Benoliel & Becher paper on form contracts that allow firms to end contracts without explanation

Uri Benoliel of Ramat Gan Law School and Shmuel I. Becher of Victoria University of Wellington have written Termination Without Explanation Contracts. Here is the abstract:

Firms routinely terminate their contractual relationship with consumers. During 2019-2020, for example, Facebook terminated 5.4 billion accounts that were supposedly fake; WhatsApp announced that it is terminating 2 million user accounts per month for apparently spreading fake news; and Discord, an online communication platform, terminated 5.2 million user accounts for allegedly publishing spam and exploitative content.

Terminating accounts that facilitate and promote fake profiles, fake news, spam, hatred, improper content or cheating makes sense. However, past incidents and consumer complaints indicate that firms often terminate their relationship with consumers without explanation, which is socially undesirable. First, if firms fail to explain to consumers the cause for termination, a hasty, unfounded, and erroneous termination is more likely to occur. Second, erroneous contract termination, fueled by lack of explanation, may generate significant costs to consumers. These may include the loss of sunk investments, emotional costs, and switching costs. Third, termination without explanation may be based on discriminatory, yet non-transparent factors. Such terminations may disproportionately target and harm vulnerable consumers, while eroding imperative societal values.

Given these risks and costs, this Article marks the first attempt to systematically and empirically study the phenomenon we dub "termination without explanation contracts"; i.e., consumer agreements that allow firms to terminate their contract without disclosing the reason for termination. In doing so, the Article examines the contractual termination mechanisms of 500 sign-in-wrap contracts of the most popular websites in the United States. The results of our study show, inter alia, that the vast majority of these contracts are non-transparent termination without explanation contracts. We therefore propose to impose a duty to explain on firms. We also present a transparency index that captures key aggravating factors and can help tackle the issue from a holistic approach.

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