WHEN and HOW You Should Go About Refunding Your Clients During the Covid-19 Pandemic
Unfortunately, despite all client communication and your best efforts to reschedule, sometimes your clients will want to cancel services and/or request a refund. Since it’s unclear WHEN life will finally get back to normal after this pandemic, clients may want some financial certainty that comes with a cancellation and a refund, especially since lots of people don’t know when or IF they can reschedule. Knowing how to navigate these waters and still provide support and excellent service to your clients can be tricky, which is why we at The Legal Paige are here to help walk you through.
First, and most importantly, COMMUNICATE with your clients
The very FIRST step you should take when you hear your client wants to cancel your services to TALK with them. Tell them you have a plan and articulate just what that plan is, try to move them towards rescheduling or postponing their event. Take initiative and send your clients an email communication detailing how you as a business are handling these trying times, and how that may impact your ability to provide them with the services that they paid you for.
Inform your clients of the value that rescheduling or a postponement provides, as opposed to the hassles that can come with a full blown cancellation. The goal is to be willing to perform your services that the clients have paid for sometime in the future. You want to work towards a mutual agreement with your clients regarding how they can utilize the services they’ve paid for. It’s absolutely crucial that you evidence through email communication that you are trying your absolute hardest to perform your services at a later date!
Ok, so rescheduling didn’t work. Your clients still want to cancel and would like the retainer refunded...
Unfortunately, sometimes clients will choose to cancel and just want a refund. When this situation happens, it is crucial to know whether or not you are legally required to provide your clients with a refund of any sort, and this is going to depend ENTIRELY on your specific situation and your contract language.
Thus, you’re going to want to look at the cancellation/rescheduling and force majeure clauses in your existing contract, as well as other factors such as how far out you are from the event date, how much of the contract has been fulfilled up to this point, and how many services you have provided for your client (engagement session, bridal session, planning, emailing, paying out contractors/second shooters/associates, etc.).
If you keep having clients pushing for a full refund of the retainer or the full fees paid for without taking any responsibility on their part to also try and cure performance (legally speaking, they also have to show that they are trying to reschedule and uphold what they signed onto under the contract since BOTH parties are impacted by Coronavirus), you are going to be stuck negotiating what to do.
Even if your contract says your retainer is “non-refundable”, you need to ask yourself if it is worth your time, energy, and money spent on legal fees to argue with your clients over whether that $1500 retainer is actually non-refundable? Probably not. (It’s going to be thousands in legal fees to even get into a lawsuit.) Therefore, it’s better to just come to a mutual agreement on your own regarding what you will do with the retainer.
Best case scenario would be to refund a portion of the retainer or full fee to please your clients and get them off your back (and of course document that resolution with signatures). Worst case scenario would be about 10+ emails and phone calls later with the clients holding their ground and continuing to threaten a lawsuit, which is when you will either need to give a full refund or be ready for them to come after you legally down the road. These situations all really depend on weighing your options and deciding what is the best course of action for you in the long run.
This is not a situation where I can wholeheartedly say “x” is the correct answer. It will vary greatly depending on how legit your existing contract is and whether you are financially and emotionally okay with going into a legal battle, so to speak. Lawsuits are expensive, emotionally draining, and wreak havoc on your business and personal life. There are very few circumstances where I think going to suit for a $1500-$3000 retainer would be worth it. Not to mention, your business reputation is on the line and making your clients more angry about not refunding a portion of the retainer or full fee could impact what they say about you online or through word-of-mouth. You have to make the best decision for yourself and your business’s viability.
At the end of the day, when you’re in refund land, it's definitely never going to be a win-win for both parties. But a little loss on your part (refunding a little) and a little loss on theirs (not getting the full refund like they wanted) is much better than a full-blown lawsuit.
But what if your client is cancelling and wants ALL money refunded, not just a portion?
This is ALSO going to depend entirely on what language is in your EXISTING contract, and the laws and regulations in your state. The big thing to know is that there is no singular law that says you absolutely have to refund your retainer/deposit/fees paid. (Many people have been saying that in Facebook groups and it’s simply not true.)
Here’s what you need to consider. If your cancellation and rescheduling clauses state that your retainer is non-refundable, then you may be able to keep the retainer payment. If you have performed services already for your client and you have proof of those services (email documentation, evidence of services performed, cost of goods sold, etc), then that is further proof you should be able to keep some fees for services already performed. Also, if you have proof you performed more services that were beyond the client’s retainer payment, you may also be entitled to some additional compensation for your services.
I’m stressing the “may” here because again, this is a tricky question that is entirely fact specific to each situation. I HIGHLY suggest if you are in this position to contact a local attorney to review your contract with you and discuss your options. But, again, if you are not wanting to contact an attorney or don’t have the financial ability to do that, I get it.
This is why you have to take a good hard look at the situation and see if you can find some mutual resolution with your client (even if that means refunding a portion of the retainer even though you really don’t want to).
Also, if you use the word “deposit” for your reservation fee in your contract, it's very likely a court would say you have to refund that amount since you didn’t perform your services under the contract. Generally speaking, courts do not like the term “deposit” for service based businesses. (If you have this term in your contract, change it out to “Retainer” for future bookings.)
And, I’ve been seeing some Force Majeure Clauses that state a full refund will be given in the event of an impossible situation--ahem Coronavirus--impacting the ability of either you as the service provider or your clients as the one’s hosting the event to go through with the contract. If that's the case and your contract states that, you’re pretty much stuck having to give a full refund because that is the agreement you signed with your clients.
Be kind and courteous to your clients. Almost everyone is taking on some kind burden during this time. This pandemic has manifested in unique financial, emotional, and physical hardships for everyone, so make sure that you are respectful of what your clients are going through while maintaining solid business practices for yourself.
THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract.
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