Contract Management

Why Legal Teams Should Not Track Online Contracts In-House

Legal Teams Should Not Track Contracts In-House-12

For modern companies that do business online, their online terms of use will contain some key legal protections. And the legal teams at these companies will be charged with ensuring those legal protections are in place. But can legal teams also efficiently track acceptance of those online contracts, as well as ensure the terms of use are constantly updated for changes in regulatory law? There are several reasons that these tasks are NOT within Legal’s wheelhouse.

Related Content: Why You Need a Third-Party Vendor for Your Online Terms

The following are just a few considerations for why legal teams should (or should not) track online terms in-house. And why Legal may want to consider outsourcing these tasks to a third-party vendor.

Acceptance Tracking Not an Ideal Task for Legal Team

Tracking individual acceptance of online terms of use is a very important task for any eCommerce company or other online business. However, it is also a burdensome and time-consuming process. Without a doubt, it will pull company resources away from the company’s core product, service or other offering. For most departments in the company, it will make sense to outsource this task.

But what about the legal department? Since acceptance tracking primarily relates to managing legal risk, doesn’t it make sense for Legal to take care of this task?  Not so fast. There are several reasons Legal would likely be better off using a third-party vendor to track its online terms.

Maintaining Back-end Records Is Too Time-Intensive

One of the keys to successful enforcement of online terms of use, such as in clickwrap agreements, is the maintenance of high-quality back-end records of acceptance. Back-end records will contain key data captured at the time of contract acceptance.

Specifically, back-end records should indicate the identity of the person who accepted the agreement, the time and date of acceptance, and the version of the online agreement that was accepted. These records could be the key difference in enforcing contract terms … such as, for example, by avoiding a class action based on an arbitration clause.

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With the volume of business done through online transactions, such as eCommerce, this type of recordkeeping can be overwhelming for a legal department. A third-party provider, on the other hand, can have automated processes in place that it continually monitors and updates. This will leave Legal free to work with the third-party provider to track acceptance of its online terms, instead of managing this gargantuan task by itself. 

Legal Cannot Maintain Screen Design Requirements for Clickwrap Enforceability

For online contracts to be legally binding, effective screen design is key, which is definitely NOT an ideal task for Legal to handle on its own.

Consider a clickwrap agreement, which utilizes a single-purpose button to be clicked (or box to be checked) that clearly indicates the user is agreeing to the terms of the contract. Clickwrap requires the screen design to be optimized so the contract is fully enforceable.

For example, the hyperlink must strongly contrast with the background, so the user is clearly put on notice they are effectively signing a contract.  The agreement language, hyperlink, and acceptance button (or checkbox) must be placed in close proximity to each other, again to clearly notify the user of the legal consequences.

Screen design is not something that any legal team is suited for. But Legal can oversee an experienced third-party provider that ensures optimal screen design, while Legal makes sure the online terms of use are legally airtight.

Clickwrap Example-06

Managing Litigation Tasks

In the event litigation becomes necessary, a third-party provider can greatly simplify litigation tasks related to acceptance tracking. The third-party provider can quickly and easily pull back-end records for any individual user, freeing the legal team from this onerous process. Time-consuming tasks such as e-discovery can be streamlined. Even more importantly, legal challenges may be headed off in the early going, when back-end records can definitively prove contract acceptance.

The Challenges of Legislation and Regulation Changes for Clickwrap Enforceability

Online contracts are a new frontier in legal enforcement of agreements. This means they are subject to ever-changing legislation and regulations. For a legal team to effectively track online terms in-house, they will need to continually update their processes to reflect these regulatory changes. Just a quick glance at some existing regulations demonstrates why this is yet another task that is not ideal for Legal. 

For example, the California Consumer Privacy Act (CCPA) went into effect on January 1, 2020 and imposes numerous requirements for handling consumer data. Just a few examples of these requirements are as follows: (1) companies must update their privacy policies to reflect CCPA-mandated disclosures; (2) companies must track acceptance of terms and conditions; (3) updates must also be accepted and tracked; (4) consumers must have the ability to opt-in or opt-out of consumer data disclosure; and (50 companies must ensure third-party compliance with these requirements.

Related Content: Three Reasons Homegrown Acceptance Tracking Is Not Sustainable

Another example is the General Data Protection Regulation (GDPR), which went into effect in the European Union in 2018. GDPR imposes strict requirements for the collection of personal data, as well as for protecting such data from misuse. The law also imposes requirements for notifying consumers and legal authorities of data breaches.

Legal teams are simply not equipped to implement the ongoing changes to coding and technology that these laws require. But a third-party vendor specializing in online contracts can keep on top of these regulatory updates.

Customer Experience Matters for Online Contracts

It is important to note the commercial advantages of modern online contracts, such as clickwrap agreements. They provide an easy-to-use and simple contracting process that helps to speed up online transactions.

Clickwrap provides a positive customer experience which speeds up the sales cycle and contributes to the company’s bottom line. While Legal can ensure legal protections are included in online terms of use, a third-party provider can ensure the quality of the user experience is maintained.

To learn more about the effective management of online contract terms, download our eBook, How Online Terms Can Make or Break Marketplace Apps.

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