Why we don’t use Evergreen Contracts.

14/01/2019 Posted by Business Advice 0 thoughts on “Why we don’t use Evergreen Contracts.”

We are experts in HR Employment Law not in contractual or corporate law here at Absorb.  However, as business owners we regularly come across evergreen contracts and find our competitors and other businesses in the professional services sector are increasingly using them.  At Absorb we don’t believe that automatic renewal contracts are fair and in some cases we feel they are often being miss sold.

Evergreen contracts or auto-renewal contracts as they are sometimes known are a form of rolling agreement.  Rolling contracts have been around for a long time in the business world, however, their use and popularity appears to be on the increase.  In both commercial (B2B) and business to consumer (B2C) agreements, rolling contract terms – and sometimes even more onerous provisions – are increasingly being used.  Unfortunately, they are often creating problems for unwitting purchasers of goods and services and, whilst not illegal, should be given due consideration before entering into them as binding agreements.

With the rise of e-commerce and with more and more transactions of all different types being conducted online, it is perhaps not surprising that savvy suppliers increasingly favour rolling contracts.  These businesses, many of which will have spent considerable amounts of money acquiring customers, are naturally keen to retain customer loyalty, extend customer lifetime value, and reduce future customer acquisition and retention costs.

Moreover, it would seem that the rise and ease of online payments and our growing appetite to pay using annual or monthly subscriptions, is also fuelling the trend.

Rolling Contracts

Rolling contracts are legal agreements that have no end date or fixed term.  These contracts simply continue until one party decides to end them (usually upon giving the other party notice that they wish to do so within a pre-agreed period e.g. 30 days).  Often contracts with a fixed end date, automatically convert to a rolling contract at the end of the fixed period.  These agreements are popular with mobile phone service providers with a fixed agreement of – say – 2 years automatically converting to a 30 day rolling contract at the end of the 2 year term.  Either party can then give the other, 30 days notice that they wish to end the agreement.

Rolling contracts can be extremely useful when added to the end of a fixed term contract.  If the user of the services forgets to renew their contract or fails to find an alternative, they might experience problems due to removal of supply once the initial contract ends. 

Rolling contracts are good for the provider as they retain the business of the customer. As we have noted, they also protect the customer from unnecessary and potentially costly disruption.

Evergreen Clauses

More problematic in contracts can be the presence of an automatic renewal provision (also known as an “evergreen clause” or “contract rollover clause”). Unlike the rolling provision, these clauses can renew the agreement completely for the same term as the initial period if notice to terminate is not given before the end of the initial agreement.  These clauses appear to becoming more popular and have been extended to sometimes sit at the heart of the contract itself.

Evergreen Contracts

Rather than a clause or provision in a contract, many companies are now basing their agreements on the principle that they will auto renew.  We have seen contracts like this growing in popularity, not only in our own field of expertise, HR Employment Law, but also in the provision of other professional services, training and educational content.

Use of the word “evergreen” is a softer way of framing what is usually quite an aggressive tactic.  Whatever, label they are given, these types of contracts are, whilst legal, catching out thousands of customers every week.  Unlike a rolling contract there is a specified initial term to these types of contracts.  However, rather than the contract converting to a shorter monthly term after the fixed date, if notice is not given in advance of the fixed date, these contracts auto-renew for the full term.  This means that, for example, a customer entering into a 2 year contract can easily be tied in for 4 years or more if they don’t read the small print and give notice to terminate after the first 18 months has elapsed.  

Our MD, Mike, has witnessed the use of evergreen contracts and has a particular dislike of them, believing they are unfair on the business or consumer that is purchasing the goods/services.  Mike is adamant that these types of contracts are never used by Absorb.

Here Mike tells us of his own experiences; “I know some of our competitors sign customers up to long-term contracts of 3, 4 or even 5 years.  Often these contracts also have a long notice period of 6 months.  I’ve talked to business owners who have signed up to a 5-year contract who have not read the small print or, usually more likely, forgotten to serve notice at the correct time.  These people have then found they are committed for a further 5 years.  What effectively becomes a 10-year contract is a very long period of commitment and can be a huge burden on the company and on the directors personally”.

Our Commercial Director, Gareth, has personal experience of evergreen contracts being used in other sectors outside of HR Employment Law.  Gareth takes up the story; “I recently signed up for an online education programme.  The supplier was UK based and it was possible to sign up online and pay by credit card, just like our own advice line service.  This was the easiest way to conduct the transaction, but I had a specific question I wanted answering so I contacted the sales team by phone.  Having had a satisfactory response to my question, I happily went ahead with the purchase and paid my 2-year annual subscription over the phone. Once this was complete the salesperson thanked me for the business and asked that I listened to a recorded message they would play over the phone.  I did this, and to my astonishment the message told me the agreement was auto renewal and I needed to give 3 months notice in writing if I wanted to terminate it.  Despite reading details online and talking to 2 people over the phone this was the first time I became aware of this”.

What can you do about Evergreen Contracts?

Follow this checklist to avoid being tied down by evergreen contracts:

  1. Avoid – The first and best strategy is to avoid evergreen contracts completely.  Whilst they might say they are unwilling to do so, if a supplier really wants your business they will offer you contractual terms that don’t include automatic renewal.  Press them to do so.
  2. Check – Explicitly ask whether the contract you are considering includes an automatic renewal.
  3. Review – Check the small print of your contract for renewal terms before you sign it.
  4. Act – If you find yourself locked into an evergreen contract, give the supplier notice immediately (even if it is well in advance of the notice period specified).  You have nothing to lose and everything to gain by doing this.  Giving notice means that the contract will stop at the end of the initial period, but if the supplier wants to retain your business they will offer you better terms at this point.  It also leaves you free to review whether you want to receive the goods/services at all going forward, or you can also shop around for a better deal from other suppliers.
  5. Act – Always check and follow the instructions for giving notice.  Despite many suppliers offering online sign-up and payment at the start of the contract, they specify that they require notice to be given in writing by post. It is therefore easy to sign up, but that little bit harder and more hassle to give notice.  If it specifies by letter rather than email, then ensure you send your notice communication by post avoiding the prospect of a supplier claiming it to be invalid.
  6. Record – Request acknowledgements from your supplier that they have received your notice and accepted it.  File this in case it is needed for reference when the contract does end.

More information on evergreen contracts and terms and the pitfalls to avoid can be found on the government web portal here.

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