8.	Commitments and Contingencies

Legal Matters

The Company is a party to various legal actions and administrative proceedings arising in the normal course of business. In the opinion of Company's management, disposition of these matters are

not

anticipated to have a material adverse effect on the Company or its estimated or desired affiliates, assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition.

The Company's merchandising, audit, assembly and other services for its domestic clients are performed by field merchandising, auditing, assembly and other field personnel (each a "Field Specialist"). The Company's affiliate, SPAR Business Services, Inc. ("SBS"), during

2017

provided approximately

10,700

Field Specialists (all of whom were engaged as independent contractors by SBS), representing

77%

(or

$25.9

million) of the total cost the Field Specialists utilized by the Company domestically. SBS is

not

a subsidiary or in any way under the control of SGRP, SBS is

not

in the Company's financial statements, and SGRP does

not

participate in or control the defense by SBS of any litigation against it. For contractual details and payment amounts, see Note

to the Company's Condensed Consolidated Financial Statements -

Related Party Transactions - Domestic Related Party Services

, above.

The appropriateness of SBS's treatment of its Field Specialists as independent contractors has been periodically subject to legal challenge (both currently and historically) by various states and others. SBS's expenses of defending those challenges and other proceedings have historically been reimbursed by the Company under SBS's Prior Agreement, and SBS's expenses of defending those challenges and other proceedings were reimbursed by the Company in the

three

month periods ending

March 31, 2018

and

2017

(in the amounts of

$60,000

and

$85,000,

respectively), after determination (on a case by case basis) that those defense expenses were costs of providing services to the Company.

The Company has advised SBS that, since there is

currently effective comprehensive written services agreement with SBS, the Company will continue to review and decide each request by SBS for reimbursement of its legal defense expenses (including appeals) on a case-by-case basis in its discretion, including the relative costs and benefits to the Company. SBS has disputed the Company's right to review and decide the appropriateness of the reimbursement of any of those defense (and various other) expenses.

As provided in SBS's Prior Agreement, the Company is

not

obligated or liable, and the Company has

not

otherwise agreed and does

not

currently intend, to reimburse SBS for any judgment or similar amount (including any damages, settlement, or related tax, penalty, or interest) in any legal challenge or other proceeding against or involving SBS, and the Company does

not

believe it has ever done so (other than in insignificant nuisance amounts).

Any prolonged continuation of or material increase in the legal defense costs of SBS (and thus the reimbursable expenses SBS

may

charge to and that

may

be paid by the Company to the extent reimbursement is approved by the Company in its discretion) could continue to be (and have from time to time been) significant, and prolonged litigation and appeals and any adverse determination in any such challenge could have a material adverse effect on SBS's ability to provide services needed by the Company and the Company's costs of doing business.

There can be

assurance that SBS will be able to satisfy any such judgment or similar amount resulting from any adverse legal determination. In addition, there can be

assurance that SBS or someone else will

not

claim, and

assurance that SBS will be able to successfully shield any claim, that the Company is liable (under applicable law, through reimbursement or indemnification, or otherwise) for any such judgment or similar amount imposed against SBS. Any decrease in SBS's performance (quality or otherwise), any inability by SBS to use its assets without encumbrance or execute the services for the Company, or any increase in the Company's use of employees (rather than independent contractors) as its domestic Field Specialists, in each case in whole or in part, could have a material adverse effect on the Company or its performance or condition (including its assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition), whether actual or as planned, intended, anticipated, estimated or otherwise expected.

As the Company utilized the services of SBS to support its in-store merchandising needs in California, management of the Company determined, with the support of SGRP's Audit Committee and Board of Directors, that it will be shifting to an all employee servicing model for its Field Specialists in

May

2018

to support the performance of its services in California for clients in this critical market and nationally for certain domestic clients that are requiring the Company to use employees as its Field Specialists. As previously noted, management currently estimates that the potential incremental annual cost of this change in California from independent contractors to Company employees could be substantial. The Company is also evaluating whether this all employee model for its field specialists should be used in other states.

Current material and potentially material proceedings against SBS and, in

one

instance, the Company are described below. These descriptions are based on an independent review by the Company and do

not

reflect the views of SBS, its management or its counsel.

SBS Clothier Litigation

Melissa Clothier was engaged by SBS (then known as SPAR Marketing Services, Inc.) and provided services pursuant to the terms of an "Independent Merchandiser Agreement" acknowledging her engagement as an independent contractor. On

June 30, 2014,

Ms. Clothier filed suit against SBS and the Company styled Case

No.

RG12

639317,

in the Superior Court in Alameda County, California (the "Clothier Case"), in which Ms. Clothier asserted claims on behalf of herself and a putative class of similarly situated merchandisers in California who are or were classified as independent contractors at any time between

July 16, 2008,

and

June 30, 2014.

Ms. Clothier alleged that she and other class members were misclassified as independent contractors and that, as a result of this misclassification, the defendants improperly underpaid them in violation of various California minimum wage and overtime laws. The Company was originally a defendant in the Clothier Case but was subsequently dismissed from the action without prejudice. The court ordered that the case be heard in

two

phases. Phase

one

was limited to the determination of whether members of the class were misclassified as independent contractors. After hearing evidence, receiving post-trial briefings and considering the issues, the Court issued its Statement of Decision on

September 9, 2016,

finding that the class members had been misclassified as independent contractors rather than employees. The parties have now moved into phase

two

to determine damages (if any), which has included discovery as to the measure of damages in this case.

The Parties are still proceeding with the damages phase of the Clothier Case, which trial is currently scheduled for late

August

2018,

and with a potential final judgment in the Clothier Case expected by the Company later in

2018

(although it could come sooner). SBS has advised the Company that SBS could appeal the adverse phase

one

determination and any damage award once damages have been determined, when an appeal is permitted under the court's rules.

determination has been made by the Company (in its discretion) as to whether to reimburse the costs of such an appeal. However, the Company (in its discretion) has determined that it will

not

advance or reimburse the funds to SBS to post a bond to stay execution during such an appeal by SBS. SBS must post a bond of

1.5

times the damage award in order to stay execution on the judgment during an appeal, and SBS's assets (including those used in providing services to the Company) are subject to legal process (including levy, attachment and sale) if

bond is posted. Action against SBS's assets could have a material adverse effect on SBS's ability to provide services needed by the Company. The Company is evaluating other potential suppliers of Field Specialists as alternatives should SBS be unable to provide some or all of the services needed by the Company.

Currently the Company is

not

a party to the Clothier Case as the Company was dismissed without prejudice. However, if SBS is

not

able to meet its obligations under the final judgment, the Company could be drawn back into the Clothier Case. Should this occur, the Plaintiffs will need to further assert and prove that the Company is somehow also liable for damages in the Clothier Case, and the Company is prepared to vigorously challenge that assertion.

Any prolonged continuation of or material increase in the legal defense costs of SBS (and thus the reimbursable expenses SBS

may

charge to and that

may

be paid by the Company to the extent reimbursement is approved by the Company in its discretion), the failure of SBS to satisfy any such judgment or similar amount resulting from any adverse legal determination against SBS, any claim by SBS, SAS, any other related party or any

third

party that the Company is somehow liable for any such judgment or similar amount imposed against SBS or SAS or any other related party, any judicial determination that the Company is somehow liable for any such judgment or similar amount imposed against SBS or SAS or any other related party (in whole or in part), any decrease in SBS's or SAS's performance (quality or otherwise), any inability by SBS or SAS to execute the services for the Company, or any increase in the Company's use of employees (rather than independent contractors) as its domestic Field Specialists, in each case in whole or in part, could have a material adverse effect on the Company or its performance or condition (including its assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition), whether actual or as planned, intended, anticipated, estimated or otherwise expected.

SBS Rodgers Litigation

Maceo Rodgers was engaged by and provided services to SBS pursuant to the terms of his "Master Agreements" with SBS acknowledging his engagement as an independent contractor. On

February 21, 2014,

Rodgers filed suit against SBS, Robert G. Brown and William H. Bartels, styled Civil Action

No.

3:14

-CV-

00055,

in the U.S. District Court for the Southern District of Texas (Galveston Division). Plaintiff asserted claims on behalf of himself and an alleged class of similarly situated individuals who provided services to SBS as independent contractors at any time on or after

July 15, 2012,

claiming they all were misclassified as independent contractors and that, as a result of this misclassification, the Defendants improperly underpaid them in violation of the Fair Labor Standards Act's overtime and minimum wage provisions. Although the Court conditionally certified the class on

December 8, 2015,

only

individuals joined the action as opt-in plaintiffs, and all but

of them have potentially disqualifying arbitration provisions, residences outside the class's geographic area, or late opt-in filings, and were challenged by the Defendants in various motions, including a motion to decertify the class. The Court, however, did

not

rule on these motions and instead stayed the case on

September 19, 2017

to allow the parties to mediate. On

October 24, 2017,

the Court granted the parties' joint motion to extend the stay order until

January 31, 2018.

A formal mediation was undertaken in this action. However, the mediation was unsuccessful. SBS is now waiting for the Court to rule on (

) Plaintiff’s motion for nationwide judicial notice and to certify a nationwide collective action, and (

) SBS’s motion to decertify the collective class. It is anticipated that this matter will likely proceed to trial later this year or early next year.

SBS and SGRP Hogan Litigation

Paradise Hogan was engaged by and provided services to SBS as an independent contractor pursuant to the terms of an "Independent Contractor Master Agreement" with SBS acknowledging his engagement as an independent contractor. On

January 6, 2017,

Hogan filed suit against SBS and SGRP (and part of the Company), styled Civil Action

No.

1:17

-cv-

10024

-LTS, in the U.S. District Court for District of Massachusetts. Hogan initially asserted claims on behalf of himself and an alleged nationwide class of similarly situated individuals who provided services to SBS and SGRP as independent contractors. Hogan alleged that he and other alleged class members were misclassified as independent contractors, and as a result of this purported misclassification, Hogan asserted claims on behalf of himself and the alleged Massachusetts class members under the Massachusetts Wage Act and Minimum Wage Law for failure to pay overtime and minimum wages, as well as state law claims for breach of contract, unjust enrichment, quantum meruit, and breach of the covenant of good faith and fair dealing. In addition, Hogan asserted claims on behalf of himself and the nationwide class for violation of the Fair Labor Standards Act's overtime and minimum wage provisions. On

March 28, 2017,

the Company moved to refer Hogan's claim to arbitration pursuant to his agreement, to dismiss or stay Hogan's case pending arbitration, and to dismiss Hogan's case for failure to state a specific claim upon which relief could be granted.

November 13, 2017,

the Court convened a status conference call with the parties to discuss the impact on the case of the Supreme Court’s pending decision in Epic Systems Corp. v. Lewis, in which the Supreme Court heard arguments in

October 2017

and ultimately will decide whether arbitration clauses that include a waiver of a worker’s right to bring or participate in a class action violate the National Labor Relations Act. On

March 12, 2018,

the Court denied both defendants’ Motion to Dismiss for failure to state a claim, denied the Motion to Compel Arbitration as to SGRP, denied the Motion to Stay as to SGRP, and allowed the Motion to Stay as to SBS pending the outcome of the Supreme Court’s decision in Epic Systems), which (depending on the Supreme Court's ruling) could result in all SBS disputes being sent to arbitration. On

April 24, 2018,

SGRP filed a notice of appeal with the First Circuit of the District Court’s decision. The Parties have agreed to stay the District Court litigation pending the First Circuit’s decision on SGRP’s appeal. If SGRP’s appeal is unsuccessful, SGRP could have to go to trial without SBS, which SGRP will vigorously contest against all parties.

SBS and SGRP Litigation Generally

Any prolonged continuation of or material increase in the legal defense costs of SBS (and thus the reimbursable expenses SBS

may

charge to and that

may

assurance that SBS will be able to satisfy any such judgment or similar amount resulting from any adverse legal determination. In addition, there can be

assurance that SBS or someone else will

not

claim, and

to the Company's Condensed Consolidated Financial Statements –

Related Party Transactions – Domestic Related Party Services

, above.