Contracts rarely exist in a vacuum: successful business relationships usually beget more successful business, and a convenient method to nurture these relationships is to provide for such in the contract through an automatic contract renewal clause. Automatic renewal provisions, sometimes referred to as “evergreen clauses,” can be a helpful way to secure future business. They can also be troublesome if one of the parties becomes ensnared in a long-term contract against his wishes.
The Illinois Automatic Contract Renewal Act (the “Act”) protects consumers from being trapped by such clauses. 815 ILCS 601/1 et seq. Adopted in 2000 and amended in 2004, the Act provides two safeguards for consumers against unwanted automatic contract renewal:
- The clause providing for automatic renewal must be clear and conspicuous in the contract.
- If the contract’s term was 12 months or more and the renewal period is for more than one month, written notice to the consumer must be made no less than 30 days and no more than 60 days before the cancellation deadline set by the contract. For example, if the contract states that it will automatically renew on October 1 if it is not cancelled by September 1, then notice must be issued no earlier than July 1 and no later than August 1.
Much of the discussion surrounding the Act concerns the meaning of “clear and conspicuous.” While neither the Act nor relevant case law specifically defines “clear and conspicuous,” legislative history and the Uniform Commercial Code are instructive. In 2000, the Illinois General Assembly initially passed the Act providing that “the clause providing for automatic renewal must appear in the contract in at least 14-point bold type.” This language was not included in the version of the Act that was enacted; however, it does indicate that contract renewal provisions distinctive from the rest of the contract would qualify as “clear and conspicuous.” The Uniform Commercial Code defines “conspicuous” more generally as “so written that a reasonable person against whom it is to operate ought to have noticed it.” 810 ILCS 5/1-201(10). In sum, parties drafting contract renewal provisions will want to note the clause’s placement, font size, whether it was emphasized, and how many times the reader was aware of it.
The question, then, for consumers and businesses party to contracts containing automatic renewal clauses (or are discerning whether they should enter into contracts with such clauses), is: what should I do?
- Are you a business that has included or wishes to include an automatic contract renewal clause in a contract with a consumer?
Talk to a lawyer. Businesses need to develop written procedures and policies to remain compliant with the Act. Part of this is in order to protect themselves in case of they fail to comply with the Act by mistake. Without safeguards, the penalties can be severe. Violation of the Act constitutes an unlawful practice under the Illinois Consumer Fraud and Deceptive Business Practices Act. 815 ILCS 601/15. Under this statute, the Attorney General and State’s Attorneys have several recourses for such violations, including civil penalties of up to $50,000. 815 ILCS 505/7(b). Individuals injured by such violations may also bring actions for damages, which may include attorney’s fees. 815 ILCS 505/10a(c).
- Are you a business concerned that you may be entering (or have already entered) into a long-term contract against your wishes?
Definitely talk to a lawyer. The Act only applies to contracts between businesses and consumers. Business-to-business contracts are specifically excluded, and such situations are more complex. 815 ILCS 601/20(c). It is also important to note that the Act does not apply to banks, trust companies, savings and loan associations, savings banks, credit unions, or foreign banks that maintain a state or federally regulated branch. 815 ILCS 601/20(d).
While the step immediately after establishing a successful business relationship is to find a way to continue that relationship, contract renewal provisions can prove complicated. The Illinois Automatic Contract Renewal Act provides helpful guidance for these clauses, but it is not the same as contacting a lawyer. The attorneys at Rock Fusco & Connelly, LLC, are eager to assist you. If you would like further information, please contact us.
[1] Bart T. Murphy, Illinois Automatic Contract Renewal Act – Amended to Require Written Disclosure Notice to Consumers of Automatic Renewal Contracts, and to Make Violations of Act a Violation of Consumer Fraud Act, J. DuPage B. Ass’n., vol. 17 (2004-05), available at http://www.dcbabrief.org/vol170105art2.html.