Changes to Colorado law for Evergreen Clauses in Contracts
Do you use contracts with evergreen clauses? (Evergreen clauses being those where a contract automatically renews if neither party cancels it within a certain amount of time before the end of the current term.) If so, changes came into play at the beginning of this year that may have a big impact on your agreement and the terms that you have to have in it.
Evergreen contracts can be a win-win for businesses and those that they contract with. When someone needs ongoing services or products, not having to renegotiate a contract each year, or even worse having services or products cut off because a new contract wasn’t signed due to forgetfulness or other reasons, can cause chaos for a business. Having an agreement continue can ensure continuity for the business of things such as CO2 supplies for restaurants, security guards for jewelry stores, and IT services for legal practices.
However, it can also create situations where businesses can suffer. A business may not want to renew its copier services for another two years because it has gone mostly digital and paying a monthly charge for paper copies is an expense that is no longer needed. A medical practice may have hired an office manager and no longer needs to outsource some services. Recently, with COVID, we have seen many businesses go full remote so services such as janitor services, renting of office furniture, and other services and supplies for an in-person office may no longer be needed. For these businesses, a contract that automatically renews may have only downsides and not an upside.
Starting in 2022, a new law in Colorado makes auto-renewing contracts subject to specific provisions to ensure that consumers know their rights regarding such terms. Anyone using an evergreen clause must have a “clear and conspicuous disclosure” of what the terms and conditions are regarding auto-renewal. For instance, this clause may be in bold type and a bigger font than the rest of the agreement. Or it may be something that customers get disclosures in the agreement but also get a separate sheet that states that the agreement will auto-renew and the terms of such auto-renewal. All of this must be done before the contract is signed to make sure all individuals signing the agreement know the terms of the evergreen provisions upfront.
In addition to knowing what the terms are beforehand, each person signing the agreement with evergreen clauses must know their rights and have the ability to easily terminate the agreement prior to it auto-renewing. This may include the ability to terminate through a website, by email, or other means that are easily accessible to the average individual. In addition, at least once a year, the company must notify the customer that the agreement automatically renews and give the option of terminating the agreement.
If you are going to include auto-renewal provisions in any contracts that your clients sign, you must make sure that going forward you comply with the new Colorado laws. Please note, these provisions do not apply to certain industries such as public utilizes and, in some cases, insurance agents. If you are in a highly regulated industry, it is best to check with an attorney to see whether these rules apply to your industry. (For example, consumers may not be happy if their car insurance is cancelled without notice because they didn’t sign to allow automatic renewals and businesses may be very unhappy if their workers are left in the dark because the lights aren’t on.
For further information about auto-renewal provisions and the new law, you can check out the law at https://leg.colorado.gov/bills/hb21-1239. You can also always call me, your Denver Small Business Attorney, at 720-258-6647 or schedule an appointment online at www.eclewis.com/schedule and we can make sure your marketing materials and contracts comply with the new law!
If there are any questions, please contact me, your Denver Small Business lawyer, at 720-258-6647.
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