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Some contracts allow one party (usually a vendor) to unilaterally amend the contract terms on, say, 30 days’ advance notice. Typically, such provisions give the other party the right to terminate the agreement if it objects to the amendment. Here’s a sample clause, copied from the current working draft of the Common Draft compendium:
(a) The specified party or parties may unilaterally amend the Agreement, or any exhibit, schedule, or appendix of the Agreement, by giving notice to the other party. Except as provided in subdivision (b), the amendment will take effect at the specified time after the effective date of the notice.
(b) If the other party is unwilling for the Agreement to continue as amended, it may terminate the Agreement by giving notice to the amending party no later than the effective date of the amendment.
(c) For the avoidance of doubt, no unilateral amendment will retroactively modify any binding dispute-resolution provisions of the Agreement for then-pending disputes (for example, binding-arbitration provisions) unless the parties expressly agree otherwise.
(d) For the avoidance of doubt, without the non-amending party’s express written agreement, a unilateral amendment will not retroactively eliminate or modify any right already exercised by the non-amending party, including for example any right to demand that the amending party perform an obligation, under the Agreement.
Such provisions are often seen in “mass” contracts that govern on-going relationships, such as consumer-services agreements, reseller agreements, Web site terms of service, and the like. See, for example:
- The Facebook Statement of Rights and Responsibilities § 13 (accessed Jan. 23, 2012)
- The contract provisions discussed in the Harris v. Blockbuster, Inc. and Carey v. 24 Hour Fitness cases summarized below.
The Blockbuster video problem: Retroactive modification of arbitration procedures
A unilateral-amendment provision ordinarily should contain a so-called Halliburton exception like that of subdivision (c) above, to prevent a unilateral amendment from nullifying an arbitration provision. Absent such an exception, a court might find that the parties’ agreement to the arbitration provision was illusory.
The lack of such an exception led to Blockbuster’s being unable to compel arbitration of a claim by a dissatisfied customer. See Harris v. Blockbuster, Inc., No. 3:09-cv-217-M, slip op. at 3 4 (N.D. Tex. Apr. 15, 2009) (holding that “the arbitration provision of the Blockbuster contract is illusory and unenforceable”), discussed in a Pillsbury Winthrop client alert by Lisa C. Earl.
The same result occurred in connection with the arbitration provision in an employment agreement. See Carey v. 24 Hour Fitness USA, Inc., No. 10-20845 (5th Cir. Jan. 24, 2012) (affirming denial of motion to compel arbitration because company had the right to amend unilaterally, without a Halliburton-type savings clause).