Understanding the Liabilities Associated with Rental Contract Exit

Contract Exit: understanding your Liabilities

This is the third in a six-part series making general, common-sense recommendations for exiting a laundry rental agreement based on strategies that have worked for other companies. Read our first post here, and learn more about each step by following along with our series (new posts coming soon!) here.

In our last post, we took a look at a practical approach for exiting a rental laundry contract that has worked for other companies experiencing service level issues.

The good news is that, once you are successful in proving termination for cause, you can legally exit the agreement without facing liquidated damages, penalties, or early termination fees.

The unfortunate news, however, is that your company does not get to keep the garments. This is because your company was renting the garments from their owner – that is, your uniform rental provider. As a result, your company is now responsible for returning the garments to your former rental provider.

Think of this in terms of a car: if you lease a car and you terminate the lease because it breaks down, you still have to give the car back in order to officially end the lease. It’s much the same with rented clothing.

In this fact lies your company’s main liability: thousands of garments in service within your company have to be collected and returned to your supplier. And, in most cases, the rental provider will have more thorough records – on the number of garments in service, etc. – than your company. Here are some examples of how charges accrue on your account – and are assessed at the end of the agreement:

Are the provider’s own rosters and records accurate?

It is not uncommon for a provider’s records to include inaccuracies. Perhaps this is even part of the reason your company is looking to leave the program in the first place. For example, we have heard of cases where an employee left the company and turned the clothing in but wasn’t removed from the rental company’s billing.

The unfortunate truth is that your company will be charged for unresolved inaccuracies like these “outstanding” garments as part of the turn-in process. Accordingly, you’ll want to guard yourself against charges like these by closely examining your invoices and gathering documentation in advance of the final negotiation.

Have some garments been lost along the way?

There will always be garments lost – misplaced, forgotten in the truck, loaned to a coworker, etc. – between work and home. It is not at all uncommon for some garments to have been lost in the laundry provider’s possession during the laundry or delivery process – delivered, for example, to the wrong customer or locker – and not recovered. Unfortunately, the provider will charge your company for garments that were provided to your workforce and not returned – for whatever the reason – at the end of the agreement.

Pro tip: don’t wait until you’re leaving the agreement to worry about garments lost during the laundry or delivery process. The bottom line is that, unless you can prove the supplier is responsible for their loss, you will be responsible at the end of the agreement to replace them. Encourage employees to verify their deliveries of clean laundry each week and promptly document any garments that go missing along the way. Rental laundry companies may be more empathetic and helpful in working out missing inventory in the early stages of the “service guarantee” process. For example, if you provide official notice about problems with “shortages” (garments not returned by the supplier after being turned in for laundry service), the provider may replace those missing items for free in order to show their commitment to fixing the service issues – and to retaining you as a customer. However, once the provider realizes they have lost your business, they will not give anything for free and are not likely to be very accommodating.

Ultimately, if each garment was not being accounted for during each on-site pick-up and again at time of delivery, such “lost” garment fees should be negotiated and not simply accepted as initially provided/proposed by the supplier. Follow along with our next post for more information – including a step-by-step guide to auditing the clothing in your system.

Are some garments damaged?

As part of the turn-in process, the vendor will apply charges for garments that have been damaged or degraded through use. Where damage or degradation is extreme, the provider may consider the garments “abused.”

Though your company is physically returning these garments, the provider may charge you to replace them, alleging that they can no longer repurpose garments in poor condition within other programs. There are several variables – with associated cost to your company – that can lead to exorbitant damage charges:

  • Were the garments new to begin with? Rental laundry companies generally make a profit by issuing returned (used) clothing as replacement garments or to new hires.
  • Do these charges factor in the length of time the garments were in service? Experience has shown that rental laundry companies almost never charge a depreciated amount – regardless of how used a garment was when first put into service within your program, or how long it was in use. Worse, “damaged” garments are almost always invoiced at full replacement value, which is closer to retail pricing.
  • Are garments with normal wear and tear being alleged to be “damaged”? Rental laundry agreements typically state that they do not charge for normal wear and tear. However, normal wear and tear is subjective. Plus, it is easier – and more profitable – for the supplier to allege damage and place the burden of depreciation on a customer whose business they have lost than it is to absorb the depreciation.
  • Can alleged damaged be proven? In our next post, we’ll look at a step-by-step way to audit damages yourself, using this information to refute and renegotiate unsubstantiated damage charges.
  • Was any alleged damage sustained during the laundry process itself? If so, you’ll want to gather documentation ahead of the final negotiation. In the absence of proof, you will be charged at the end of the agreement to replace these damaged garments.

Though the process of collecting the garments for turn-in – and ultimately limiting your associated financial liabilities – will require some diligence, it doesn’t have to be overwhelming. Read on to the next post in our series as we examine a straightforward, common-sense strategy for managing garment inspection and turn-in.

In fact, the step-by-step collection process in our next post will arm you for the final negotiation with a complete audit of the garments you’re returning. Stay tuned!

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