Although Wis. Stat. § 134.49, Wisconsin’s law on the automatic renewal of certain business contracts (the “Auto-Renewal Law”), has been neither changed nor litigated since it became effective in 2011, we have had frequent conversations with clients struggling to understand this law and its implications. As a result, we have found that it would be worthwhile to revisit this law, and highlight some common pitfalls we have seen businesses encounter.
What Is the Law?
Prior to the passage of the Auto-Renewal Law, businesses in Wisconsin were concerned regarding automatically renewing contracts, where the businesses either did not know the contract would automatically renew, were not aware of the contract’s automatic renewal date and missed the window to decline, or did not know how to properly decline an automatic renewal.
In response to these concerns, the Wisconsin legislature passed the Auto-Renewal Law, effective May 1, 2011. This statute set forth requirements governing the disclosure of automatic renewal provisions, as well as requirements surrounding advance notice of automatic renewals.
The Auto-Renewal Law applies to two categories of commercial contracts, if those contracts are entered into, modified, or renewed after May 1, 2011: (i) contracts for the lease of business equipment used primarily in Wisconsin, and (ii) contracts for providing business services. However, the law specifically does not apply to certain specified categories of contracts, including contracts where a customer may terminate the agreement upon notice of one month or less; contracts with any federal, state, or local government entity; leases of medical equipment; a contract for the purchase or lease of real property; contracts for equipment or services that are for personal, family, or household purposes; and certain telecommunications contracts.
For an automatic renewal clause in a covered contract to be valid and enforceable, the Auto-Renewal Law has three primary requirements. First, the contract must make certain disclosures which the customer must either sign or initial in acknowledgment. Second, the seller may be required to provide notice to the customer in advance of each automatic renewal, and the notice must contain certain specified information. Finally, the contract may not require a customer to give the seller the option to match other offers the customer receives from, or makes to, other sellers after the original contract term or renewal term.
If a covered contract will automatically renew for more than one month unless the customer specifically declines the renewal, then the seller must either: (i) obtain the customer’s signature on a separate form containing certain required disclosures, at the time the customer enters into the contract, or (ii) include the required disclosures in a conspicuous manner in the contract itself, with the customer initialing the page where a disclosure appears.
The required disclosure must include: (i) a statement that the contract will be renewed or extended, unless the customer declines; (ii) the length of the renewal term; (iii) information on whether an increase in charges will apply during the renewal term; (iv) a description of the actions the customer must take in order to decline a renewal; and (v) the deadline for a customer to decline renewal.
In addition to the disclosure requirements, where a covered contract provides for an initial term that is greater than one year, and provides that the contract will automatically renew or extend for an additional period greater than one year, the Auto-Renewal Law requires the seller to provide written notice to the customer of the renewal at least 15 days, but no more than 60 days, before the deadline for the customer to decline the contract’s automatic renewal. This notice must include (i) a statement that the contract will be renewed or extended, unless the customer declines; (ii) the deadline for a customer to decline renewal; (iii) information on whether an increase in charges will apply during the renewal term; and (iv) a description of the actions the customer must take in order to decline a renewal. If the seller does not provide timely notice with the required disclosures, the automatic renewal provision is not enforceable and the contract will terminate at the end of its current term.
When notice is required, the Automatic Renewal Law specifically provides for the manner in which the notice must be provided. A seller may provide notice by either: (i) mailing a copy of the notice via regular U.S. mail (or certified mail, if notices from the customer declining renewal are required to be sent by certified mail under the terms of the contract) to the customer’s last known business address; (ii) printing the notice on the first page of a monthly invoice provided to the customer, with the notice prominently displayed in bold text and at least size 12 font; (iii) email sent to the customer’s last known electronic mail address (but only if the contract allows the customer to decline renewal by email); (iv) personal delivery; (v) fax; or (vi) courier service.
Rights of First Refusal
Wholly separate from the disclosure and notice requirements described above, the Auto-Renewal Law specifically prohibits any covered contract from requiring a customer to give the seller an opportunity to match other offers for services to be provided to the customer after the original contract term or renewal term. If any covered contract includes this type of provision, the provision is automatically deemed void and unenforceable.
If a covered contract fails to include the required disclosures, then the automatic renewal provision is not enforceable and the contract will terminate at the end of the contract term. Similarly, if a covered contract does include the required disclosures, but the seller fails to provide a required notice of renewal, then the automatic renewal provision is not enforceable and the contract will terminate at the end of the contract term.
In addition to an automatic renewal provision being unenforceable, a customer may recover damages from the seller if (i) ;the seller refuses to terminate a covered contract after the customer properly declined renewal, and both the initial term and the renewal term of the contract are greater than one year, (ii) the seller refuses to terminate the contract after the seller failed to provide a required notice, and both the initial term and the renewal term of the contract are greater than one year, or (iii) the seller has attempted to enforce a right of first refusal provision that is unenforceable under the Auto-Renewal Law. A customer recovering in one of these situations will be entitled to either (a) twice the amount of the periodic payment specified in the contract, up to $1,000, or (b) twice the damages incurred by the customer. In addition, the customer will be entitled to recover its costs, including reasonable attorney fees.
However, it is important to note that the double damages and attorney fees are not available to customers in scenarios (i) and (ii) above if the contract has an initial term or a renewal term of one year or less. A common scenario occurs when an agreement provides that, upon expiration, the contract will automatically renew for successive periods of one year. In these situations the notice described above is not required, because the renewal term is not greater than one year. The disclosure requirement at the time of contracting would still be applicable; however, if a seller fails to comply with the disclosure requirement, and still refuses to terminate the contract, the only remedy specifically provided by the Auto-Renewal Law is that the customer may treat the contract as terminated.
In addition, the customer may not recover the statutory damages and attorney fees if (i) the seller agrees to terminate the contract upon receiving notice that the customer declines renewal, provided the seller’s failure was not willful or malicious; (ii) the customer requested the renewal in writing, and was aware of the terms under which the contract would be renewed; or (iii) the seller refunded all amounts paid by the customer following the automatic termination, and a court finds that the seller had written procedures in place to ensure compliance with the Auto-Renewal Law and the seller’s failure to comply with the Auto-Renewal Law was not willful or malicious.
Practical Guidance for Businesses
How Sellers Can Draft Contracts in Compliance
Sellers who regularly enter into contracts that are subject to the Auto-Renewal Law and that include automatic renewal provisions should establish form documents which comply with the disclosure requirements contained in the Auto-Renewal Law, either by including the required disclosure in conspicuous font on a page of the contract that is initialed by the customer, or by requiring customers to sign a separate acknowledgement which contains the required disclosure.
In addition, sellers should establish procedures to ensure that proper notice is given prior to any automatic renewal of a covered contract. In addition to reducing the risk that a notice will be missed and an automatic renewal will thus be unenforceable, having these procedures in place also can serve to limit the damages a seller would be responsible for if it violates the Auto-Renewal Law, as described above.
How Customers Can Use the Law to Terminate Unwanted Contracts
Customers who are party to contracts containing automatic renewal clauses may be able to terminate the contract at the end of the term, despite what the renewal provision says, if the seller fails to strictly comply with the terms of the Auto-Renewal Law. Customers should determine whether their contract is subject to the requirements of the law. If it is, and the seller has failed to comply with the disclosure and notice requirements described above, the contract terminates at the end of the contract term without giving effect to the renewal provisions. If a seller refuses to terminate a contract after failing to comply with the notice requirements of the Auto-Renewal Law, a customer has significant leverage in its potential ability to recover double-damages and attorneys’ fees.