem as well. One of them is rock bot, rock bot. And I do not want this to be any kind of plug for any of these services, but just to, you know, cause we’re is gonna keep walking up the ladder of issues here.

Matt (08:02):

Rock bot is same kinda thing as ASCAP, you’re gonna pay rock bot for the ability to use the music. The difference is rock bot then actually has a music player. They have their own service. That’s like Pandora, essentially. The idea is any music that you play through the rock bot player is thought to all be protected by rock bot. So if you pay rock bot your 500 royalty dollars a year, whatever, and then you go and you use their music player, you should be good. I’ve got one more. However, because now there’s a company out there called Fit Radio who is on the scene and says, Nope, that’s still not good enough because now each individual musician in each individual band is paying individual music licensing companies to protect their own intellectual property. So the drummer of one band and the guitarist of the same band may pay two different companies to protect their intellectual property. Fit.

Matt (09:10):

Radio is now making the claim that they’re getting permission from everybody, from all the band members in order to play the music. So this becomes a very complicated and lengthy problem. Do you technically need to pay for it? Yes. Has anybody ever called ASCAP’s bluff? I’m sure they have. Are you as a gym owner a big enough that any individual band, is Metallica gonna come knocking on your door and yelling at you for using their music? I would be shocked if they do this. OK. We’re not like Orangetheory where we’re also nationwide and these big franchises that were so well known. So, you know, really it comes down to you. From an attorney perspective. Yes, you need to be paying from this from a law perspective, if you wanna fall within the law and don’t worry about any problems, determine, do the cost benefit analysis, is it worth your $500 a year? If you want be a traditional CrossFitter and buff the system and come and get me,hat’s up to you, but that is the basic breaking down of ASCAP and yes, it’s legit.

Chris (10:22):

All right. Well, it sounds like it is a sucky problem, but you gave two really good ways around it there, I think between rock bot and Fit Radio. Let’s move on to the next most pressing question that we received, which is the legalities of having an AED, and automatic defibrillator on-site. Are you required to, is that an insurance company thing? Is that a legal thing?

Matt (10:45):

Yeah. And this one hits a little bit close to home as I’ll get into. But from this point forward, a lot of what I’m gonna answer is this is very state specific. And let me just kind of be a little bit more clear about that. When it comes to ASCAP, that’s a federal law. OK. So that’s gonna acquire, or that’s gonna apply across the board. Doesn’t matter what state you’re in. When we’re talking about AEDs. Now we really need to look at state specific stuff because in the individual state is going to control what they consider to be a health club or fitness facility by legal definition. And then what requirements come along with whether or not you’re considered a health club or a fitness facility. So I’ll talk about Pennsylvania. My gym is in Pennsylvania. I live in Pennsylvania, I’m licensed to Pennsylvania.

Matt (11:36):

Pennsylvania has something called a health club act. And within the health club act, they define what is considered a health club. Now, the only real way to get around it under Pennsylvania law is if your quote unquote health club is a nonprofit, OK. Otherwise pretty much by legal definition, if you offer services that are guided in order to enhance somebody’s wellbeing, you’re considered a health club. From there, Pennsylvania law says you have to have an AED on site. Different states may say different things. But you know, that’s what Pennsylvania says. And I said, this one hits pretty close to home. Our suggestion from a legal standpoint is get an AED regardless of what your state says. We had a member go down a couple years ago. Pretty much, well, the second run of Murph, hopefully everybody listening to this pretty much knows what Murph is, but run and do a bunch of body weight stuff and run again.

Matt (12:37):

And he headed out for the second run. He seemed to be gone for a prolonged period of time. We went out to check on him and he was laying on the sidewalk. Thankfully we caught it early enough and there was a, we’re close enough to a fire department that they could get over and get him and get him to a hospital before he completely arrested on our floor. But you don’t want that to happen. Get an AED just have it. You can get it through Centas for $90 a month and they’ll come out and service it, which raises a whole bunch of other legal questions. You can go. I know Aguard, Affiliate Guard with Vaughn Vernon. He’s got resources too, I don’t remember what the website is, but all kinds of deals for AEDs, if you wanna purchase one.

Chris (13:25):

I think the biggest thing for me would be if somebody died in your gym, that would kind of ruin my life, you know?

Matt (13:33):

Yeah, yeah, yeah, definitely. Yeah, definitely. And, you know, I don’t know, is $500, is a thousand dollars, is $90 a month worth the mental reassurance that somebody, you can at least prevent somebody or try to prevent somebody from dying in your gym.

Chris (13:51):

Yeah. That you’ve done everything that you could have done. Yeah. OK. Along those lines, Matt, is there a minimum standard of training for the user, for the AED like, do I have to train each new coach that I hire on how to use the AED in my box?

Matt (14:05):

Again, state specific. Generally speaking, those who are in charge need to be trained on the AED, there’s a number of different organizations that will offer AED and CPR certifications. Pennsylvania law for a health club is required. Trainers are required to be CPR certified. It’s not a bad thing to get anyway, I would imagine most states are gonna have some sort of requirement that you need to be CPR or AED certified. Now that said, you know, any member in your gym is gonna be able to use your AED if it comes out. I mean, those things are so idiot proof these days, anybody’s gonna be able to use it. It doesn’t take a rocket science. You also need to look at your state’s individual good Samaritan laws. You know, good Samaritan law is basically a law that says, if you have no duty to try to save somebody’s life and you do save somebody’s or you try and you fail, they can’t come back and sue you for not being able to save their life, or, you know, in some states, if you even do something that may cause them to die, but you don’t have any duty to save their life, then the family can’t sue you.

Matt (15:20):

Once again, it really gets specific here on individual states. When I was in law school, I remember a case where there was a lifeguard and the lifeguard is out exercising and running around a lake, not on duty at the time, sees somebody out in the lake drowning. Is that lifeguard under a duty because they are trained to save lives, to dive in and go rescue the person. And if they do rescue the person, they bring ’em back onto shore and they then botch the CPR. Are they now liable because they botched the CPR. Every state’s gonna say something different.

Chris (15:59):

All right. And, you know, while we’re on the topic of liability, I think we should probably get into waivers. Now, waivers are gonna differ by insurance company and by state, but is there anything that every gym owner should have in their waiver, like don’t ever forget to include blank? Or is there some kind of blanket best practices for waivers having people initial them differently?

Matt (16:22):

Yes, there is. Let me be clear on this as well. A waiver is only good to protect you against things that you had no hand in causing. OK. In other words, a waiver, you cannot waive your own negligence through having somebody sign a document that says you’re not liable. So let’s use an example here. A client comes into your gym and they hop up on the pull-up bar, and it’s a sweaty day, and they’re doing a whole bunch of pull-ups and they slip off the pull-up bar and land on their back and hurt themselves. Can they sue you? Well, if you didn’t do anything to force them to stay on the pull-up bar longer than they thought they could then no, they cannot, but let’s change the scenario. We’ve probably, if you look online, you’ve seen videos of people like jump up and grab rings to try a muscle-up.

Matt (17:16):

And they go to do the muscle-up and the ring breaks and they fall on the ground and we all laugh. Meanwhile, my liability starts to tingle whenever I look at that. Right. Cause the question is that point is, did you, as the owner, did you know, or should you have known that the nylon on the ring was going bad? If it can be shown that you should have known, maybe you didn’t, you never go around and inspect your equipment. Or another member has come up to you and said, Hey, you know what? That nylon looks a little bit worn. Maybe you should look into that and you go, it’s fine. Rogue says it’s cool. It can handle up to like 200 pounds of pressure or whatever, and you never do anything about it.

Matt (17:57):

And then it snaps. Now you’re considered approximate cause of that injury. And you are liable whether you’ve had a waiver signed or not. Now all of that said, just let’s make sure that everybody’s on that same page. Yes. In your waivers, you need language that the signor, the person who is signing the waiver, acknowledges that the activity is dangerous, that there is a potential for injury and that he or she is accepting responsibility for that potential danger. It needs to waive liability for basically anybody and everybody who could be involved. So it needs, the waiver needs to name the corporation. It needs to name any and all partners individually. It needs to name, it could name coaches generally, coaches, trainers, staff. You probably just want to go through each one of those general titles. And then you need to also make sure you have any DBAs in there doing business as. You know, my gym is bionic fitness, LLC, doing business as industrial athletics and CrossFit Alloy, all three of those names need to be contained in the waiver.

Chris (19:15):

So waivers do protect you a bit though, right?

Matt (19:18):

Oh yeah, they will. They’ll protect you. Again if somebody goes to jump on a box and they trip and miss and they come down and they break their shin or they bust their shin open to the point that they have to go to the hospital. Yes. That waiver’s gonna protect you. Because as long as they acknowledge that there’s a potential injury or potential danger in this activity, you didn’t do anything to cause that person to fall.

Chris (19:46):

Right. So I’ve actually got a follow-up question about that, because that has happened. If I, by gym, where somebody has like taken a strip of bacon off their shin and had to go get surgery. You know, what should I do as the owner? Like, some people will say, don’t even apologize because you’re admitting fault. Where I’ve always gone to the other extreme, which is like, I will drive you to the hospital and, you know, basically pay for your lunch until you get out.

Matt (20:13):

Yeah. I kind of lean on the same side as you do Coop, when our member had the heart attack, and ended up in the hospital. I was there the next day to make sure tha he was OK. And we raised the money at the gym to help his family with expenses. And they had a baby at the time and, you know, we bough a bunch of diapers and things for them. I, you know, I think you get, you walk that line of super paranoid. If you’re gonna have a gym member get injured and you’re gonna try to like, not even apologize or not acknowledge anything, I think that’s gonna aggravate the member more than if the community gets behind them. Um, sorry. There was a first part to that question that you asked. Um, I don’t remember. What

Chris (21:00):

Am I accepting liability by apologizing? Or is that like an admission of guilt?

Matt (21:04):

Oh, no. I don’t think it is in either way. Of course any attorney is gonna try to spin that as much as possible, but you know, to go in front, worst case scenario, this thing ends up in front of a court of law. Right. And they say, oh, well, you apologized for it. Like, come on. I would be shocked if somebody was like, oh yeah, they apologized. They were guilty. Oh, I remember the first part of your question is, was there anything you should do, like immediately upon on this happening? Incident report, incident report, incident report, incident report, and get it in writing. I saw somebody on Gym Owners United the other day talk about, they asked a question about incident reports and they said, oh yeah, we just do an email. It’s like, no, no, no, no, you get, you get that pen and paper document. Now, you have it drafted beforehand. Who, what, when, where, why, who was there, who saw it when it had happened, get as many details written as possible as fast after the incident happens as possible. Because if this does end up in front of an insurance company, they’re gonna start asking questions. And the more times you say, I don’t know, I don’t remember. I don’t know. I wasn’t there. The worse off you look.

Chris (22:17):

I will recommend that if you’re with Affiliate Guard, just email the team there and ask for an incident report and they have one that you can use. And I put them in a little binder that goes under our front desk. In 20 years of gym ownership, we might have 10 of these things filled out, but they’re right there. And, I think it also might have a discouraging effect in the event that somebody did feel tempted to sue you. Just the idea that you’ve got your T’s crossed and I’s dotted might, you know, slow their roll a bit.

Matt (22:46):

And that’s a really good point as well. Coop, you know, in the end, ask Affiliate Guard, ask, there’s a million waiver examples out there online, pick one, write one, have an attorney, look over it, call us, you know, whatever. But then ultimately at the end, call your insurance company too and say, Hey, is there any language you want in here or not in here? I’ve talked to AGuard a couple of times and they say, don’t put that in your waiver. And so that’s important to know as well. So call your insurance company at the very end.

Chris (23:19):

OK, man. So moving on from liability here, I’ve got a couple of lease questions and then some employment questions too, so this was an interesting question. They said I’m a about to sign a five year lease. As I take over an existing affiliate that I’ve attended as a client for 12 years. Our location is in the downtown business district and we’ve had noise complaints from a couple of neighbors over the years. I’m concerned that the city might change the codes or the zoning and make it impossible to run a gym from that location. Do you have any suggestions on an escape clause in the lease, should that happen or should I be doing something different?

Matt (23:54):

So when people call reach out and they say, what do you guys do at gymlawyers PLLC? You know, that the primary thing I say is we review, we either one tell you what you need in writing or two, we review what’s in writing. Get everything in writing as much as possible. And this is a prime example of why you need to get everything in writing. Lawyers love having things in writing, because then we know exactly what it is to be expected and exactly what’s not being contemplated. So this individual, he or she already has multiple red flags going on here. It’s in a downtown business district and they, she or he already knows that there’s noise complaints. I look at this and think the escape clause is important. But when I look at this, when I look at this question, that’s actually the least of your problems.

Matt (24:54):

I need to take a look at that lease and we’ve got a lot more to get through than just an escape clause at the end. For example, noise complaint. Well, worst case scenario is this owner or person buys this gym and signs a standard commercial lease, no problems here. This landlord probably does this all the time and goes in and enters the, starts running the gym, the neighbors start complaining again. And now the landlord’s gonna come back and say, oh, wait a second. We’re getting a lot of noise complaints. I don’t know that I really understood what it was that you guys were gonna be doing in this space. Even though there was already a gym in here, you need to get out, you know, and the landlord’s gonna have an opportunity to do that unless there is a really solid explanation in the use of premise of the commercial lease that says, everybody knows we’re running a gym, we’re running a, whatever she says the premise, say CrossFit, powerlifting, whatever it is.

Matt (25:59):

And we’re gonna play loud music and drop weights. And this business is known to cause some noise. So that’s just another example, but this is a prime example of things need to be in writing. Now, as far as the escape clause is concerned, suggestions on an escape clause in the lease, should that happen? Yes, it should happen. You just need to find, basically start with language of if the city changes its ordinance and makes it impossible for me to run my gym, I’m allowed to get out of this lease. And if the landlord agrees with some basic legal language like that, then great. Sign it and move on. If not, then you at least have the starting point that is going to protect you the most. And then you can start to sort of chip away your line of protection there.

Matt (26:52):

And I’ll just use this question too. Again, tons of other potential issues here, taking over an existing affiliate. OK. What are we, is there a business purchase agreement what’s happening to the equipment, what’s happening to personal good will? Are there non-compete clauses? How much are you paying? Are you paying for each one of these? Does your state allow you to buy personal good will and have non-compete clauses? You know, I’m going off the rails here on this one, but you know, this question just jumped out at me as like, this is a prime example of where a gym owner thinks there may be one problem, and you really gotta have somebody look at this because there’s a lot more there to unpack than what do I do if the city changes its zoning.

Chris (27:38):

Well, let’s get specific there, mean, obviously there’s like some law liability there. If somebody was injured a year before you bought it. But also, in Canada we have something that’s called a gift card law, which is that if I buy 10 personal training sessions from you and those will never expire. So if I use nine and 12 years later, I come back and I say, I want to use my last personal training. Like I have to honor it. And so if I sold my gym, they would also assume that debt.

Matt (28:10):

Right. If that’s what the law says then yes. Yeah. And that’s why you need a business purchase agreement, between the two parties. And it needs to be more than just a we agree to pay this price for the gym. You know, when do you take over liability? Is it prior to your actual closing date? Is it at your closing date? Do you get a grace period after your closing date for potential issues that arise that existed prior to, or that happened prior to you closing? That’s what I’m saying. There’s so much to unpack in that question.

Chris (28:50):

Yeah. People usually just say like, what do I pay? But really it’s like, what are you actually buying? And what problems are you purchasing from the seller?

Matt (29:00):

Yeah. You better be real clear on that too. Oh, and I guess to your other question about the purchase card, the punch card law, do you know, is that a Canada wide, almost like we have a federal law or is that just your local?

Chris (29:14):

No, that’s just provincial that one. Yeah. But other provinces in Canada have the same law and it’s, I forget like if the value is less than 10 cents or something, you’re OK. Because everybody’s carrying around these gas cards that you buy for Christmas or whatever. Right, right. Right. And like, I can’t imagine Esso holding, you know, some kind of balance of unclaimed gift cards for the next 50 years.

Matt (29:38):

Yeah. Yeah. I don’t, that would probably be under the unfair trade practices and user protection laws of each individual state. I am not aware of anything like that down here in the states, but you know, if somebody reaches out to me via email here in a half hour and says, here’s my state law, I wouldn’t be surprised if something like that exists. OK.

Chris (29:57):

All right. So let’s chat about employment for a moment here. I employ mostly contractors in Ontario. It’s easier to employ a contractor as opposed to an employee than it is in other places. And it is becoming harder and harder in places like California. And so we got this question that says, I’ve read that in California courts favor the employee and section 16, 600 has consistently been interpreted as invalidating any employment agreement that unreasonably interferes with an employee’s ability to compete with an employer after his or her employment ends. So the question’s really about noncompetes. e you wanna first maybe explain what a noncompete is? I can talk about, we don’t use that in our contracts at Two-Brain, but maybe you should start with an overview, Matt.

Matt (30:45):

Sure. Thanks. So a non-compete clause, generally speaking is a section of any contract, but in this case, we’ll talk an employment contract where you’re basically asking the employee to agree that if and when the employee leaves your company, they’re not able to work for somebody else that does something similar to what you are doing. So let’s put it in the realm of a gym, these days, again, we’ll talk CrossFit gyms, there’s unless you live in a super small town, there’s probably at least five other CrossFit gyms within what, a 50 mile radius. If you will say, that’s probably even generous there, but, you have a coach, you pay this coach as an employee, and the employee, they work for you for so long, and then something happens and they end the relationship. And now because of your contract, what you would try to do is basically say this employee, this trainer can now is prohibited from going and working for another CrossFit gym, or, you know, they could say, you know, you can’t take any of my clients.

Matt (32:00):

You can’t solicit business from any of my clients. And states are gonna look at generally at non-compete clauses, and they’re gonna determine the reasonableness, that’s the cool, fun, vague, legal language, the reasonableness of your non-compete clause. And usually what that means is what services are restricted, how long are they restricted? And what’s the geographical area by which they are restricted. And those three considerations are gonna, they’re fluid based on any and all professions. So, you know, some states may say things like we’re gonna be really hard pressed to honor a non-compete clause that’s for longer than 12 months. But you know, to geographical location, if you’re a nationwide salesman, right, and you work for a nationwide company, no court is gonna turn around and say, well, if you leave this nationwide company, you can’t go work for another nationwide company. You know, your geographical limitation is the entirety of the United States. It’s just, they’re too broad. It’s unreasonable.

Chris (33:08):

  1. Let’s talk about time limits. I mean, is it reasonable to have a noncompete and a nosolicit while somebody is working for me?

Matt (33:17):

Could you give me example?

Chris (33:19):

Yeah, sure. So I, hire a personal trainer at catalyst and I say, Hey, you know, while you’re receiving clients from me, you can’t go out and try and sign up any sports team, any hockey teams on your own, they have to come through catalyst.

Matt (33:34):

Hmm. That’s actually a really good question. Yes, you can. So that would more of an exclusivity clause within a contract than non-compete clause within a contract. And yes, once again, I just, I gotta keep saying it state specific. Yeah. But yes, you are permitted to have exclusivity clauses within contracts, depending on your own state laws. Probably not in California, but you can in Pennsylvania.

Chris (34:05):

Canada too. And I’ll just add a quick little anecdote here, Matt. Like, we’ve always had that rule at Catalyst. If you’re working for me, that’s it. And the first time I ever presented that rule to a trainer, I was really worried he was gonna say, take this contract and shove it. But instead he thanked me because what he said was it’s really awkward for me to go out coach a sports team and then stand around, collecting $5 from each parent, or even asking the coach for money. They never have the money on them. They never pay me the HST. They never pay me on time. I’ll make way more by blaming you.

Matt (34:41):

Yeah. Right, right. Right. All right. Now something to be careful of that, and we’re gonna get more into this, I think next year, but something to be very careful is if you wanna pay somebody as an independent contractor, at least under US tax law and the money is coming through the gym it’s debatable as to whether or not that person is now an independent contractor.

Chris (35:06):

Yes. And there’s, so you have to be careful with states. And so, in our courses where we give out like a contract or a service agreement, we call it now. There’s some really interesting videos from like, John Briggs and we’ll get some more stuff in there too, about things to think about. I find that a lot of accountants are a little bit, they like to play defense, right. Accountants play defense. And so they’ll say everybody’s an employee, but that’s not true either. You know, what advice do you have for people who are thinking like, are these people contractors, or are they employees for me?

Matt (35:42):

So under US law, when we’re looking at this, let’s first, let me, if I can back up just for a second on this one, Coop, cuz um, again, I think we’re kind of making an assumption that everybody understands the difference between an employee and an independent contractor. And you know, I’ll harp on some language that you used when we first started this question, I believe you said we employ independent contractors at catalyst, and you know, one of the questions that came to us through, through Facebook, I think the guy said we, our PT, we pay our private training employees as 1099s. And it’s like, you guys gotta be careful about your language, because we’re talking about two completely different things.

Matt (36:28):

So, all right. So really quickly, an employee under United States tax law, you’re going to file what’s called a W2 at the end of the year. So W2 is a simply the title of the tax document that says, this person is considered an employee. This is how much money they made. And this is how much I contributed in addition to this person’s pay to federal taxes. OK. Because you, as the employer are required to make federal matches of their social security and Medicare contributions. Separately from that, you have independent contractors also known as 1099s. 1099. Again is just a number of the form that you file at the end of the year in your taxes that says, this is the amount of money that I paid this person, as an independent contractor. And so you’re basically telling the government, I paid this person more than $600.

Matt (37:22):

So therefore I have to file a 1099. So, you know, as the federal government to go track down that person, to make sure that they’re paying all the taxes that are owed to the federal government and that person’s not hiding any money from the federal government. Right? So whenever we’re dealing with proper tax designation, of course call your accountant. Cause I’m not a tax attorney. But the IRS is gonna look at three primary factors. The first one is gonna be behavior of the of the worker. We’ll call ’em generally the worker. Do you have standard operating procedures that you require your trainers to follow from point a to point B? Do you provide them specific training that you believe is best practices and then require them to use that specific training? Like, do you have a certain way that you teach a deadlift and they are required to teach that way or that deadlift that way?

Matt (38:22):

Every time they teach it and any deviation from that is a threatening of their position as a trainer, things like that. Like how much control basically do you have over this person? More control leans more toward an employee, not an independent contractor. Second factor is gonna be the financial factor. OK. How do you pay them? Are they paid one lump sum every month, regardless of the amount of work that they do, that’s called a salary and they’re probably an employee. Do you pay them one for a particular job? You bring in this trainer, this trainer teaches a Saturday afternoon gymnastics seminar. It’s a one time thing. You pay them $500. You give ’em $500 cash and they leave. That’s an independent contract versus somebody who comes in. You put them on the schedule to train your classes Monday through Friday 5 15, 6, 15, 7, 15:00 AM.

Matt (39:19):

And you’re paying them the same rate of $20. Well, we’re kind of on the line again, because you’re exhibiting more control on a regular basis. These aren’t one off things. Then the third factor that the IRS is gonna look at is the relationship to this individual. Again, does this individual have their own unique set of skills they’re bringing in all of their own equipment. They have their own, sort of way that they do things and you don’t really care how it gets done. You just care that, that it gets done. Do you provide them with sick leave? Do you provide them with paid days off? Do you require them to show up 15 minutes before class and stay 15 minutes after class? Do you expect this person to be around for an indefinite amount of time or are they only here for one month?

Matt (40:15):

If they’re personal training client or personal trainer and the relationship between you and them is they bring in, they basically eat what they kill. They bring in their own clients. And as long as they have clients, they can use their facility. But if they don’t have their own clients, you’re gonna provide them clients. You know, once again, we’re maybe leaning low bit more toward an employee than we are as an independent contractor. So those are the three factors that the IRS is gonna look at and consider. And any time it starts to lean more toward an employee in any one of the three factors, you’re pretty much set to consider the person employee.

Chris (40:55):

It is similar in Canada, bu that is one place where Canada’s a little more open than the states surprisingly is. It’s pretty easy to be a contractor in Canada and I, I’m going to bet that’s because of our tax laws here. They’re gonna make more money off you if you’re an independent contractor, probably anyway.

Matt (41:13):

But you know, one follow up there is we had that a couple of questions coming in from California. California, I’ve been told though, I haven’t had a reason to research this yet, is now saying that every business owner must provide some sort of benefits to anybody who works for them and they can’t turn around and say, you know, we don’t provide you, the employee. We don’t provide you workers comp. We don’t provide you any kind of paid time off or anything like that, which really puts California gym owners in a bind because if you’re providing them benefits, they’re probably an employee.

Chris (41:57):

That’s tricky. And, you know, every gym owner that I know is a generous person, they want to do extra things. And, unfortunately stepping one toe across that line might be, make a massive difference to the profitability of your business. So back to non-competes and nons solicits. A couple years ago. We gave out free like contract templates and we took the free ones off our website now, because I didn’t want anybody to use it without talking to an attorney. And, the other change that we made was we took the non-competes out and just left the non solicits because a lot of people were trying to employ the non-competes in a way that would invalidate the whole contract. Do you maybe wanna explain like how that can happen?

Matt (42:40):

A way that one issue of the contract can end up invalidating the entire thing?

Chris (42:46):

Yeah. So for example, like, let’s say that I had a non-compete that said you cannot be a personal trainer anywhere in our city for one year, right? Now no court in the world’s gonna enforce that. Right. But if that’s in the contract, like, could that invalidate everything else that’s in there about like scope of work and pay and stuff like that?

Matt (43:06):

Yeah. OK. So it can. You know, there are law courts of law out there and laws that will say look at this one that, that the gym owner cited from California, if there’s one piece of inconsistency within the contract, it’s all invalid. OK. Now that happens to be a little bit different under Pennsylvania law. And I was recently looking at Idaho law for another gym owner. So I happen, I can speak to this to Idaho law as well, that there are other courts of law that will allow what’s called blue lining a contract, not necessarily red lining a contract, but blue lining the contract. And what that means is if they come across any part of a contract, whether it’s, it’s typically dealt with, with like noncompete clauses that they think is unreasonable, but the rest of the contract seems to be reasonable. The court will literally just change the language of the contract to something that it thinks is reasonable.

Chris (44:09):

All right. That’s interesting too. OK. Now let’s talk about like, if somebody was going to use a non-compete. Under what conditions would it actually be valid?

Matt (44:19):

Are we talking about like the three individual factors?

Chris (44:23):

I mean, is there any, is there any sense in having a non-compete in an employment contract for a coach or is it just best to leave it out so that it doesn’t just negate the rest of the contract?

Matt (44:33):

If you’re gonna use it, if you look at a non-compete and you think this is going to disrupt somebody’s ability to make a living, it’s probably gonna end up, if you look at it and think that, it’s probably going to be invalidated and not reasonable. I mean, that’s sort of like the overall question of reasonableness is, does it completely invalidate somebody’s ability to make a living? If you wanted to do it, and again, I’m just spit balling here. So do not quote me on this, but if you wanted to put a noncompete in there that said something like, this trainer not able to coach in another CrossFit gym within a five mile radius for a six month period, the narrower you get, and the more specific you get, the more reasonable it’s gonna be considered from a court of law’s perspective. So instead of saying, they can’t train at any, a healthcare facility, if you say, if you’re a CrossFit gym and you say they specifically can’t train it a CrossFit facility, that’s gonna come off as more reasonable than just anything.

Chris (45:42):

So in general, maybe, well, let’s talk about nons solicits next. Are they enforceable? Are they, you know, generally more forceable than a noncompete, should gyms put them in the contract? Is there any value to em?

Matt (45:57):

The problem that I have with nons solicits, and again, let’s just kind of be clear how they’re different than noncompetes. A noncompete is telling a trainer. They can’t go out and train somebody else. A nonsolicit basically says, OK, you fire a trainer. The trainer goes to the other gym and starts reaching out to their individual private training clients that they trained while they were at your gym or members that attended the classes that this coach taught often, you know, and they say, Hey, screw your gym, come on over to my gym because we’re actually a lot better over here. And I’m training over here. Now that’s a solicitation difficulty that we have from a legal perspective when it comes to solicitation is proving that it happened, and proving that is essentially what’s called a but for causation, which would basically say, but for the fact that this coach reached out and solicited your member, that member would not have left your gym. That’s gonna be real hard to prove. If the trainer calls your member and says, Hey, come on over here. And it’s not in writing. You gonna subpoena phone records and show that the phone call took place, but which one of those two people, the ex trainer or the member is going to admit what actually took place in that phone call. So they’re just so hard to prove.

Chris (47:14):

That’s right. And I do have a personal rule that I don’t make rules for other people that I can’t enforce. In this one case I do make an exception. And the reason that I put a nons solicit in our service agreements with our trainers is because when it’s in the contract, I have an excuse to start the conversation. And the conversation is if you wanna leave and go coach somewhere else, I can’t stop you, but please be respectful enough to not overtly solicit my clients. You know? And then from there we have an exit plan in place. It’s like an offboarding strategy that we call the fight or escape, which is whether a trainer leaves or is fired. You know, there’s this checklist that we follow, that just restricts them from immediate and obvious access. I mean, everybody’s so connected now that you just can’t stop a trainer from contacting clients and inviting them. So the question is like, if this is in your contact, what are you really prepared to do about it?

Matt (48:11):

Yeah. You know, I think that’s, and the thing that you have there is you basically have an intention behind your nons solicitation, understanding that the non-solicitation itself probably is not really enforceable, but you have it in there for another reason. And you know, oftentimes you mentioned this sort of earlier on another matter is having it in there, the trainer, if they’re not savvy enough to think anything else of it that doesn’t hurt to have it in there. If you just, just put the language in there and they never challenge it, unless it’s like California, where it’s almost looks like it’s illegal to have a non compete clause in your contract. You know, unless there’s a law prohibiting it, you can put anything in there you want. And if the other side agrees to it, never does anything about it. Then it never comes up as an issue.

Chris (49:03):

Beautiful. All right, Matt, I think we’ve gone through like the top half dozen questions that our audience asked, but when else should a gym owner be calling gymlawyers.com or seeking the advice of an attorney in general?

Matt (49:16):

I mean, you could say generally speaking, before you make any kind of a decision, you know, just have somebody else review it, but from a gym owner’s perspective, you know, that’s a very vague question because you don’t know what you don’t know. You don’t know there’s a problem if you don’t know what the problem actually is. So I generally will tell gym owners, anytime you’re dealing with something in writing, before you sign, just have somebody just reach out and we’re talking corporate documents, partnership agreements, corporate agreements, buying agreements, selling agreements, affiliate agreements, insurance agreements, employee contracts, waivers, membership, contracts, you know, anything that needs to be in writing, just have somebody look at it. The most common problem that we deal with is somebody calls and says, would you mind looking at this lease for me? And I say, great, when you have to have it signed.

Matt (50:14):

And they say, we signed it a year ago. It’s like, well, yeah, I’m happy to take a look at it and let you know exactly what it that you agreed to. But if this language isn’t all in your favor, there’s nothing we can do about it until it comes up for renewal. So do it before you sign it. If you have a question, just reach out. It doesn’t always mean that you have to pay an attorney either, you know, just reach out. Oddly enough, you know, I had a guy reach out the other week. One of his members was a competitor at the regional level or sectional level or sanctional level. I don’t remember what they’re called anymore. I guess I should know that. But, anyway, they got in trouble for talking to an old coach who was on the banned list. And, so they’re now in trouble with, oh, Coop, can you come up with the regulatory organization real quickly? I’m drawing a blank.

Chris (51:10):

Regulatory organization for?

Matt (51:13):

Who does the Olympics?

Chris (51:19):

As far as I knew it was WADA.

Matt (51:21):

OK, let’s go with WADA. So this owner called me and said, you know, we have to go through all these hearings now, what should we do? And, you know, that’s a prime example of you’re dealing with something pseudo legal, just talk to somebody. They didn’t end up retaining because there’s nothing for them to retain me on at this point. I don’t even know if I can give them a lot of help because they’re in another state and you know that, but just having the conversation with somebody like gymlawyers who has an idea of what’s going on and can say, yes, there’s a problem. Here’s what you need to do about it. Or there’s not a problem yet. Or there is no problem. Just call it doesn’t mean, you know, I think people get afraid, cuz they’re gonna be like, I’m gonna call an attorney. It’s gonna instantly be $500. It’s not the instance. I mean, you just, just call, I’m not gonna charge you to answer your question basically.

Chris (52:22):

All right, man. Well, that’s super good. And you know, in a lot of cases, people are scared of talking to an attorney because they’re scared of the fees, but honestly, you know, in most cases you’re going to save a lot of money by talking to an attorney, right? Yep.

Matt (52:36):

Yeah. It’s kinda like an insurance policy. You spend a lot of money to save a lot of money. Well, I shouldn’t say it that way. You’re gonna spend money to save a lot of money.

Chris (52:46):

Sure. Yeah. Just like a good accountant. So, Matt, the old adage is everybody hates lawyers until they need one.

Chris (52:59):

Like when should people call? Is it ever too late? If they’re in trouble, if they’re getting sued, if they’ve dropped a ketlebell on somebody’s toe.

Matt (53:08):

So my whole purpose in gymlawyers is to try to head off these problems, but that’s a very good point. If you go to trial and you lose and you’ve got a verdict against you, eh, I mean, we can probably look at some sort of an appeal, but that might be a little bit too late, but really it’s never too late. If you get sued in Arizona, I can’t help you in Arizona. But what I can do is I can narrow down your search to help you find somebody in Arizona who’s gonna be one knows what it is that you’re dealing with. And two is gonna be a reasonable attorney. You know, there’s always what we would, you know, you do it referrals, right? If somebody in Gym Owners United wants to travel to another state and drop in another affiliate, what do you do?

Matt (54:03):

You find the owners on Gym Owners United that, you know, and you trust and you say I’m traveling to Florida, anybody know a good CrossFit gym in Florida, that I can go to. It’s same thing. I’ve been sued in Arizona. A member fell off the pull-up bar and broke their back and they sued me for liability. Can you help? No, I can’t, but I sure can find somebody in Arizona I can call around and narrow the search down. I probably have some sort of a network who can give me a good qualified referral for you.

Chris (54:31):

All right, man. That that’s awesome. Thanks very much. And if people wanna contact you, where can they reach you at gymlawyers?

Matt (54:38):

The best thing to do is just go to gymlawyers.com. There’s call to actions all over that under, you know, mimicking my Two-Brain model. I think my phone number and my email are also on there. It happens to be my cell. So you will get me directly.

Chris (54:53):

Wow.

Matt (54:53):

That’s something I’ll have to change eventually, but Hey, you know what, I wanna talk to you, so yeah. I’m not gonna push you off to a call answering service, reach out. You’re gonna get the owner. I’m gonna talk to you, but yeah, go through the website’s easiest way. Gymlawyers.com.

Chris (55:15):

Matt is also very generous with his time in Gym Owners United. And if somebody asks a question that even borders on a legal one, he’s usually pretty quick to jump on there and offer as much help as he can, you know, given the context and the restraints of Facebook. Matt, thanks a lot for all your help in Gym Owners United and also for coming on and helping our listeners with this stuff.

Matt (55:35):

My pleasure Coop, thanks for having me on.

Mike (55:38):

Two-Brain Radio airs twice a week and features all the info you need to run a successful fitness business. Subscribe so don’t miss a show. Now here’s Coop one more time.

Chris (55:45):

Thanks for listening to Two-Brain Radio. If you aren’t in the Gym Owners United group on Facebook, this is my personal invitation to join. It’s the only public Facebook group that I participate in. And I’m there all the time with tips, tactics, and free resources. I’d love to network with you and help you grow your business. Join Gym Owners United on Facebook.

 

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