Legal Question in Consumer Law in California

Read the damn contract. Depends on what type of contract

Glad you asked. Just today the California Court of Appeal ruled they are illegal.

http://login.findlaw.com/scripts/callaw?dest=ca/caapp4th/slip/2011/a124077.html

Mr. Stone clearly didn't read the case he refers you to. The court made no such ruling. The key issue is whether the ETF is an illegal liquidated damages clause because it constitutes a penalty, not damages. Most companies know better than to set the ETF up that way. Sprint did not. The court found that Sprint's ETF was a liquidated damages provision. Even then, however, had it been a proper estimate of the lost revenue and profits from an early termination, the court found it would have been a legal liquidated damages provision. Instead, Sprint just adopted a flat $200 fee when it merged with Nextel, because that was Nextel's fee. An ETF that is properly set up either as an alternative means for performance, or as a properly calculated liquidated damages provision, will be perfectly legal under this ruling and always has been.