What Agents Can Do About Automatic Contract Renewals

Agents should assist customers in negotiating auto-renewal provisions out of contracts, or remind them when to send notice of non-renewal.

Channel Partners

April 18, 2011

5 Min Read
What Agents Can Do About Automatic Contract Renewals

By Ben Bronston

I receive at least three calls a week from agents who want me to help them get a prospective customer out of an auto-renewed carrier agreement. The problem is rampant in the industry  customers who fail to mark their calendars with reminders to terminate their agreements before they auto-renew and, even worse, agents who sold the service originally but forgot to mark their calendars as well. Whats the solution? Unfortunately, there isnt really one universal method of fixing the problem. The answer starts with both customers and agents  both must exhibit much more vigilance to ensure these situations dont occur in the future.

State Laws. There arent very many states that actually have laws in place addressing this situation and even those laws that are on the books arent necessarily directly on point. For example, New York has a law that regulates automatic renewal clauses in personal property lease contracts. The statute states that automatic renewal provisions of contracts for services, maintenance or repair are unenforceable by the contractor unless notice of the existence of such a provision is given to the customer to provide an opportunity to opt out of the auto-renewal prior to its commencement. Similarly, New Mexico has a provision dealing with auto-renewal clauses in its Administrative Code, which states that it is an unfair or deceptive trade practice for any consumer service contract to contain an automatic renewal provision unless the seller provides the consumer written notice prior to the end of the initial term of the contract or prior to the end of any renewal term of the contract.”

Similar provisions have been proposed and, in some cases, adopted in other states, but the majority of states have not yet enacted laws to protect customers from the rampant problem of telecom auto-renewals. As you might expect, this means that the courts of each state have dealt with the issue differently. Therefore, its important for you to know the practical issues that customers face when confronting this situation. I tell agents all the time, your customer has to be willing to take a stand and assume the risk the carrier will sue if it really wants to get out of an auto-renewed contract.” That doesnt mean the carrier will win; it just means the customer must be willing to defend itself if necessary.

Damage Mitigation. Fortunately, other arguments may be made regarding why enforcement of an auto-renewal clause should not be permitted or, at a minimum, result in the customer having to pay damages. One such argument that I’ve used successfully in the past is that the carrier can’t prove it has been actually damaged as a result of the customer’s termination after an auto-renewal has kicked in. In other words, the carrier cant rely on the auto-renewal language alone to prove it has been damaged; rather, they must prove they incurred costs directly related to the auto-renewed services, which the customer no longer wishes to receive. A prime example may involve a reseller who has to prove that they renewed the circuit with their underlying carrier in reliance on the auto-renewal of the contract between the reseller and the customer. Likewise, the customer may be able to argue that whatever damages the reseller incurs have nothing to do the retail price set forth in the customer contract (and, by extension, the gross profit the reseller expected to make per the contract), but rather only consist of those costs directly incurred by the reseller (typically much less than the retail rate being charged to the customer).

This exact issue came up recently in my discussion group (Ben Bronston Telecom Lawyer) on LinkedIn. Agents from around the country described their customers constant battles with providers over auto-renewal clauses. One agent mentioned that when he brought the issue to the attention of the carrier, the carrier stated the notice language included in the customers monthly invoice was all the fair notice the customer was entitled to. Another agent stated that he had dealt with a carrier who expected all customers to regularly check the carriers website for any and all notices or changes to the customers contract. What this tells me is that unless the applicable state specifically mandates how and when the notice of an auto-renewal must be given, the onus is not on the carrier to inform customers when their termination notice is due. Right or wrong, this ultimately places the responsibility on the customer and you, their agent.  

Practical Considerations. As a consultant working on behalf of your customers, you must be aware of when your customers contracts are set to auto-renew.  Many customers rely on their agents to find them the best deals and most appropriate services for their businesses. It is important to either assist your customers in negotiating these auto-renewal provisions out of their initial contracts if possible, or be very aware of when those contracts are set to auto-renew, so that you can remind them when to timely send notice of non-renewal. This is the only way you can be sure your customers have the ability to transition to new and/or different services to take advantage of technology and pricing changes.

At the end of the day, until the issue of auto-renewal clauses in service contracts is addressed either legislatively or through court rulings, there is no way to tell for certain how a state will handle such an issue. While I look forward to the day when a customer from each state decides to challenge a telecom auto-renewal provision, until that time it is important to mark your calendar regarding all important contract dates and work diligently on behalf of your customers to protect their rights. Together, agents and their customers must ensure these auto-renewal provisions dont sneak up on them ever again.

Ben Bronston is the principal lawyer at

Ben Bronston Telecom Lawyer

. He has represented agents for more than 18 years and is a regular contributor to Channel Partners. He can be reached +1 713 778 1000 or at [email protected]. The opinions expressed in this article are the authors alone and should not be construed as legal advice.

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