Legal Insight: Know Laws that Affect Your Business - BodyShop Business

Legal Insight: Know Laws that Affect Your Business

As a body shop owner, you have a lot to worry and think about. If you're successful, though, you probably make the time to check the quality of the paint work leaving your shop - even though you employ painters.

Why, then, do many shop owners
feel comfortable ignoring the "legal stuff" simply because
they employ a lawyer?

As a shop owner, you need to at least have
a general knowledge of the laws that affect your business. For
the sake of brevity, we’ve chosen to highlight eight topics –
out of the many – that are important legal issues for the ’90s
and beyond.

Salvaged Vehicles

Body shops frequently are presented with the
opportunity to obtain "totaled" vehicles at minimal
cost. A potential exists to turn a profit on these vehicles by
rebuilding them during slow times, often with used or rebuilt
parts. Body shop owners should be aware, though, that many states
have some form of Salvage Title Act, which requires the issuing
of a new title that states the vehicle is salvaged.

These vehicles may be sold at an auction,
traded in or sold to dealers, or advertised in the newspaper.
An unwitting purchaser, particularly one who suffers bodily injuries
due to safety defects, may turn around and sue the body shop,
the prior owner and the insurance company for failing to comply
with the state’s Salvage Title Act – and any profit made on the
vehicle will be quickly eaten up in legal fees. Further, your
general-liability insurance policy may not protect you if sales
of vehicles are determined to be beyond the scope of coverage.

With the ever-increasing cost of new cars,
which has increased the market for used cars, the incidence of
undisclosed salvaged vehicles making their way into the market
has also increased. Former NADA president, Richard E. Strauss,
in testifying before the House Commerce, Trade and Hazardous Materials
Subcommittee, stated that, "In many states, as many as 70
percent of all rebuilt salvaged vehicles are finding their way
into used-car commerce without any indication to the buyer that
the vehicle has suffered substantial damage in an accident."

Legislation has been proposed in Congress
to regulate the titling and disclosure of salvaged vehicles and
to bring uniformity to an area otherwise governed by varying state
laws. If you’re involved in the sale of salvage vehicles, be sure
to comply with applicable laws and to advise the buyer before
the sale that the vehicle is salvaged.

Repair Orders

A common misconception is that all repair
orders are pretty much the same – but nothing could be further
from the truth. In the event of a dispute with a customer, whether
in litigation or in a complaint to your state’s Bureau of Automotive
Repairs, a well-drafted form that complies with state law may
well prove to be the deciding factor in your favor. Preprinted
forms sold to you by a stationery house or a jobber may not necessarily
meet your needs; this is especially true if the forms aren’t drafted
with your state’s particular laws in mind.

In addition to complying with state laws,
a well-drafted repair order should precisely address issues of
concern, such as storage charges; warranties, if any; limitations
on "consequential damages"; acceptable means of payment;
and customer responsibilities when an insurance company refuses
to pay for all required repairs.

Your concerns are likely those of your competitors,
and a group of body shops can obtain significant savings by hiring
one attorney to prepare repair orders that meet your collective
needs. Additionally, as a group, you should be able to obtain
printing discounts on snap-apart-type forms.

Experience has also shown that customers are
much less likely to question the wording of forms that have been
professionally printed. After all, when is the last time you tried
to negotiate the "boilerplate" of an automobile rental
with the counterperson at the airport? (You may not even know
what a boilerplate is – but you don’t ask because the form looks
professional.) As in many legal issues, an ounce of prevention

Air Bags

We’ve all read articles questioning the safety
of air bags, particularly when used by small adults and children.
Much debate is going on in Congress concerning air-bag issues,
including speed of deployment, "smart" air bags and
defeat switches, particularly for front-seat passengers.

No doubt a number of shop owners – maybe even
you – have been approached by customers who’ve requested assistance
in deactivating the air-bag deployment system. The Federal Motor
Vehicle Safety Standards strictly prohibits this. Your response
to such a request must be "no." Failure to comply with
these standards may, at the minimum, subject you to liability
in the event of personal injury resulting from the failure of
an air-bag deployment. Rest assured that your defense, "I
only did what the customer asked me to do," is likely to
fall on deaf ears. Until the law is changed, you have no alternative
but to decline any request to defeat or modify any air-bag system.

Mechanics Liens

Mechanics lien laws are designed to protect
auto-repair and body shops from customers who don’t or can’t pay
their bills. Given the widespread prevalence of insurance, as
well as the natural incentive of customers to pay their bills
in order to get back their cars, most body shops seldom run into
mechanics lien issues. When you do, however, it’s important to
comply with your state’s laws to protect your rights to payment
and to avoid potential liability to the customer for damages.

Mechanics lien laws are often highly technical,
but failure to comply with timing or notice requirements can invalidate
an otherwise bona-fide claim. Likewise, turning over possession
of the vehicle to the customer frequently defeats a mechanics
lien, which, in many states, is dependent upon possession. Publications
that explain mechanics lien procedures are distributed by the
Automobile Repair Bureau of many states.

By making sure you’re paid in full before
turning over a vehicle to a customer, you can avoid many problems.
Many shops insist on cash, an insurance-company check and/or a
credit card. If you accept checks, it’s best to affiliate with
a check-guarantee service or to wait until the check clears before
relinquishing possession of the customer’s vehicle.


The cost of insurance often makes up a significant
part of a shop’s overhead. Consider these tips on obtaining adequate
protection while keeping costs down:

  • Shop around. Rates fluctuate and new carriers often enter
    the market. Loyalty to customers is an outdated concept with many
    insurance companies, which may cancel you or drop a particular
    line of business without concern that you’ve been a longtime customer
    with minimal or no claims. Either you or your broker should shop
    the market no less than once every two or three years – preferably
    every year. You just might be surprised at the savings you experience
    by doing a little homework, so ask around. Talk to other business
    owners – not just to those in the autobody industry – to find
    out what carriers and brokers they’re using and why.
  • Review your limits and deductibles. While you don’t want to
    be underinsured, it’s important to avoid paying unnecessary premiums.
    If business is down and you’ve reduced your equipment and/or staffing
    level, for example, make sure your carrier is advised of this
    information, since such reductions probably will result in a premium
    reduction. And don’t wait until the end of the policy year – you
    may be eligible for a reduction mid-year. Likewise, check your
    deductible. Low-deductible policies cost more than equivalent
    policies with higher deductibles. If you can comfortably afford
    to carry a higher-deductible policy, you’ll generally end up ahead
    financially in the long run.

  • Make sure you have adequate protection. For example, if you
    lease your facilities, carefully check your lease to determine
    what insurance obligations you have to your landlord. See if your
    policy covers your employees’ tools; many policies don’t. It’s
    also a good idea to determine whether or not you want to maintain
    "direct-damage" coverage for your customers’ vehicles.

Workers Compensation

All states have some form of workers compensation, and workers-compensation
laws are generally "fault free." With limited exceptions,
which vary from state to state, an employee who is injured on
the job is entitled to medical and other benefits, regardless
of fault.

Participation in the workers-compensation system is mandatory,
not voluntary. It’s critical that employers maintain proper workers-compensation
insurance and be aware that they can incur significant business
and personal liability by engaging in certain tactics designed
to reduce their workers-compensation insurance cost.

For example, paying someone "under the table" without
scheduling him/her on your list of employees is guaranteed to
be costly if that employee is injured on the job. Likewise, labeling
an employee an "independent contractor" when he isn’t
one can result in a denial of coverage by your insurance company.
A denial of coverage, of course, doesn’t eliminate your financial
responsibility to your employee – it just shifts responsibility
from the insurance company to you.

Another way in which employers frequently run into trouble with
their workers-compensation insurance carriers is by listing shop
employees on their policy as office/clerical workers. Insurance
rates generally are based not only on your shop’s prior injury
history, but also on job duties. All other things being equal,
a secretary is less likely to suffer serious injuries than a person
working with power tools or volatile chemicals. Your insurance
carrier is likely to deny a claim if you’ve intentionally misclassified
an employee.

As with all other insurance, it often pays to shop around for
the best rates. Many states, including California, have enacted
open-rating plans, whereby insurance companies are able to compete
on the basis of price. Don’t assume the carrier who was cheapest
last year will be the cheapest this year. Work closely with your
insurance broker to obtain the best possible rates, and remember:
A good shop safety program not only helps protect your employees
and maintain productivity, but can also result in a substantial
savings on insurance. premiums.

Sexual Harassment

It seems like every week or so, another big news story breaks
about sexual harassment. Whether it’s President Clinton, the Citadel
or your average Joe, no person or business is immune from sexual-harassment
claims. While unfounded claims are always a possibility, many
employers unknowingly violate laws concerning sexual harassment
– sometimes even believing they run a fair shop.

You don’t have to be a lawyer to know that you’re engaging in
sexual harassment when employment benefits are conditioned on
sexual favors – that’s "Quid Pro Quo" harassment. Did
you know, however, that an employer can be liable for Quid Pro
Quo harassment perpetrated by a nonsupervisory coworker if the
employer was aware of the conduct and failed to take reasonable
steps to stop it?

An employer can also be held liable for allowing a "hostile
work environment." The Supreme Court has determined that
a hostile work environment exists if a "reasonable person"
would find the harassment not merely trivial, but sufficiently
severe or pervasive to alter the conditions of the victim’s employment
and to create an abusive work environment.

The fact that body shops have been "traditionally male"
in the past doesn’t mean different standards apply. Allowing pin-up
calendars or similar decorations on the premises can be deemed
as creating a hostile work environment. Be aware of and regulate
the work environment, including posters, jokes, rumors and sexual

Go one step further and make sure your business has a firm, well-communicated
policy prohibiting sexual harassment. An employee manual and periodic
memos reminding employees that sexual harassment won’t be tolerated
can be quite helpful in defending against sexual-harassment claims.
And if claims are made, prompt, effective investigation and appropriate
discipline are required by law.

Mediating Disputes

Mediation (voluntary settlement negotiations with a trained, neutral,
third party who has no decision-making power) is a concept that’s
time has come. Mediation can be undertaken with or without a lawyer
and before or after a lawsuit has been filed. Mediation’s worth
has been proven in countless neighborhood disputes, divorce and
child-custody situations, business disputes and even in sexual-harassment
and personal-injury claims.

It’s important to keep in mind that, unlike a judge or an arbitrator,
a mediator has no power to make any binding decisions. In fact,
the essence of mediation is that the mediator attempts to facilitate
dialogue and resolution between the parties. Numerous studies
demonstrate that when parties reach an agreement on their own,
they are far more likely to honor the agreement and, in fact,
often maintain mutually beneficial business relationships throughout
and after the mediation process. Another benefit of mediation
is that mediators and involved parties are able to fashion creative
resolutions that a judge or an arbitrator wouldn’t have the power
to order.

Your Legal Future

Granted, there are a lot of laws out there today that affect your
business, and you couldn’t possibly know the ins and outs of all
of them. But, as a responsible shop owner, you do need a general
knowledge of them – regardless of whether or not you have an attorney.
Just remember, when it comes right down to it, it will be you
– not your lawyer – who’s held responsible in a court of law.

Writer Paul Rice is a Palo Alto, Calif., attorney who, for
20 years, has represented body shops, distributors, manufacturers
and others in the collision-repair industry.

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