Terms of Service: What Small Businesses Need to Know About These Oft-Used, but Unread Agreements

You’ve put together your website or app offering your Great New Service™, but now you’re trying to figure out the dreaded Terms of Service. Everyone clicks the box to indicate they agree before signing up for the service, but no one really reads these absurdly long agreements. What do you really need to put in your small business’s terms of service, and, perhaps more importantly, why do you need one in the first place?

Why does every web or app-based service have a terms of service?

Let’s start with the why. The short answer is because we live in a very litigious society. Even if your app or site engages in seemingly small transactions, disgruntled customers can still find creative theories to sue your business. The terms of service is the legal contract between your business and the people or entities who use your service. And as a legally binding agreement, it sets the ground rules and, hopefully, addresses everything that could possibly go wrong in the relationship.
Too many small businesses wait until something has gone wrong before finally deciding to get their legal documents drafted by an attorney. Don’t assume that nothing bad will ever happen, that no one will ever have a complaint, or that the terms you “borrowed” from a larger company also fit your service. 

What key provisions should you include in your website or app terms of service?

1. Clearly Define the Key Terms

Don’t take anything for granted. Your terms of service should clearly define who is involved in the agreement, including your business, who the end user or customer is, any third parties that might be involved in delivering the service, and exactly what the service is. By defining these key terms, you can minimize the risk of disputes with non-customers who were hoping to get access to the service without becoming a paying customer or even with paying customers who demand more than what the service actually includes

2. Be Upfront About Your Fees and Payment Policies 

When you offer a web-based service or app, you may want the freedom to change your pricing structure as the market dictates. But you should still be clear with your customers about what fees you charge and where they can find this information. The terms of service should also address: How will you notify customers about upcoming fee increases? What payment methods will you accept? How quickly will you terminate a customer who stops paying for your subscription service, perhaps because their credit card expired? Are there any circumstances in which the fees paid by a customer will be refunded by your company

3. Limit Your Business’s Liability

Often with services, you can’t guarantee any particular results or outcomes for your customers, and your terms of service should be clear about what you are not promising. (It’s really true what they say, “It’s better to under promise and over deliver.”) Not only should your terms of service set clear expectations for your customers, but it should also limit your business’s liability. Limitation of liability clauses address what your business does NOT want to be liable for in the course of providing services. Often, these provisions must be set out in a conspicuous way, i.e. a larger and bold font or even the use of all caps. For example, if your service provides health coaching, you should be clear that your business does not provide medical advice and is not a substitute for a customer seeing their physician. You would then go a step further and limit your business’s liability for any adverse health effects your customer might suffer while using your service.

4. Address Consumer Privacy

With so many apps and websites collecting and mis-using personal information, customers expect your business to have a relatively easy to understand privacy policy. Consider what personally identifiable information you collect from website visitors or app users. What does your business plan to do with this information? Will you keep personal information out of the hands of third parties? And if so, how will you keep such information safe?

5. Plan to Resolve Disputes Early and Cost Effectively

Litigation is expensive. Your business will almost always be better off avoiding litigation and finding alternative means of resolving disputes. This can be done in a variety of ways, including limiting the amount of damages an unhappy customer can recover, limiting customers’ ability to pursue class action cases, requiring mediation before litigation, or even requiring disputes to be heard in the court closest to you (and decided based on the laws of your home state).
But be careful about just copying and pasting the language from a larger company’s dispute resolution section. Before you assume that your dispute should be heard before a particular arbitration or mediation body, make sure you are aware of their rules and procedures, as well as their costs. For example, if you require consumers to arbitration disputes before the American Arbitration Association, your terms of service need to meet their requirements, which includes pre-vetting of the arbitration clause by the AAA, to make sure your business isn’t unfairly taking advantage of consumers.

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It’s easy to cobble something together from the thousands of terms of service you can find online (and have probably agreed to yourself). But it’s just as easy to make a critical mistake because of some nuance in the law that you weren’t aware or by incorporating conflated “legalese” that is difficult to understand.

If you provide a web or app-based service and have questions about your legal agreements, then schedule a consultation today.

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