Signing a contract with a cooking oil management company might seem like a simple decision on the surface, but the reality can be anything but. Many restaurant owners assume these contracts are straightforward, only to discover hidden clauses later – clauses that can trap owners into exploitative agreements that have real financial impact on a business.
Liquidated damages clauses are one of the most concerning and common examples utilized by some cooking oil recycling companies. Here’s what you need to know about liquidated damages clauses and how to protect your business against them:
What Are Liquidated Damages Clauses?
A liquidated damages clause defines a preset financial penalty for breaching a contract. For restaurants, this often comes into play when switching service providers before fulfilling specific volume commitments—such as the amount of used cooking oil collected.
For example, many contracts require restaurants to commit to a minimum volume of used cooking oil over a certain amount of time, often at a fixed price per gallon. If the restaurant decides to leave the contract early due to poor service, the liquidated damages clause can trigger financial liabilities. The service provider might demand payment for the unfulfilled volume – the payment is typically calculated by the remaining amount of used cooking oil, multiplied by the agreed-upon price per gallon.
How Liquidated Damages Clauses Impact Restaurants
To make this more concrete, consider the following scenario: a restaurant signs a contract committing to provide 1,000 gallons of used cooking oil per year. Halfway through the year, service begins to fall short, and the restaurant decides to switch providers. Due to the liquidated damages clause, the original cooking oil management company now has the legal power to sue for the 500 gallons – and demands the market rate for used cooking multiplied by the 500 gallons in liquidated damages.
For small restaurants, the penalties that come with breaking the contract outweighs the value of the services provided, which often deters them from ending or disputing contracts – even if the services fail to meet expectations.
Unfortunately, some service providers have turned this approach into a business model. Instead of focusing on delivering quality service, they lock restaurants into rigid contracts with volume commitments and liquidated damages clauses. When restaurants attempt to leave, the provider enforces the penalties, creating a significant financial burden.
Protecting Your Restaurant from Liquidated Damages
The first step in protecting your restaurant against these predatory practices is knowing they even exist. Here’s some other important steps you can take to stay protected:
1. Read Contracts Thoroughly
Don’t sign any contract without carefully reading – and understanding – the terms of the agreement. It’s not the most fun way to spend your time, but it’s crucial.
2. Look out for Liquidated Damages Language
Usually, Liquidated Damages Languages can be found under a “Customer Obligations or Remedies” section of the service contract.
Look out for phrases like this: “lf customer breaches the Agreement prior to the expiration date of the contract, customer will pay…”
3. Make Sure Your contract Specifies Service Standards & Cancellation Terms
A fair contract should specify service standards and cancellation terms – and should allow you to terminate the agreement without facing excessive penalties if the service provider fails to meet expectations.
4. Choose a Provider that Doesn’t Use Liquidated Damages Clauses
Choose a waste oil management company that doesn’t just say what you want to hear, but values fairness and transparency. At Lifecycle Renewables, we’re interested in building relationships with clients based on trust and mutual benefit. Our customers choose to stay with us because of our quality of service and ethical practices, not because they’re locked into a predatory contract.
The Bottom Line
Liquidated damages clauses can have a significant impact on small restaurants, particularly when it comes to switching service providers. Ultimately, understanding the terms and implications of these clauses can help prevent unnecessary financial burdens down the line.
At Lifecycle Renewables, we’re committed to providing high-quality service without locking our clients into unfair agreements. If you’re considering switching to grease waste management providers, reach out to us today to learn more about our unique approach to service – and service contracts.
