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Massachusetts Court Says Online Terms of Service May Not Form Binding Contracts with Users

Posted by Michael Cashton on January 12, 2021 at 3:47 PM


Online terms of use contract enforceabilityLast week, the Massachusetts Supreme Judicial Court (SJC) issued a decision (Kauders v. Uber Technologies, Inc.) with serious implications regarding the enforceability of online agreements in the Commonwealth. This decision represents the first time the SJC has considered a substantive contract formation issue within the context of online agreements. By concluding that online contracts must meet the same standards of formation that exist for traditional contracts under MA law, the SJC’s decision will effectively require companies to reevaluate the way they present terms of service on website and mobile applications, if they wish for them to be enforceable in MA.

Background
The Kauders case originated when the plaintiffs filed suit against Uber, and Uber responded by moving to compel arbitration of the claim on the basis that its online terms of service included a mandatory arbitration provision. The plaintiffs argued that Uber’s terms of service did not constitute an enforceable agreement between the parties given its inaccessibility at the time the plaintiffs created an account on Uber’s platform. The SJC was left to decide whether the plaintiffs realized they were agreeing to a contract when they finished the account creation process. The court concluded no contract existed between Uber and the plaintiffs because a user could create an account without ever opening those terms or affirmatively stating that he or she agreed to the terms.

MA Standard for Contract Enforceability
The enforceability standard confirmed by the SJC includes two specific tests: (1) was there reasonable notice of the contract terms, and (2) was there a reasonable manifestation of assent to the contract? Although the court acknowledged the challenges in applying this standard “to newer forms of contracting over the Internet,” it also recognized that this is the standard used by many courts around the country.

1. Reasonable notice
To constitute reasonable notice, the website or other offering entity must provide “actual” notice of the terms (i.e., the user has reviewed the terms or interacted with them), or the “totality of the circumstances” must indicate that notice of the terms was “reasonable.” Such reasonableness could be determined by factors such as (a) the clarity and simplicity of the language used to communicate the terms, (b) the accessibility of the terms, including how many steps must be taken to access them, and (c) the overall clarity of the process.

2. Reasonable assent
Requiring an action, whereby the user expressly and affirmatively manifests assent, such as by checking or clicking a box, would be considered reasonable, according the SJC. The court also noted that clickwrap agreements, which essentially require users to affirmatively click “I agree,” are the easiest way to meet this standard because they put the user on notice that they are entering a contractual arrangement and convey a sense of significance which is lost when there is not a physical execution of agreement. In the absence of such an affirmative step, finding reasonable assent would be a factual inquiry into the “totality of the circumstances.” In other words, it couldn’t be guaranteed.

Recommendations
Outside GC recently posted an article addressing this issue with suggestions on how to increase the enforceability of online agreements. In light of the recent Kauders decision, clients conducting business over a website or mobile app that is accessible in Massachusetts should reevaluate their terms of service. The SJC provided examples of how to meet the standards of reasonable notice and assent in a website or mobile app online contract. Below are some suggestions based on those examples:

1. Place links to terms of service in a prominent location (avoid any design or interface that enables or encourages users to ignore the terms). Ensure that the text size of the link is legible and not any less prominent than the text being used to describe other important information. A single click should take you to the full terms.

2. Require the user to open and scroll through the terms before completing any registration, payment or other actions. Allow ample time to review the terms.

3. Provide a clear and prominent method of action that ensures the user has expressly agreed to the terms, such as affirmatively checking/clicking an open box whereby the user “Accepts” or “Agrees” to the previously reviewed terms and conditions. Unfortunately, words such as “Done” or “Place my order” are unlikely to express affirmative assent to the contract. Similarly, on-screen text which merely states that “by using the service, you automatically agree to our terms” would likely be insufficient to form a contract.

If you have questions about this decision or online terms of service in general, please contact Mike Cashton at mcashton@outsidegc.com to discuss your company’s specific needs.

 

Michael Cashton is a member of our New England-based team and brings over 20 years of experience representing emerging businesses, major corporations, and individual entrepreneurs across a range of industries, including consumer goods, SaaS/PaaS, ad-tech, digital gaming, e-commerce, retail, food service, and arts/entertainment. Before joining Outside GC, Michael served as VP of Legal for Hasbro, Inc., an international consumer products and branded entertainment company. He can be reached at mcashton@outsidegc.com or 401-744-9647

Topics: online agreements, online terms of use

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