Term Limits

A Saskatchewan bill would restrict the length, and strength, of service contracts.

Profits Is there a health club contracts crisis in Saskatchewan? Well, no. Neither the drafters of Bill 12, The Consumer Protection Amendment Act, nor the health club owners who oppose it, can pinpoint any particular event that served as the impetus for clamping down on the types of contracts that club owners can offer. "I'm unaware of anybody being bilked out of fortunes by our industry," says Grant Roberts, owner of two clubs in Saskatoon and one in Pitt Meadows, B.C.

"There was nothing specific you could point to," agrees Larry Wilson, deputy registrar of the Saskatchewan Department of Justice's Consumer Protection Branch. "There was no court case and no big issue, just a general feeling that we had to revisit our existing legislation. We have something called the Sale of Training Courses Act, which dates from the mid-1970s and has to do with prepaying for dance lessons and things like that. It had become quite dated."

Bill 12 would bar health clubs from offering memberships of more than one year. It would also allow members to break a contract for any reason at all; currently, standard club contracts allow for cancellation within, typically, the first 10 or 14 days (the "cooling off" period), and thereafter only in the event of death, disability or a major relocation.

The Department of Justice characterizes Bill 12 as an important piece of legislation that protects the public from sometimes-unscrupulous service providers, of which (they are quick to point out) health club owners make up only one small part. Club owners view it as a misguided, unnecessary and unfair attempt to curb their ability to compete in an increasingly competitive market.

"The bill is literally saying that there is no such thing as a contract," Roberts says. "The legislators are giving zero protection to the business operator - and they have an equal mandate to protect us."

There was a time, in the early days of the health club industry, when some clubs offered lifetime contracts to prospective members. And there have, in fact, been circumstances in which a club has sold new memberships right up until the day the club has closed. But long-term contracts are now far outside the norm; most jurisdictions limit contracts to three years, while the typical contract these days consists of a one-year deal that is paid in monthly installments, after which the contract converts to a month-to-month basis.

"The important thing really isn't the term of the contract," says Helen Durkin, director of public policy for the International Health, Racquet & Sportsclub Association. "The question is, who has the money? The ultimate protection for the consumer is no prepaid contracts."

Saskatchewan's legislators view limits on contract length as being preferable to laws that regulate bonding and licensing, and on this point at least, club owners agree. "A bond gives people a false sense of security," says Durkin. "If a club closes suddenly, members get pennies on the dollar. And if you require club owners to post a larger bond as a requirement for opening, you're just creating a formula for going out of business."

Roberts, who in February spoke against the legislation before the Justice Department's standing committee on human services (a new provincial law requires a public comment period before bills are made law), insists that current laws already protect the consumer, and that Bill 12 will hurt both business owners and consumers. "A contract gives us security, lets us know we're getting that capital," Roberts says. "Club owners will be forced to raise their rates to offset the lack of security they're going to have as a result of consumers being able to say, at any time, 'I've changed my mind.' "

Wilson offers as a justification for Bill 12 the fact that other jurisdictions, including the provinces of Alberta and Ontario, have recently chosen to go the same route. To Durkin, however, this doesn't qualify as good news.

"It's clear from some of the laws that are written that legislators, or the staffers who write the bills, don't understand the club industry," Durkin says. "The Ontario law that passed last year, a royal decree that resulted from the actions of one unscrupulous operator, was problematic for good operators and didn't address a single one of the problems that it was supposed to address. I've seen laws written that would force members to renew their contracts every 30 days. It's crazy."

The province's official position on some of these issues would appear to confirm Durkin's opinion. Asked whether Saskatchewan consumers are already protected by existing laws, Wilson seems unaware of club contracts' cancellation policies. "Part of our concern is we get a lot of young people signing contracts and then they relocate, don't pay their fees and end up being referred to a collection agency for something they're not using," he says. "The other part is the clarity of the cancellation process. A lot of times, young people will phone and say they're moving to wherever, and they gain the understanding they've cancelled their contract by that phone call. Six months later, they find themselves contacted by a collection agency."

Asked whether legislation is really needed to protect young people from contract provisions that are spelled out in advance, Wilson says simply, "The one-year contract term will protect all people."

Roberts' clubs either utilize the one-year contract option or a straight month-to-month membership. "I don't want people to pay me up front, I want revenue streams to stay the same," he says. "At least I know every month that my expenses are covered."

He says he's speaking out about Bill 12 mainly over principle. What irks him most is the bill's "audacity" in allowing consumers to walk out on a contract they presumably signed in good faith - and, above all, the provision that specifically exempts municipal and other nonprofit fitness centers.

Roberts isn't alone on this one. Frank Guengerich, executive vice president of Silver Spring, Md.-based club consultancy WTS International, says this provision "irritates me," then catches himself. "I should say it interests me that there would be legislation that would exempt government and only target business," Guengerich says. "That to me is the epitome of a bureaucracy not being fair to commercial businesses. They're punishing small businesses, and it just gets under my skin." Durkin adds, "If the issue is consumer protection, then the consumer should be protected in whatever venue he or she chooses to work out." (Pressed on the fairness issue, Wilson says, "That's something that a legislator would have to answer.")

As for actual solutions to the perceived need to further protect consumers, Roberts suggests something on the order of a self-governing body that gives consumers information and advice on health club contracts and other issues. A fitness center hotline could serve as a Better Business Bureau, allowing stung consumers to help weed out unscrupulous club operators.

"Legislators seemed quite receptive to that idea," Roberts says. "Whether or not it'll happen is another question."

Roberts took his share of silly questions in the public forum. Asked about "the people who build facilities specifically to bilk people out of money," Roberts shook his head. "I'm thinking, who in their right mind would do that? To start a club of any magnitude, you're looking at a minimum half-million-dollar investment. There are a lot of easier ways to bilk people."

He remains hopeful, however, that the bureaucrats will begin to see the light.

"What was encouraging was that after I was finished speaking, three of the Justice Department's representatives came to me, shook my hand and said, 'I absolutely agree with you,' " Roberts says. "So I didn't feel like I was completely wasting my time. I hope intelligence will prevail - but we are talking about government."

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