Around 300 consumers had filed complaints with Spitzer's office accusing AOL, a wholly owned subsidiary of Time Warner Inc., of ignoring demands to cancel service and stop billing.
The company, with 21 million subscribers nationally, rewarded employees who were able to retain subscribers who called to cancel their Internet service. For years, AOL had minimum retention or "save" percentages customer service personnel were expected to meet, investigators said.
The employees could earn tens of thousands of dollars in bonuses if they were able to dissuade half of their callers from ending service.
That led many employees to make it difficult for consumers to cancel service or simply ignore such requests, Spitzer spokesman Brad Maione said.
As part of the settlement, Dulles, Va.-based AOL agreed to eliminate any requirements that its customer service representatives maintain a minimum number of "saves" in order to earn a bonus, a policy in place at "various times since 2000" and record all service cancellation requests. It will verify the cancellation through a third-party monitor, investigators said.
"This agreement helps ensure that AOL will strive to keep its customers through quality service, not stealth retention programs," Spitzer said in a statement.
AOL, which cooperated with Spitzer's office, did not admit to any wrongdoing in the settlement.