Craft the Perfect Invoice Terms and Conditions Wording for Legal Use

Invoice terms and conditions wording for Legal

they are going to increase the rate based on nothing essentially welcome to the contract teardown show from law insider where legal experts tear down contracts from some of the most well-known companies and high-profile executives around the world in this episode attorney joseph mitkevichus tears down the waste management terms and conditions applicable to permanent services and although that sounds simple enough joseph focuses on the permanent part of that title contracts like these rely on customers missing key expensive clauses so let's tear it down hey everybody welcome back to the contract tear down show from law insider i am mike whalen the purpose in the show is exactly what it sounds like we take contracts we beat them up we are mean occasionally nice but not often it's not as funny uh today we are here with my smart friend joseph mitkevichus joseph how are you today i'm doing pretty good thanks mike good so today joseph we are looking at this document let me share it with you guys it is a waste management terms and conditions permanent service etc what is this document joseph well this is the like you said it's the terms and conditions that waste management uses for their commercial waste hauling contracts basically any small business religious organization nonprofit that has dumpsters or trash containers and is not receiving the service from a public entity gets some version of these terms and conditions and has to sign them to begin service got it so maybe to generalize we've got like a big company and a small company this is a service contract with a lot of like hanging on uh functions in the contract so we're gonna talk about those and sort of how one-sided they are but before we dig into that joseph uh tell us about you a little bit what's your background what brings you to documents like this tell us about yourself great well um right now actually i'm a criminal defense lawyer in pensacola florida but trash has been one of my passions for the last 15 years or so um came to it through a passion for growing food and the connection between organic food waste and soil fertility and ended up getting involved in trash contracts and over the years started seeing the same problems over and over again and now okay so look joseph i have to tell you during the pandemic i started a garden and you can't really have a garden in america without a compost pile and so i have to say like i'm with you a little bit obsessed about the nature of a compost pile and what it means for society and stop growing lawns and we could talk about that all day but i will say i have never loved my compost pile enough that i want to mess with trash contracts so i appreciate it usually when we talk about trash contracts on this show we don't literally mean contracts for dealing with trash but that is what we're doing today so i appreciate you being with us joseph what we're going to do is jump right into this document we're going to go section by section but but you guys will see there's a theme there's a there's a background issue uh that we really wanted to touch on so so let's talk about it before uh we dig into uh the contract term questions just give me a bit of background on this document as you said this is a this is the kind of document that that i the church or the the small company or whatever i'm signing with this company for trash services is this the kind of document where you you really only have one service that you can use in this area and so they pretty much have all the leverage what's the sort of relationship between this particular company and your company it depends on the geographical area usually there will be multiple providers i usually advise you can have the ability to negotiate better with a smaller local provider often but usually no matter where you go except for a few places in the northeast waste management's going to be the the big player and so this is essentially a contract of adhesion it's not negotiable necessarily or small companies don't usually negotiate it's the type of thing that you get and you sign yeah fair to say waste management has a lot of leverage and probably sets the terms for what the other companies do as well they probably sort of follow suit which you see in a lot of these kinds of these kind of industries all right well let's jump down to two two has to do with the contract term it talks about the initial term and it talks about these follow-on terms uh and renewals tell me about two and and just i know that this is a a big thing that we're going to talk about in this contract talk to me about the initial term and the renewal terms in this agreement okay so the in this agreement that we hear that we're looking at the initial terms of 12-month term that's unusual um generally you'll see a 36 month or a 60 month term the important piece in that clause is that it is an ever it has an evergreen clause or an automatic renewal term that says at the end of whatever the initial term is the contract automatically renews um and so in order to cancel you have to cancel within 90 and 120 days or 180 days is it 180 days and so that it's a central mechanism that that results in the the type of things that we'll talk about later with companies paying 10 times what they agreed to initially pay on their contracts and the renewal i think does it automatically renew to another 12 months is that right it does it will automatically renew to the whatever a term of however many months the initial term was like i said this is a 12-month contract that's unusual normally it'll be 36 months automatically renewing into another 36 months right written notice um between 90 and 180 days like you said notice of termination received at any other time will be considered ineffective and the agreement will be considered automatically renewed upon completion of then existing term as an aside in the background what i'm reading is i this is reminding me a lot of i'm not going to name names here but of legal research tools that i signed up for uh when i own my own practice and the nature of these kinds of contracts so like in the background i'm i'm thinking of me as a small business when i'm dealing with big players like this that have these sort of contract terms you sign them without really thinking about it because you got to keep and you don't really notice that there's a major drama problem until we come to renewal so let's jump down to four uh there's a bit in here in four about the charges and specifically about price increases consensual price increases talk to me about four a b and c and the nature of the prices and their relationship with that renewal term okay so in four um waste management has been developing this uh this section of the contract over the last 10 years since i've been looking at these and and what four has always been trying to do is allow waste management to without informing the their customer uh automatically increase the base rate that they're charging for trash service every year throughout the duration of the contract and so 4c is a new clause that was added in 2018 that makes it very clear that they're going to increase the rate based on nothing essentially prior to 2018 all they had was the 4b language which said we reserve the right to increase the rates based on fuel prices and then a laundry list of everything you could possibly imagine right that says that they may do that then in effect they would do it every single year every single time at a at a calculated rate sure now they've put the customer on notice that they're going to do that in 4c um and then in 4a the language that is important uh as it relates to the price increases that customer the customer can agree to these automatic price increases by making a payment and so um it seems like they're consensual it says you know you're agreeing to these price increases you have the ability to decline the price increases but if you pay the invoice that means you've agreed yeah i love that that they use the term consensual price increases like if i say it loud enough it's definitely going to be true i mean they say on here customers failure to terminate this agreement within the 30-day period shelby construed his customers acknowledgement that the continuation of the services with the price increase everybody's cool with it just like you said just by signing you know continuing to make a payment and not raising holy hell you must you must absolutely love it um but what's the thinking about the the clients sort of perspective on this and their relationship with this contract then when there's a contract like this that has these automatic renewals um you know some hoops to jump through uh to your point clients are probably not paying attention to this kind of uh contract it almost feels like managing this contract is not on the front end it's on like a contract management side you you've got to think about what are your contracts that are in place know the rules put them up on a wall put some post-it notes up there like what would you what do you tell your clients in terms of just managing a contract like this assuming they can't negotiate it well i i try and tell my clients never to sign a contract like this um and and if they are going to sign a contract like this then the main most important thing is that they understand the real price of the contract and so you know what happens to a lot of my clients is that they'll sign a contract for a hundred dollars a month for 36 months and they think well i just signed a contract for 3 600 waste management knows that that contract has more like a 6 000 7 000 value to it and then when you get down the road we're talking that contract is going up every year at an exponential rate and so it's also important to pay close attention to the invoicing because part of this that's not included in this contract is there's some price obfuscation and that there's three different stacking fees that are in addition to the base rate and so you and one of those fees is based on a fluctuating number and that is the average price of diesel fuel in the united states and so they'll have your base rate is a hundred then on top of that you're going to get a 15 fee for um what i don't think the fuel surcharge is first i i can't remember the name of the first fee but say it's a 15 fee then you'll have on top of that a percentage fee that varies based on the price of diesel that will be a percentage of base rate plus fee number one and so you've got that and then there's a third one that's tacked on that's a regulatory char fee that is base rate plus fee number one plus the variable percentage fee number two in a percentage of those three numbers together and so every month the number on your invoice is going up and down a little bit and so it's harder to notice when every year there's an automatic 20 to 25 percent increase to the base rate you don't necessarily notice that the contract's been moving around every month and so you don't necessarily realize that time you paid the invoice on the year anniversary and now you've agreed to it um there's also a discount that waste management gives if you put it on autopay and so that you're never looking at it and then as this happens we're talking six years in the price has doubled um the base rate has doubled so i had i had one smallest church that i was paying two thousand dollars a month for trash service and when we looked at the contracts they had signed a contract for 200 a month in service and their service had not changed and when we got bids from other haulers in the area the price hadn't changed the market price hadn't changed either they all came in right around 200 or even less and they were paying 2 000 a month so when they contacted waste management to say hey we're paying 10 times what we agreed to pay on this we want to cancel our service waste management says well you know you're in the sixth automatic renewal period and really you're in year one of a three-year agreement that you've agreed to and so if you want to cancel you're going to have to pay us six times your most recent monthly invoice is going to be thousand dollars yeah to cancel this contract i i'm telling you i had this exact same experience with a legal research tool who again i won't name but let's jump down to seven because this is what we're talking about like let's say the client gets in and they're the holy cow we've been paying this crazy amount this whole time uh we want to know how to get out of this thing jump me down to seven it's the liquidated damages section um if you if you try to terminate for the initial or renewal term for any reason uh other than what's in 3a which i assume is like everybody dies basically it's armageddon um tell me what are the liquidated damages what are your what were your clients running into when trying to get out of this contract so what happens is the liquidated damages are calculated as six times the current monthly invoice generally here it's the average of the most recent six invoices that's some new language um but it's the most recent prices so we're not talking about getting out of that two initial 200 by paying 1200 we're talking about now paying 12 000 to get out of a 200 a month contract um and so but the what waste management does at that point says you know you can pay us twelve thousand dollars and get out of this contract or you know we'll give you a new contract you can sign and we'll give you fifteen hundred dollars a month off you can sign this new contract at five hundred dollars a month we're gonna do you a huge favor and we're gonna give you fifteen hundred dollars off if you just sign this new contract you don't need to cancel or you can pay us to twelve thousand dollars but i mean you're going to save a lot of money ever on you that's how the conversation goes um and then when they when that's turned down then there'll be threats of lawsuits to come after them for the liquidated damages yeah again just absurdly relatable i've got some ptsd from dealing with contracts like this and and i you know to think of the big picture like i take your point that maybe the only solution to this kind of contract is just to not sign it right to be aware for your clients to be aware of what they're getting into and and now you've got to know the market because you got to be able to push them to alternatives but if we're thinking about who's watching this show the majority of people who are watching this show are not the clients lawyers most of the people watching this show are the drafting attorneys they're the ones coming up with these different provisions and sort of drafting this language and maybe this is a bit of a an ethical question or even an esoteric question why not draft like this why why would somebody in waste management's position knowing the leverage that they have not want to create these kinds of automatic price increases uh these automatic terms what would be the reason not to do this well it's interesting i mean the reason to not do it would be the effect that it has on your reputation and on clients i mean there's i get like i said just i i wrote a little blurb about it six years ago maybe and i still get calls multiple times a week from people all over the united states even some calls from canada people who are furious with the situation they found themselves and they feel somewhat responsible because they didn't pay attention and all of a sudden their their organization is paying 10 times what they should pay and they can't get out of the contract so you have you know you have some bad will you're creating but i'll tell you waste management has calculated that it's included in their annual reports that they file um their their whatever those reports are called the 10k that where they go through with their shareholders what's going on and they've acknowledged this um and the issue is that the amount of money that they're making on these automatic renewals is just by the time that customer realizes what's going on and they cancel their agreement they've collected so much money over market rate and overvalue that even if they lost even if they even if they lost it it just doesn't it doesn't add up for them still receive a benefit even after these folks leave yeah i was thinking like i wonder what the administrative costs are with just having to chase this nonsense because you know they get calls right you know they get angry calls of people freaking out and realizing and then you know they got to start chasing things they've got to start charging people and you know the the the old cliche in in law firms is if you have to sue your clients right something went incredibly sideways i'm sure to a degree that that's true for them but to your point i mean if they're publicly traded and um you know they're filing 10ks they've got to do this math they've got they've they've surely shown their shareholders look this still rois and so you know it sort of feels like you only make this decision to draft differently because you think you as a company want to stand for something else and i think that puts the the drafting attorney in a really difficult spot right because they may look at this and say you know this is crappy this is terrible i have this ptsd from this uh legal research contract that i don't want to do this to people but but you know if a client is pushing you in this roi's and you know this is the job right one one thing that works is that if there actually is a benefit to some smaller to the smaller players in every market there's going to be smaller local players and they actually have an opportunity to come into a market in which almost all of the existing customers of waste companies if they're with any of the big three are paying way more than they should be paying up to 10 times usually at least double what the market rate would be and what a small local hauler can make money off of so i've worked i work with a lot of small haulers and i have actually drafted agreements that are in use by multiple different haulers and hundreds of customers in the northeast and there's a strategic advantage and a sales pitch for smaller haulers to draft contracts that are not shady and that are provide terms that are clear and provide some guarantee to the customer that they don't have to watch them like a hawk and that if this ever happens they can get out of the contract without these issues like i couldn't think of a more commoditized business than i take your trash away but to your point by contracting differently you create a competitive advantage in an industry where i mean there really is no competitive advantage you're just dragging trash somewhere right to the client's mind to the customer's mind there's no difference but contracting creates that advantage that's an interesting that's an interesting thing well joseph uh you are a nerd uh about garbage uh that is like i hope you have a bumper sticker and like business cards let's say garbage nerd or whatever uh take it take it that there's a competitive advantage for people who want to reach out to you joseph and learn more about what you do in your practice what's the best way to contact you they can find me on my website pensacola.lawyer and there'll be a link you can get on my calendar i'd be happy to speak to anyone at any time anything to do with trash contracts or trash policy or anything dealing with trash i'm always ready to talk about it or are smoking compost piles and the garden that is dying well i'll tell you i block closure flies that's something mike that i think you could get into it i have started farming them at my house and they consume all of my household waste and they consume it all within a 48-hour period that is like my household waste nothing we're getting to next level nerd uh guys thank you for joining us we're gonna have links to joseph's contact information to this document to anything else you might need over at law insider.com resources and if you want to be on the contract teardown show to nerd about apparently whatever we want to nerd about we can do it uh just email us we are at community law insider.com thanks again joseph we will see you guys next time all right thanks mike [Music] you