The California Automatic Renewal Law (ARL) was passed in 2010 in order to prevent companies from locking consumers into renewal payment contracts without any ability to cancel.  Unfortunately, the ARL has created a difficult business environment, riddled with pitfalls for unsuspecting companies.  Most importantly, the regulatory framework created by the ARL provides for an incredibly precise set of rules detailing what all companies which have recurring payment contracts must do before, and after, signing up a customer.

The penalties for failing to comply are severe.  If a company fails to follow the ARL’s very specific and detailed rules, the law deems all “goods, wares, merchandise or products” sold as “unconditional gifts.”  This has allowed plaintiffs’ attorneys to argue that a company which violates the ARL must return 100% of its proceeds to every single California customer since 2010.

While the law was largely ignored at first, over the last few years, plaintiffs’ attorneys have begun aggressively pursuing class actions.  Since 2015, plaintiffs have filed putative class action lawsuits agains Birchbox, Dropbox, Google, Spotify and Tinder, just to name a few.  Nor are these class actions limited to large companies.  We have seen, and defended, relatively small subscription-based companies that have been targeted by plaintiffs’ counsel.

Due to the ARL’s broad language, few companies have opted to test its limits.  Based on a study of publicly available information, we have seen a large trend of defendants, or even would-be defendants, settling based on a demand letter or complaint alone.  However, the few companies that have engaged plaintiffs in litigation over the ARL have found some success, especially at the federal level.