Are auto-renewing contracts legal?

An automatic renewal – or evergreen – clause is a provision which automatically renews a contract on its same terms.

These clauses are commonplace, most often found in subscription-based service agreements – cloud storage … data plans … insurance … fitness club memberships, and the like. Unfortunately, and particularly within “old school” industries, these provisions have been used in a predatory and abusive fashion. For this reason, legislation has been developed over the years to combat such unconscionable practices.

In 2000, Illinois enacted the “Automatic Contract Renewal Act” (“ACRA”), 815 ILCS 601/1, which makes evergreen provisions illegal if they are not clear and conspicuous and, in some instances, if notice of the eventual renewal is not properly given. An evergreen clause that does not contain a cancellation procedure the consumer can trigger is, on its face, void. At least in Illinois, it was not uncommon to see such one-sided provisions in coin-laundry machine and waste hauling contracts until as late as the mid-1980s.

ACRA goes even further in protecting consumers. For any contract which has an initial term of one year or more, an automatic renewal clause is not enforceable if the vendor fails to notify the consumer of the cancellation deadline at least 30 days prior, but not more than 60 days prior, to the cancellation deadline. That notice must be in writing and must remind the consumer that the contract will automatically renew if not cancelled, as well as how the consumer can obtain details on the automatic renewal and cancellation procedure.

If a vendor violates ACRA, the penalties can be costly, and could include treble damages and the attorney fees incurred by the consumer in enforcing their rights under ACRA.

ACRA does not apply to all contracts. It can be complicated. And confusing.

If you are thinking to include an automatic renewal provision in your contract, or if you have a dispute over the enforceability of such a provision, call Erwin Law at (773) 525-0153 or email the team at customerservice@erwinlawfirm.com. For more than 30 years, the professionals at Erwin Law have represented clients in contract drafting, negotiation and litigation. And we’re ready to put our experience and expertise to work for you.