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Termination Without Explanation Contracts

Firms routinely terminate their contractual relationship with consumers. For example, Twitter has recently removed more than 70,000 accounts that allegedly promoted the QAnon conspiracy theory. Similarly, during 2019-2020, Facebook terminated 5.4 billion supposedly fake accounts. At the same time, WhatsApp announced that it is terminating 2 million user accounts per month for spreading fake news. As another example, Discord 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, inappropriate content, or cheating makes sense. Past incidents and consumer complaints, however, indicate that firms often terminate their relationship with consumers without explanation. Such termination without explanation may be socially costly and 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 a 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 rely on nontransparent discriminatory factors. Alas, 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.” We use this term to refer to consumer contracts which allow firms to terminate their relationship with their consumers without disclosing the reason for termination. In doing so, this Article empirically examines the contractual termination mechanisms of 500 online contracts of the most popular websites in the United States. The results of our study show, among other things, that the vast majority of these contracts are nontransparent termination without explanation contracts. We therefore propose to consider imposing 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.

©2022, Uri Benoliel & Shmuel I. Becher. All rights reserved.

a. Professor, Faculty of Law, College of Law and Business. J.S.D. (UC Berkeley); LL.M. (Columbia University)

b. Professor, Victoria University of Wellington. J.S.D., LL.M. (Yale University).
We thank Yonathan Arbel, Oren Bar-Gill, William Britton, Sinai Deutch, Chris Drahozal, Moshe Gel-bard, Bob Hillman, Dave Hoffman, Yotam Kaplan, Shelly Kreiczer-Levy, Roy Shapira, Elad Schild and the participants at the Ramat College of Law and Business Faculty Seminar for excellent com-ments and suggestions. We also thank the College of Law and Business for financial support, and Maayan Ofer and Adi Ziv for able research assistance.

The full text of this Article is available to download as a PDF.