by: Benjamin Stein

Businesses that utilize longer term auto-renewing contracts should be aware of imminent legal changes in Vermont and North Dakota that may require a reevaluation of current practices.

Vermont

Vermont’s new law will take effect on July 1, 2019, and will regulate auto-renewing contracts with an initial term of at least one year and renewal terms longer than one month (9 V.S.A. § 2454a). Vermont’s law includes a number of provisions that will already be familiar to those offering auto-renewing agreements on a national scale (e.g., a requirement to clearly disclose renewal terms prior to purchase and to notify subscribers ahead of a renewal).

However, Vermont’s law also includes a novel requirement: subscribers must be made to “take[] an affirmative action to opt in to the automatic renewal provision” that is “in addition to accepting the contract.” This recalls similar provisions in a string of recent settlements by local enforcement authorities in California that require the defendant to secure express agreement to the auto-renewal terms via a separate a checkbox or similar mechanism. (For example, see the settlement with Proactiv maker Gunthy-Renker here.)

It has historically been common practice for businesses to either use a single mechanism through which the consumer both completes the transaction and agrees to the auto-renewal and other contract terms (e.g., “By clicking ‘Purchase’ I agree that …”) or to use a single checkbox to secure agreement to both the auto-renewal provision and a larger contract (e.g., a Terms of Use). Beginning next week, those who sell annual subscriptions and the like will need to use a separate consent mechanism to secure affirmative agreement specifically to the auto-renewal terms. At the very least, this must be applied to Vermont residents entering into year+ contracts, though the California settlements counsel for adopting this as a best practice nationally and for all term lengths.

North Dakota

North Dakota also recently passed a new law that will apply to auto-renewing contracts entered into on or after August 1, 2019. (N.D. Cent. Code § 51-37-01 et seq.) Like Vermont, North Dakota’s law includes a number of provisions to which those running national subscription programs will already be accustomed.

Also like Vermont, though, North Dakota’s law includes one novelty among auto-renewal laws: it flatly prohibits renewal periods of more than 12 months.

Notably, North Dakota’s law expressly applies to agreements for the “sale of merchandise.” “Merchandise” is undefined in the law, which creates some ambiguity as to scope. However, in North Dakota’s law on unlawful advertising practices (which is included in the same title as the automatic renewal law), “merchandise” is defined broadly to include services, in addition to tangible goods. (See N.D. Cent. Code Ann. § 51-15-01.) In the absence of further guidance from North Dakota on the scope of its auto-renewal law, we recommend presuming it applies broadly, and not only to contracts for the sale of goods.

Take Away

Businesses offering annual auto-renewing agreements need to take steps to ensure they are complying with Vermont’s new consent requirement starting next week. By August, businesses that offer programs with auto-renewal terms longer than a year will need to carve out North Dakota residents (or rethink their renewal durations).