Waste Management is the industry leader in collecting and disposing of waste. With 21 million customers, they make $15 billion in annual revenue and rank number 202 in the Fortune 1000. Unfortunately, one of the ways they generate their billions is with a one-sided Terms and Conditions agreement that often has their smaller customers unknowingly paying two to ten more than the market rate. Attorney Josef Mitkevicius shows the inner workings of this adhesion contract and explains how smaller companies can use well-drafted and fair contracts as a tactical advantage.
Questions in this Episode:
- What is a non-negotiable adhesion contract?
- When is an automatic renewal a poor choice?
- How can you constantly raise prices with no client notifications?
- Why is the consensual price increase not consensual?
- How can contract drafting be a marketing advantage?
Waste Management’s Adhesion Contract
To understand Waste Management’s Terms and Conditions, imagine an agreement that is non-negotiable, automatically renews, is difficult to cancel, has severe cancelation penalties, rises greatly in price every year, and has you pay two to ten times more than market rate.
Waste Management uses this Terms and Conditions agreement with small businesses, religious organizations, and nonprofits that have dumpsters and trash containers but do not get service from a public entity.
Waste Management presents the one-sided adhesion contracts to these businesses on a take it or leave it basis. There is no real negotiation at all.
Depending upon the geography, there can be multiple providers. Small businesses may have the ability to negotiate better terms with the smaller local waste-hauling companies. But, in most areas, Waste Management is the largest company and locks these small businesses into contracts that raise the price every year and have draconian cancelation terms.
I try to tell my clients never to sign a contract like this. And if they do sign it, the most important thing is to know the real price of the contract. -Josef Mitkevicius #ContractTeardown Click To Tweet
The Automatically Renewing Agreement
The initial term of this Waste Management Terms and Conditions version is 12 months, but most have an initial term of 36 or 60 months.
But the critical thing to remember is this is an evergreen contract that automatically renews and continually renews at the end of each subsequent term.
If you want to cancel the contract, you must do so “at least ninety (90) days, but not more than one hundred eighty (180) days, prior to the termination of the then-existing term.”
If you do not file your termination precisely within that window, Waste Management considers your termination notice “ineffective” and automatically renews your contract.
Is the Consensual Price Increase Actually Consensual?
Waste Management has been developing and refining its Section 4 Charges portion of the contract over the past ten years. Waste Management customarily and automatically increases its base rate every year throughout the contract without notifying the customer.
In 2018, Waste Management added Section 4(c) Consensual Price Increases, which tells the customer that Waste Management will be raising prices and that “the customer should expect Company to seek increases.” Your “sole right and remedy” to object to the price increase is to terminate your contract, but beware of the termination fees and threats of lawsuits should you decide to not pay.
Unfortunately, because your monthly bill varies, based on several factors like fuel prices, you might not notice a base price increase compared to a higher bill as the result of a variable factor. It sounds confusing, and it is.
Your bill is based on three different stacking fees, in addition to the base rate. And some of it is variable, such as the fuel adjustment fee. So your monthly amount is never the same, and you may not notice an actual base rate increase.
And if you don’t notice it, you cannot object to it. And that is more profit to Waste Management. You get a discount if you put your bill on auto-pay, and people on autopay are less likely to review their bill.
The billing is designed to keep clients from noticing price increases, and if you don’t notice the price rise, how can it be consensual?
So How Much More Can You Be Charged?
When you sign a $100 per month, 36-month contract, you might think that is a $3,600 contract paid over time.
But Waste Management might consider that contract worth $6,000 or more because they know that the prices will constantly increase. It is not unusual for a Waste Management contract rate to double in price in six years.
In an actual example, a small church started paying Waste Management $200 per month. As they paid their bills over the years, they went through six unnoticed renewals. Eventually, an advisor noticed they were now paying $2,000 per month and not $200 per month. Other businesses in the area were paying market rates of $200 per month.
When they complained, Waste Management told them they would be subject to a cancelation fee since they did not cancel according to the contract terms. Under the liquidated damages clause, that fee would equal six times the monthly amount, or in this case, $12,000.
But, Waste Management offered to let them sign a new contract for only $500 per month, telling them they were saving money, even though this was two and one-half times the then-current market rate.
How Your Contract Drafting Can Create A Competitive Advantage
There are downsides to drafting one-sided, non-negotiable, ever price increasing, adhesion contracts. Eventually, the public catches on, and your client’s reputation suffers as goodwill evaporates and bad will intensifies.
And in a business like waste collection, what really separates the businesses? As a consumer, the service of one company seems pretty much like the service of another. Your trash gets picked up, or it doesn’t.
The difference is how the company treats you. And much of that comes from the contract drafting. In an industry like this, your contract drafting can create a competitive marketing advantage for your client.
THE CONTRACT: Waste Management Terms and Conditions
THE GUEST: Josef Mitkevicius was trained at Georgetown University Law Center. He then went on to work in New York City, Washington, DC and Mexico City prior to returning to his hometown of Pensacola, FL. He has handled thousands of criminal cases. He can be found at Pensacola.lawyer or on LinkedIn
THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com.
If you are interested in being a guest on Contract Teardown, please email us at email@example.com.
Josef Mitkevicius [00:00:00] They are going to increase the rate based on nothing, essentially.
Intro Voice [00:00:07] Welcome to the Contract Teardown show from Law Insider, where legal experts tear down contracts from some of the most well-known companies and high profile executives around the world.
Mike Whelan [00:00:19] In this episode, attorney Josef Mitkevicius tears down the Waste Management Terms and conditions applicable to permanent services. And although that sounds simple enough, Josef focuses on the permanent part of that title. Contracts like these rely on customers missing key expensive clauses, so let’s tear down.
Mike Whelan [00:00:39] Hey, everybody, welcome back to the contract teardown show from Law Insider. I am Mike Whelen. The purpose in the show is exactly what it sounds like. We take contracts, we beat them up. We are mean occasionally nice, but not often it’s not as funny. Today we are here with my smart friend Josef Mitkevicius. Josef, how are you today?
Josef Mitkevicius [00:01:00] I’m doing pretty good. Thanks, Mike. Good.
Mike Whelan [00:01:03] So today, Josef, we are looking at this document. Let me share it with you guys. It is a waste management. Terms and conditions. Permanent service, etc.. What is this document, Josef?
Josef Mitkevicius [00:01:15] Well, this is the like you said, it’s the terms and conditions that waste management uses for their commercial waste hauling contracts. Basically, any small business, religious organization nonprofit that has dumpsters or trash containers and is not receiving the service from a public entity, get some version of these terms and conditions and has to sign them to begin service.
Mike Whelan [00:01:40] Got it! So maybe to generalize? We’ve got like a big company and a small company. This is a service contract with a lot of like hanging on functions in the contract. So we’re going to talk about those and sort of how one sided they are. But before we dig into that, Josef, tell us about you a little bit. What’s your background? What brings you to documents like this? Tell us about yourself.
Josef Mitkevicius [00:02:01] Right? Well, right now, actually, I’m a criminal defense lawyer in Pensacola, Florida, but trash has been one of my passions for the last 15 years or so came to it through a passion for growing food. And the connection between organic food waste and soil fertility and ended up getting involved in trash contracts and over the years started seeing the same problems over and over again and now.
Mike Whelan [00:02:37] OK, so look, Josef, I have to tell you during the pandemic, I started a garden and you can’t really have a garden in America without a compost pile. And so I have to say like, I’m with you a little bit obsessed about the nature of a compost pile and what it means for society and stop growing lawns. And we could talk about that all day. But I will say I have never loved my compost pile enough that I want to mess with trash contract, so I appreciate that. Usually, when we talk about trash contracts on this show, we don’t literally mean contracts for dealing with trash, but that is what we’re doing today. So I appreciate you being with us, Josef. What we’re going to do is jump right into this document. We’re going to go section by section, but but you guys will see there’s a theme, there’s a there’s a background issue that we really wanted to touch on. So. So let’s talk about it before we dig into the contract term questions. Just give me a bit of background on this document. As you said, this is a this is the kind of document that that I, the church or the small company or whatever I’m signing with this company for trash services. Is this the kind of document where you you really only have one service that you can use in this area? And so they pretty much have all the leverage? What’s the sort of relationship between this particular company and your company?
Josef Mitkevicius [00:03:54] It depends on the geographical area. Usually there will be multiple providers. I usually advise you can have the ability to negotiate better with a smaller local provider often, but usually no matter where you go, except for a few places in the northeast. Waste management is going to be the the big player. And so this is essentially a contract of adhesion. It’s not negotiable, necessarily, or small companies don’t usually negotiate. It’s the type of thing that you get in your sign.
Mike Whelan [00:04:29] Yeah. Fair to say, waste management has a lot of leverage and probably sets the terms for what the other companies do as well. They probably sort of follow suit what you see and a lot of these kinds of these kind of industries. All right. Well, let’s jump down to two. Two has to do with the contract term. It talks about the initial term and it talks about these follow on terms and renewals. Tell me about two and just I know that this is a big thing that we’re going to talk about in this contract. Talk to me about the initial term and the renewal terms in this agreement.
Josef Mitkevicius [00:05:00] OK, so that in this agreement that we hear and that we’re looking at the initial terms of 12 months term, that’s unusual. Generally, you’ll see a thirty six month or a 60 month term. The important piece in that clause is that it is an ever has an evergreen clause or an automatic renewal term that says at the end of whatever the initial term as the contract automatically renews. And so in order to cancel, you have to cancel within 90 and 120 days or 180 days as a 180 days. And so that it’s a central mechanism that that results in the the type of things that we’ll talk about later, with companies paying 10 times what they agreed to initially pay
Mike Whelan [00:05:47] on their contracts and the renewal, I think does it automatically renew to another 12 months? Is that right?
Josef Mitkevicius [00:05:52] It does. It will automatically renew to the whatever a term of, however many months the initial term was. Like I said, this is a 12 month contract that’s unusual normally will be thirty six months, automatically renewing into another 36
Mike Whelan [00:06:06] months right written notice between 90 and 180 days. Like you said, notice of termination received at any other time will be considered ineffective and the agreement will be considered automatically renewed upon completion of then existing term as an aside in the background. What I’m reading is this is reminding me a lot of I’m not going to name names here, but of legal research tools that I signed up for when I own my own practice and the nature of these kinds of contracts. So like in the background, I’m thinking of me as a small business when I’m dealing with big players like this that have these sort of contract terms, you sign them without really thinking about it because you’ve got to keep and you don’t really notice that there’s a major drama problem until we come to renewal. So let’s jump down to four. There’s a bit in here and for about the charges and specifically about price increases. Consensual price increases talked him about for A, B and C and the nature of the prices and their relationship with that renewal term.
Josef Mitkevicius [00:07:10] OK, so and for waste management has been developing this. The section of the contract over the last 10 years since I’ve been looking at these and and what for has always been trying to do is allow waste management to without informing the their customer, automatically increase the base rate that they’re charging for trash service every year throughout the duration of the contract. And so for C is a new clause that was added in 2018. That makes it very clear that they’re going to increase the rate based on nothing. Essentially, prior to 2018, all they had was the 4be language, which said we reserve the right to increase the rates based on fuel prices and then a laundry list of everything you could possibly imagine that says that they may do that. Then in effect, they would do it every single year, every single time out at a calculated rate. Sure. Now they’ve put the customer on notice that they’re going to do that and foresee no and then in for a the language that is important as it relates to the price increases that. Customer, the customer can agree to these automatic price increases by making a payment. And so that seems like they’re consensual. It says, you know, you’re agreeing to these price increases, you have the ability to decline the price increases. But if you paid an invoice, that means you’ve agreed.
Mike Whelan [00:09:06] Yeah, I love that they use the term consensual price increases. Like if I say it loud enough, it’s definitely going to be true. I mean, they say on here, customers failure to terminate this agreement within the 30 day period shall be construed as customers acknowledgment that the continuation of the services with the price increase. Everybody’s cool with it. Just like you said, just by saying, you know, continuing to make a payment and not raising, holy hell, you must you must absolutely love it. But what’s the thinking about the clients sort of perspective on this and their relationship with this contract? Then when there’s a contract like this that has these automatic renewals? You know, some hoops to jump through to your point, clients are probably not paying attention to this kind of contract. It almost feels like managing this contract is not on the front end. It’s on like a contract management side. You’ve got to think about what are your contracts that are in place, know the rules, put them up on a wall, put some Post-it notes up there like what would you? What do you tell your clients in terms of just managing a contract like this, assuming they can’t negotiate it?
Josef Mitkevicius [00:10:13] Well, I I try and tell my clients never to sign a contract like this. And if they are going to sign a contract like this, then the most important thing is that they understand the real price of the contract. And so you know, what happens to a lot of my clients is that they’ll sign a contract for $100 a month for thirty six months. And they think, Well, I just sign a contract for thirty six hundred dollars. Waste Management knows that that contract has more like a $6000 $7000 value to it. And then when you get down the road, we’re talking that contract is going up every year, an exponential rate. And so. It’s also important to pay close attention to the invoicing, because part of this that’s not included in this contract is there are some price obfuscation and that there’s three different stacking fees that are in addition to the base rate. And so and one of those fees is based on a fluctuating number, and that is the average price of diesel fuel in the United States. And so they’ll have your base rate is a hundred. Then on top of that, you’re going to get a 15 percent fee for what I don’t think the fuel surcharges first. I I can’t remember the name of the first fibber say it’s a 15 percent fee, then you’ll have on top of that as a percentage fee that varies based on the price of diesel. That will be a percentage of base rate plus fee number one. And so you’ve got that, and then there’s a third one that’s tacked on this a regulatory charge, a fee that is base rate plus fee number one, plus the variable percentage fee number two and a percentage of those three numbers together. And so every month, the number on your invoice is going up and down a little bit. And so it’s harder to notice when every year there’s an automatic 20 to 25 percent increase to the base rate. You don’t necessarily notice that the contracts mean moving around every month, and so you don’t necessarily realize that time you paid the invoice on the year anniversary and now you’ve agreed to it. There’s also a discount the waste management gives if you put it on auto pay and so you’re never looking at it and then. As this happens, we’re talking six years in, the price has doubled, the base rate has doubled. So I had I had one small church that I was paying $2000 a month for trash service. And when we looked at the contracts, they had signed a contract for $200 a month in service and their service had not changed. And when we got bids from other haulers in the area, the price and the market price hadn’t changed either. And they all came in right around $200 or even less, and they were paying $2000 a month. So when they contacted Waste Management to say, Hey, we’re paying 10 times that we agreed to pay on this, we want to cancel our service. Waste Management says, Well, you know, you’re in the sixth automatic renewal period and really you’re in you’re one of a three year agreement that you’ve agreed to. And so if you want to cancel, you’re going to have to pay six times. Your most recent monthly invoice is going to cost $12000 to cancel this contract.
Mike Whelan [00:13:36] I’m I’m telling you, I had this exact same experience with the legal research tool, who again, I won’t name. But let’s jump down to seven, because this is what we’re talking about. Like, let’s say the client gets in and the holy cow. We’ve been paying this crazy amount this whole time. We want to know how to get out of this thing. Jump me down to seven. It’s the liquidated damages section. If you if you try to terminate for the initial or renewal term for any reason other than what’s in three a, which I assume is like everybody dies. Basically, it’s Armageddon. Tell me, what are the liquidated damages? What are your what were your clients running into when trying to get out of this contract?
Josef Mitkevicius [00:14:16] So what happens is the liquidated damages are calculated as six times the current monthly invoice. Generally, here it’s the average of the most recent six invoices that some new language, but it’s the most recent prices. So we’re not talking about getting out of that two initial 200 by paying twelve hundred dollars. We’re talking about now paying twelve thousand dollars to get out of the $200 a month contract. And so what the waste management does at that point says, you know, you can pay us twelve thousand dollars and get out of this contract or, you know, we’ll give you a new contract you can sign and we’ll give you fifteen hundred dollars a month off. You can sign this new contract at five hundred dollars a month. We’re going to do you a huge favor and we’re going to give you fifteen hundred dollars off. You just sign this new contract. You don’t need to cancel or you can pay up to twelve thousand dollars. But I mean, you’re going to save a lot of money on it. That’s how the conversation goes. And then when they when that’s turned down, then there’ll be threats of lawsuits to come after them for the liquidated damages. Hmm.
Mike Whelan [00:15:18] Yeah. Again, just absurdly relatable. I’ve got some PTSD from dealing with contracts like this, and I, you know, to think of the big picture. Like, I take your point that maybe the only solution to this kind of contract is just to not sign it right to be aware for your clients, to be aware of what they’re getting into. And now you’ve got to know the market because you’ve got to be able to push them to alternatives. But if we’re thinking about who’s watching this show or the majority of people who are watching this show are not the clients lawyers, most of the people watching this show are the drafting attorneys. They’re the ones coming up with these different provisions and sort of drafting this language. And maybe this is a bit of an ethical question or even an esoteric question. Why not draft like this? Why? Why would somebody in waste management position knowing the leverage that they have not want to create these kinds of automatic price increases these automatic terms? What would be the reason not to do this?
Josef Mitkevicius [00:16:18] Well, it’s interesting. I mean, the reason to not do it would be the fact that it has on your reputation and on clients. I mean, there’s I get like I said, just I wrote a little blurb about it just six years ago, maybe. And I still get calls multiple times a week from people all over the United States. Even some calls from Canada, people who are furious with the situation they found themselves and they feel somewhat responsible because they don’t pay attention. And all of a sudden they’re their organization is paying 10 times what they should pay and they can’t get out of the contract. So you have, you know, some bad will you’re creating. But I’ll tell you. Waste Management has calculated that it’s included in their annual reports that they file their whatever those reports are on the 10-K that they go through with their shareholders. What’s going on? And they’ve acknowledged this. And the issue is that the amount of money that they’re making on these automatic renewals is just by the time that customer realizes what’s going on and they cancel their agreement. They’ve collected so much money over market rate and over value that even if they lost, even if they even if they lost, it just doesn’t. It doesn’t add up for them or they will still receive a benefit even after these folks leave.
Mike Whelan [00:17:35] Yeah, I was thinking like, I wonder what the administrative? Are with just having to chase this nonsense now because, you know, they get calls right, you know, they get angry calls, people freaking out and realizing and then, you know, they’ve got to start chasing things, they’ve got to start charging people. And you know, the old cliche and law firms is if you have to sue your clients, right? Something went incredibly sideways. I’m sure to a degree that that’s true for them. But to your point, I mean, if they’re publicly traded and you know, they’re filing 10Ks, they’ve got to do this math. They’ve got they’ve they’ve surely shown their shareholders. Look, this still ROIs. And so, you know, it sort of feels like you only make this decision to draft differently because you think you as a company want to stand for something else. And I think that puts the drafting attorney in a really difficult spot, right? Because they may look at this and say, you know, this is crappy, this is terrible. I have this PTSD from this legal research contract that I don’t want to do this to people. But but you know, if a client is pushing you in this ROIs and you know, this is the job, right?
Josef Mitkevicius [00:18:39] One thing that works is that if there actually is a benefit to some smaller to the smaller players in every market, there’s going to be smaller local players and they actually have an opportunity to come into a market in which almost all of the existing customers of waste companies, if they’re with any of the big three, are paying way more than they should be paying up to 10 times, usually at least double what the market rate would be. And what a small local hauler can make money off of. So I’ve worked. I work with a lot of small haulers, and I have actually drafted agreements that are in use by multiple different haulers and hundreds of customers in the Northeast. And there’s a strategic advantage and a sales pitch for smaller haulers to draft contracts that are not shady and that are provide terms that are clear and provide some guarantee to the customer that they don’t have to watch them like a hawk and that if this ever happens, they can get out of the contracts without these issues.
Mike Whelan [00:19:43] Like, I couldn’t think of a more commoditized business than I take your trash away. But to your point, by contracting differently, you create a competitive advantage in an industry where, I mean, there really is no competitive advantage. You just drag and trash somewhere right to the client’s mind. To the customer’s mind, there’s no difference, but contracting creates that advantage. That’s an interesting that’s an interesting thing. Well, Josef, you are a nerd about garbage that is like, I hope you have a bumper sticker and like business cards that say, a garbage nerd or whatever. Take it, take it. There is a competitive advantage for people who want to reach out to you, Josef, and learn more about what you do in your practice. What’s the best way to contact you?
Josef Mitkevicius [00:20:25] They can find me on my website, Pensacola.Lawyer, and they’ll be a link you can get on my calendar. I’d be happy to speak to anyone at any time. Anything to do with trash contracts or trash policy or anything dealing with trash. I’m always ready to talk about
Mike Whelan [00:20:43] it or are smoking compost piles and the garden that is dying me?
Josef Mitkevicius [00:20:50] Well, I’ll tell you what closure is that something, Mike, that I think you could get into it. I have started farming them at my house and they consume all of my household waste and they consume it all within a 48 hour period. And that is like my household waste.
Mike Whelan [00:21:08] Nothing. We’re getting to next level nerd. Guys, thank you for joining us. We’re going to have links to Josef’s contact information, to this document and to anything else you might need over at lawinsider.com/resources. And if you want to be on the contract tear down show to nerd about apparently whatever we want to nerd about, we can do it. Just email us. We are at firstname.lastname@example.org. Thanks again, Josef. We will see you guys next time.
Josef Mitkevicius [00:21:34] All right. Thanks, Mike.