What Are Adhesion Contracts? 3 Examples
Adhesion contracts occur when the person signing the contract has little to no say about the agreement’s terms. These are important and legally enforceable contracts when handled correctly. While courts frown upon certain kinds of adhesion contracts, others are common and enforceable in the business world.
Effective contract management plays a major part in how your company handles contracts of adhesion. These contracts are low-negotiation high-volume agreements that require careful creation and monitoring. Contract lifecycle management (CLM) software can put you in the know on how to create and enforce these types of agreements.
What is an adhesion contract?
An adhesion contract is a type of boilerplate agreement. We see them every day and think little of them. They are agreements where the party signing has little or no input in negotiating the terms. This adhesion contract is a “take it or leave it” scenario for the other party.
Adhesion contracts are widespread in the business and technology sectors. B2B (business-to-business) and B2C (business-to-consumer) companies use them for common agreements. They are usually reserved for high-volume consumer contracts with standard language requiring little or no negotiation.
Adhesion contracts are also commonly known as:
- Boilerplate contracts
- Standard form contracts
- Adhesion agreements
What happens under a contract of adhesion?
A contract of adhesion has little to no negotiation. The drafting party is usually a large company, firm, or even in-house counsel. They create the terms needed to protect their rights and expect others to sign in exchange for access to intellectual property, software, or other rights.
The signee may accept the agreement as is or choose not to accept it at all. Choosing not to accept usually means limited or denied access.
Is a contract of adhesion enforceable?
An adhesion contract is enforceable when drafted correctly. The drafting party has much greater bargaining power than the person signing the agreement. This means that these agreements are highly scrutinized by the courts that enforce them. Traditional contract law frowned upon adhesion agreements, but their use in business has become especially popular and legal.
Courts will look at certain factors and the “reasonable expectation” test to determine if an adhesion contract is fair and enforceable. These factors include, but are not limited to:
- Any potential for unfair surprise
- The nature and burden of the contract
- Lack of notice
- Substantive fairness
- Unequal bargaining power
Creating enforceable high-volume agreements
The law on contracts of adhesion continually evolves. As courts continue to wrestle with these agreements, some points that help protect enforceability have become clear. High-volume contracts are commonly no-negotiation agreements that qualify as adhesion contracts.
The following are some tips to help create an enforceable adhesion contract.
- Affirmative consent: Ensure that the user gives affirmative consent to the agreement by requiring they click “I agree” before they proceed. They may also click or affirm by making clicking a box next to “I agree.” This action demonstrates that the user took affirmative action in agreeing to the contract.
- Prominent notice: The terms of service for an adhesion contract should be displayed prominently. Provide a link to the terms and conditions and encourage or require users to read it before clicking their acceptance.
- Use an easy acceptance method: Easy-to-use signature methods can make all the difference. Clickwrap agreements allow users to agree to a contract with just one click. Effective CLM software then captures critical data to enforce these agreements later.
- Maintain back-end records: Proper back-end records are essential to the enforceability of adhesion contracts. You need to show who accepted the agreement, the version, and how and when it was signed. The right CLM software does all of this for you to make it easy and effective.
Adhesion contract examples
Adhesion contracts are everywhere. Businesses use them on a daily basis for all kinds of interactions. Whether your company needs standard terms for consumers or B2B practices, an adhesion contract can be beneficial.
These three examples are commonly used adhesion contracts in the business world:
Terms and conditions
Websites and products used by consumers are usually governed by legal agreements. One such agreement is the terms and conditions. These contracts are typically adhesion contracts because they are offered “as is” to the user. There is no negotiation of the terms.
Terms and conditions are commonly used in situations like:
- Purchasing goods or services online
- Registration or membership in a service
- Accessing a web page or app
Companies that use terms and conditions contracts must be sure they are enforceable. As adhesion contracts, they should be scrutinized to ensure they meet certain best practices for enforceability.
Non-disclosures agreements (NDAs) are an essential part of many businesses. They protect critical information from disclosure and help secure your valuable data. Most NDAs are not negotiable. The individual must sign them or be denied access to sensitive information.
CLM software makes it easy to create enforceable non-disclosure agreements. You can draft an enforceable contract and templatize it for use across the company. You can then automate how users assent to its terms, how it is stored, and receive critical insights into contract performance over time.
Master Service Agreements
A Master Service Agreement (MSA) is a contract between parties that governs current and future activities. It is an overarching agreement that subsumes other more specific agreements that occur later. This saves time ratifying terms in later contracts when the parties anticipate a lasting relationship.
An MSA is often a standard contract requiring little to no negotiation and thus may be considered an adhesion contract. Your company should employ proper CLM practices to ensure you create and maintain enforceable agreements.
Enforcing adhesion contracts with CLM software
The right contract lifecycle management software can make or break your adhesion contracts. These “take it or leave it” agreements are enforceable when done correctly. Providing notice to users and proving affirmative assent is key to enforcing these boilerplate agreements.
The right software makes all the difference in handling these standard high-volume agreements. You can easily draft and manage your adhesion contracts to increase revenue and mitigate legal risk.