Amending Arbitration Clauses – No Notice, Big Problem?

By: Robert Ward

Many websites’ terms and conditions allow online service providers to make changes without providing prior notice to users. Often, the terms state that the user agrees to read the terms and conditions, and that continued use of the website constitutes acceptance of any modification.  A recent Fourth Circuit decision highlights the potential risk that such unilateral change-in-terms provisions might pose to another common feature of website terms and conditions: arbitration agreements.

In Johnson v. Continental Finance Company, [1] the plaintiffs—two Maryland residents who opened credit card accounts with Continental Finance Company—filed separate class actions in state court, both alleging violations of Maryland usury laws. Continental removed the cases to federal court and responded with motions to compel arbitration, arguing that the plaintiffs agreed to arbitrate their claims when they agreed to the terms of the cardholder agreement.

Plaintiffs disagreed. They argued that they had never formed an agreement with Continental at all because the cardholder agreement allowed Continental to unilaterally alter any term at its sole discretion. The “change-in-terms” clause stated that Continental could “change any term” in its “sole discretion, upon such notice to you as is required by law.”

After concluding that contract formation was a question for the court and that Maryland law governed, the Fourth Circuit turned to what Maryland law had to say about consideration. Under Maryland law, the court concluded, the change-in-terms clause was “so one-sided” and “so nebulous” that it deprived “the agreement of the kind of minimum reciprocity needed to form a contract.” In other words, there was no consideration, and the agreement was therefore never formed.

The cardholder agreement’s notice requirement did not change this. According to the Court, there were at least two problems with the notice provision.

First, the notice provision merely required Continental to do what it was already required to do by law. And, in the court’s view, under well-settled principles of contract law, this did not count as consideration. The court distinguished this provision from more stringent notice requirements, which are enough to create a binding obligation. One such notice provision, for example, permitted the defendant to modify the agreement only on December 31 of any year and required thirty calendar days advance notice. The court was likewise unpersuaded that the “required by law” language could be interpreted to mean “such notice . . . required to make the contract enforceable by law.”

Second, the court concluded that the term “notice,” without specifying whether this meant, for example, “prior” notice, was “so broad and vague” as to be meaningless. The court rejected Continental’s argument that the notice requirement implicitly gave plaintiffs the right to reject changes. Unlike the language here, according to the court, notice requirements that impose advance, detailed notice and permit a customer to cancel service if the change is not acceptable, “constrains the modifying party by giving the other side a chance to end the contract before the change takes effect.” In the court’s view, the change-in-terms provision did not do so.

The court therefore agreed with the plaintiffs that they had never agreed to arbitrate their claims.

The court was careful to note that its decision reflected only Maryland law. But Maryland courts are not alone. Under Texas law, for example, an arbitration clause is illusory if one of the parties can avoid the promise to arbitrate by amending or even terminating the provision.[2]  Some states, on the other hand, like Illinois, do allow parties to agree to unilateral modification without notice.[3]

However, including a choice-of-law provision requiring the application of unilateral modification-friendly law may not avoid this problem. In Johnson, for example, the court refused to apply the agreement’s choice-of-law provision. While the choice-of-law clause could apply to questions of whether a properly formed arbitration agreement was valid, it did not apply to questions of whether the parties had actually formed an arbitration agreement in the first place. Instead, the court turned to Maryland choice-of-law principles and determined that Maryland law applied because that was where the plaintiffs accepted and used the card. Similar principles would likely apply to a dispute between a website and Maryland user.

How consequential the Fourth Circuit’s decision will ultimately be remains to be seen. But companies can surely expect to see plaintiffs add Johnson to their arsenal as they continue to attack arbitration provisions in consumer contracts.

How to avoid Continental’s fate? To start, online service providers should consider agreeing to provide notice of changes to their terms and conditions through, for example, a conspicuous, on-screen pop-up or banner. And, to avoid disputes over whether users were aware of—and therefore bound by—any updates, any on-screen notice should require users to take some action, such as checking a box, to affirmatively indicate they agree to the updated terms (or to stop using the service if they do not).[4] By committing to provide users with notice, and a meaningful opportunity to accept or reject the updates, service providers can reduce the risk that disputes that should be arbitrated end up in court.

[1] Nos. 23-2047, 23-2049, 2025 WL 758026 (4th Cir. Mar. 11, 2025)

[2] See In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010).

[3] See e.g., Purchase v. FaceApp Inc., 2024 WL 4164753, at *5 (S.D. Ill. Sept. 12, 2024).

[4] See e.g., Ireland-Gordy v. Tile, Inc., 2024 WL 5162413, at *5 (N.D. Cal. Dec. 19, 2024) (noting potential problems with relying on notice via email).