Evergreen Clauses, what are they and where are they hiding?

ContractTerms

If you have ever signed up to a service that doesn’t end or you can’t seem to get out off, you’ve probably just met an evergreen clause.  Evergreen clauses, also known as renewal clauses, are those tricky little statements within a contract that extend its duration automatically – unless one of the parties remembers to terminates within the required period of time. 

An evergreen clause will usually sound something like: “This agreement shall automatically renew for another one (1) year term, unless either party provides notice to the other of its intent to terminate this agreement not less than thirty (30) days before the end of the then current term.”

It comes as no surprise to find out that evergreen clauses do tend to favour the provider in a contract.  They are not perceived as being beneficial to consumers or small businesses as they can be difficult to terminate, locking unwitting or disorganised parties in for extended periods of time. They are especially dangerous for contracts of low periodic value (that then end up costing a lot) because even the best intentioned of us forget to note the expiration clauses.  This can also occur with long-term renewal periods, such as 10 years, where the sheer length of time till renewal creates just the right level of amnesia for the service provider. However, for both parties, evergreen clauses promote complacency in the relationship as both may miss the opportunity to renegotiate the contract and potentially a better deal.

Unlike some international jurisdictions, there is no current legislation or prohibition in common law in Australia against evergreen clauses. Hence they are frequently included in commercial agreements.  However, there is some protection for consumers and small businesses. From a consumer’s perspective, evergreen clauses can be deemed unfair by virtue of the Australian Consumer Law. Small businesses can now seek protection under the Treasury Legislation Amendment (Small Business And Unfair Contract Terms) Act 2015 (Cth).  Under this recent amendment, a small business can seek to have an unfair term in a contract declared void by a court.  A small business is one with fewer than 20 employees at the time of entering the contract and for the law to apply the contract must not exceed $300,000 (or $1 million for contracts longer than 12 months).

If you are a provider, note that whether an evergreen clause will be deemed unfair will depend on individual circumstances, the clauses aren’t illegitimate as a whole, but care should be taken if including them in a contract.  If you are consumer and have found yourself trapped by this tricky little inclusion to a contract don’t hesitate to investigate your options.


About Sarah Bartholomeusz:

SarahB2Sarah Bartholomeusz is the founder and CEO of You Legal, a new category of law firm providing top-tier corporate and commercial legal services and corporate governance support to ASX-listed companies as well as growing businesses at all stages of their life cycle.  In 2015 You Legal was the winner of the Telstra Business Women’s Award in the Start-Up category for South Australia. As Australia’s leading online legal counsel, Sarah has taken over a decade of experience and committed to ensuring businesses have access to legal advice that minimises their risks and maximises their potential.