Can A Service Provider Really Raise Your Fee, Unilaterally, Upon Renewal?

The hardest part about a contract dispute with a service provider is often figuring out how to play defense against stuff you didn't actually agree to.

When the service provider makes an argument "pursuant to the terms and conditions you accepted, when you signed the agreement," it's a good indication that it's time to get in your defensive stance.

Here's an example pertaining to a unilateral rate increase.

The original agreement

Suppose that you entered into a contract with a service provider in 2016 for, say, subscription access to the provider's software app. Let's refer to that contract as "the 2016 agreement." The term of the agreement was twenty-four months, which, on its face, meant that your contract with the service provider would last for two years.

When you "signed" the 2016 agreement, you did so by typing your name into an empty form field on the service provider's website. This constituted your "electronic signature" on the agreement--no problem so far.

What you did not notice at the time, however, was that the website page on which you "signed" the agreement contained a hyperlink in small text near the bottom of the page. That hyperlink, as the service provider would later note to you, contained a separate terms and conditions document that was incorporated into the 2016 agreement. So, according to the service provider, when you signed the 2016 agreement, you were also agreeing to the terms and conditions contained in that separate terms and conditions document.

(Note that such a position is not necessarily enforceable. See this 2018 Uber case, for example, or this 2014 case involving a dispute between an equipment manufacturer and a buyer.)

The automatic renewal

This discrepancy came to light about two years after you signed the 2016 agreement, when the service provided purported to execute an automatic renewal of the 2016 agreement.

Even though you had planned to cancel your software subscription at the end of the 2016 agreement's 24-month term, you might have been fine to just keep the subscription for a few extra months given the inconvenience of having to address the issue of the purported renewal. The problem, though, and the reason you decided that you needed to go ahead and cancel the subscription as originally planned, was that the service provider had actually increased the monthly fee upon renewal. This meant that, "to just keep the subscription for a few extra months," you would have had to shell out even more money per month, which is not something you were willing to do, since the usefulness of the software subscription had actually decreased by that point (thus your original plan of cancelling at the end of the 2016 agreement's 24-month term).

You never accepted the terms of the renewal agreement.

Because the service provided claimed that the 2018 renewal had occurred automatically, you never actually accepted the terms of the 2018 renewal, including the higher monthly fee.

In fact, in addition to you never accepting an offer from the service provider for the 2018 renewal, the service provider never actually made you an offer that was consistent with the terms reflected by the 2018 renewal. Again, this was because the service provider claimed that the 2018 renewal had occurred automatically, rather than due to the service provider's manual offer to you and your manual acceptance of that offer.

Did the service provider have the right to automatically renew the agreement?

This raised the obvious question, which was whether the 2016 agreement actually gave the service provider the right to automatically renew the 2016 agreement. As far as you were aware when you asked the question, you believed the answer to be no. So, you figured that the automatic renewal must have been some sort of mistake on the service provider's part.

You learned, however, that the renewal was not a mistake, at least according to the service provider. As previously noted, in explaining why the renewal had occurred, the service provider claimed that:

• You accepted the terms of the 2018 renewal by executing the 2016 agreement, because...
• The 2016 agreement incorporated a separate terms and conditions document which...
• Included a provision for automatic renewal, which...
• Permitted the service provider to execute the 2018 renewal automatically and...
• To execute the renewal at the "then prevailing market rate."

You disputed the service provider's conclusion as to these claims. But the service provider persisted. So, you decided to look into the underlying claims further, just to try to gain a better understanding of why the service provider believed these claims, and the service provider's resulting conclusion, to be true.

What you found was that there was a separate terms and conditions document in existence in 2016 and that this separate terms and conditions document did in fact contain an automatic renewal provision. You also found that the automatic renewal provision said that...

The fees on any renewal will be at the then prevailing market rate.

...which you interpreted to mean that, at least in part, the service provider would have a right under that provision to increase or decrease the monthly fee in accordance with whatever the "market rate" was at the time of renewal (although, as an aside, you cynically doubted that the service provider was ever issuing renewals at lower rates, even if the market rate has decreased since the original agreement was executed). Since the service provider had increased your fee upon renewal, you understood this to mean that the service provider was implicitly claiming that the "market rate" at the time of the 2018 renewal was higher than the "market rate" at the time of the 2016 agreement's execution.

Finally, you looked at the 2016 agreement you had actually signed, trying to find whatever connection the service provider was claiming between that page that you signed and this separate terms and conditions document. That's when you first noticed that the website page on which you "signed" the agreement contained a hyperlink in small text near the bottom of the page, which, when clicked, led to the separate terms and conditions document that the service provider was now claiming to have been incorporated into the 2016 agreement.

Was the separate terms and conditions document actually incorporated by reference?

Now that you've deconstructed the service provider's argument, you can now see that the first hurdle the service provider would have to overcome is proving that the separate terms and conditions document was in fact incorporated by reference. Courts regularly scrutinize such a claim, and often find in favor of the party defending against the incorporation by reference claim.

Whether or not a court would find that the separate terms and conditions document in your case was actually incorporated by reference depends on a number of factors. But, generally speaking, when the prompt for such an inquiry is that the customer was eventually surprised by the service provider's claims that the customer had unwittingly agreed to a provision in some separate terms and conditions document, the heart of the inquiry often hits on the very reasons that the customer was caught by surprise: Did the customer actually notice the separate terms and conditions? Should the customer have noticed them? Did the service provider make a reasonable effort to give the customer proper notice? Etc.

If a court were to find that the separate terms and conditions document was not incorporated into the 2016 agreement, then the service provider's subsequent claims in this sequence, along with the service provider's conclusion, would crumble, and you would win the dispute, provided that the automatic renewal provision was contained only in that separate terms and conditions document, and not on the website page you actually signed. (In general, and unfortunately, it's most common for service providers to tuck away the more objectionable terms in the part, or parts, of the agreement that you would be least likely to see. However, such a typicality may aid you now in your defense against the service provider's attempt to enforce the 2018 renewal against you at the higher monthly fee.)

Your strongest premises, though, should focus on the unilateral fee increase itself. You should center those premises on the following question...