Keeping Our Houses in Good Order
August 1, 2011
COLUMN : Dealer Perspectives | Management
The home improvement industry has come under close scrutiny for what some regulatory bodies are calling deceptive and misleading sales and employment practices. Unfortunately, many companies have already faced massive fines, penalties and legal fees.
This column is designed to build awareness of some of the possible legal problems that dealers can encounter, as well as offer some cautions and recommendations. The information gathered comes from various sources and is not exhaustive, by any means. This article is also not written by an attorney. Readers are advised to see an industry-familiar legal and/or tax professional for specific advice.
DOS AND DON’TS
To begin, because the definition of “deceptive” is inherently subjective and often determined by a regulatory official, avoid any and all questionable practices. Some examples of items that can raise a red flag with investigators are “drastic” price drops, discounts exceeding 10 percent from the “regular” price, and “energy savings pledges,” especially anything over 30 percent.
Sales training programs should be consistent and frequently reviewed. Standardized and documented practices are essential. Clearly stated and easily understood compensation programs help to avoid disgruntled employees, who are frequently the ones who bring questionable practices to the attention of authorities or the media. Avoid any sales practice that may be construed as discriminatory to employees or customers.
Document allowable discounts and the rationale for price drops, include this documentation in all sales training and employee manuals, explain the rationale in training documents, and keep the documentation on file.
“Rehash” products should be materially different from the original product offered, not the same product originally offered with a reduced price. Overall, reductions in price must be reasonable and based on defensible cost differences.
Be clear about what your company is offering. For example, an “energy audit” is a quantitative measurement performed by a trained professional using special equipment and recognized industry standards, and must be prepared by a certified auditor. An “energy analysis” identifies where specific opportunities exist or may exist to save energy. It is not an official audit, so no certified auditor is required.
In all advertising, include full disclosure of company licensing, and clarification/examples of all advertised offers or promotions, including financing. Clarify what company is offering the financing in every medium where its availability is mentioned. Do not participate in any activity in which your company benefits from a customer’s choice of financing.
Ensure proper paperwork and information is being presented by the sales staff and signed by customers, including the customer’s right of rescission and the most current “Renovate Right” booklet for pre-1978 homes.
If production crews or other subcontractors are not employees of your company, carefully review the current laws and regulations governing 1099 workers to ensure that they still qualify as such. If most of the work your independent contractors do is for you, if you guide how, when, or where the work is done, or if a number of other conditions exist, the governing and taxing bodies may view them as employees, and you would be responsible for all relevant benefits, taxes and insurance for them.
Additionally, if using subcontractors, be sure that your insurance carrier verifies that their insurance provides adequate coverage for your company, as well as the homeowner, and that they are providing all the proper and required insurance for their employees. Otherwise, liability for an injury or accident could land on your doorstep.
Finally, it is critical to realize that ignorance of the law is no defense.
CAUTIOUS AND PRUDENT
While some of the above recommendations may seem excessive to some, it is important to note that even companies that have ultimately been vindicated of all charges have been unable to cover the costs of defending themselves and have subsequently gone out of business. Winning the battle, but losing the war—or the business in this case—provides little reward or consolation in the end.
Overall, it is better to be extremely cautious and prudent in designing and executing a company’s sales, marketing and employment practices. Better to avoid even the appearance of impropriety than to continue with “business as usual” just because no regulatory body has questioned it yet.
We are working in a challenging business environment, where it is sometimes difficult to remain current on the wide array of rules and regulations that govern the home improvement industry. The economic climate has also made our already-litigious society even more prone to aggressive legal tactics. Active participation in trade organizations like the WDDA is one important way to ensure that you stay apprised of the most current legislation and changes affecting your business; but company-specific advice from a trusted professional is also essential to protect your company’s interests. Hiring industry-specific legal counsel to review sales training practices and documentation, employee manuals, employee procedures and contracts, advertising and customer contracts can be particularly helpful in avoiding legal problems and maintaining a good reputation.