Are you like so many businesses I see that offers wellness services across the United States, perhaps through a virtual platform? If so, pay attention. Depending on the type of services you offer, you may be subject to state laws regarding refunds and cancellation policies. Let me give you an example:

A fitness company offers a membership program to anyone, anywhere. Customers can pay in advance and receive a discount or pay monthly. The fitness company’s Terms and Conditions indicate that no refunds are available once the customer pays for the membership. However, customers that are unable to participate in the fitness program because of injury, illness or other life circumstances are free to “pause” their membership until they can start up again at no extra charge.

Is this refund policy compliant with state law?

Well, that depends on the state. Which state, you may ask? The state in which your business is located, but also in which your customer is located, which may be two different states. How is this possible? In the law, there is this concept of “personal jurisdiction,” which means that if you have significant contacts with a state, such as purposefully conducting business in that state (even from afar), then you invoke the benefits and protections of that state’s laws. See e.g., Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 US 915, 924 (U.S. 2011).

So, if a state in which you have a significant number of clients has a state law about refunds that you are not following, you might be in for a shock. Let’s return to our fitness company example. Suppose a customer living in California needs to cancel their membership after becoming permanently disabled. The customer has a physician’s note verifying the disability. The customer contacts the fitness company requesting a refund and the company declines, pointing to their “No Refund Policy” that the customer signed before becoming a member. Does the fitness company’s written No Refund Policy that the customer willingly and presumably knowingly signed supersede any California law? In this case, no.

Under Calif. Civil Code § 1812.89(a)(2):

“In every case in which a person has prepaid a sum for services under a contract for health studio services, and by reason of death or disability, is unable to receive all such services, the party agreeing to furnish such services shall, on request, immediately refund for such person…such amount of the sum prepaid as is proportionate to the amount of services not received.”

The statute defines “disability” as a condition which precludes the buyer from physically using the facilities and the condition is verified by a physician.” Calif. Civ. Code § 1812.89(a)(3). The statute defines “contract for health studio services” in relevant part as “a contract for instruction, training or assistance in physical culture, body building, exercising, reducing figure development or any other such physical skill, or for membership in any group, club, association, or organization form for any of the [previously named] purposes.” Calf. Civ. Code § 1812.81.

It would appear then that the California law would apply to a virtual fitness company that offers memberships to help people exercise and stay in shape. In this case, the fitness company’s refusal to offer a refund to a customer with a disability violates California law in two ways:

  1. It’s No Refund Policy did not contain an exemption for those customers who die or become disabled; and
  2. It failed to refund the membership payment after the customer requested such a refund pursuant to California law.

This means that if the customer wanted to, they could sue the fitness company for three times the amount of damages caused by the failure to refund the money, plus recoup their attorney fees. See Calif. Civil Code § 1812.94(a).

Moreover, the California law states that a health studio cannot waive the protections of the statute. Calif. Civil Code § 1812.93 (“Any waiver of the buyer of the provisions of this title shall be deemed contrary to public policy and shall be void and unenforceable.”) So, a cancellation policy that conflicts with state law cannot override the state law, even if the customer signs off on the company’s cancellation policy.

In this case, the fitness company would probably be smart to refund the customer’s money. Not only is it expensive to defend a lawsuit, but failing to give a refund to a customer suffering from a permanent disability looks bad.

If you are a wellness business operating in multiple states, it may be a good idea to contact legal counsel to determine if you are following state refund laws. Reach out to the Center for Health and Wellness Law, LLC for assistance today.

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