We have all seen the reviews of products or services that disgruntled consumers post on review sites such as Yelp. Lately, however, some consumers have faced lawsuits for violating “gag orders,” or non-disparagement clauses, found in agreements between businesses and consumers. These clauses restrict consumers’ ability to publish any negative criticism about their experiences and are often placed in the fine print of form contracts. These agreements provide that, when the consumer posts a negative review, or even speaks negatively about the business’s products, services, or conduct, the business would have a cause of action against the consumer for breach of contract.
In early September of 2016, the U.S. House of Representatives unanimously approved a bill, dubbed the Consumer Review Fairness Act of 2016, to be enforced by the FTC, that would prohibit non-disparagement clauses between businesses and consumers in certain situations. The bill, as authorized by the House, voids from inception any provisions in a form contract that (1) prohibit or restrict an individual who is a party to the contract from engaging in reviews of the goods, services, or conduct of a person that is also a party to the contract, (2) impose penalties or fees against individuals who engage in such communications, or (3) transfer or require the individual to transfer intellectual property rights in review or feedback content.
The bill is restricted in scope to apply only to “form contracts,” which are defined as contracts with standardized terms and imposed on a person without any meaningful opportunity to negotiate the terms. Employer-employee contracts are specifically excluded from the scope of the legislation. Also, the bill explicitly states that the legislation shall not be construed to affect:
- Legal duties of confidentiality;
- Civil actions for defamation, libel, or slander;
- A party’s right to establish terms and conditions for the creation of photographs or video of such party’s property when that content is created by an employee or independent contractor of a commercial entity and is solely intended to be used for commercial purposes by that entity;
- A party’s rights to remove certain content from websites owned, operated, or controlled by such party; or
- The validity of provisions that prohibit disclosure of, or reserve the right of hosts of online consumer reviews to remove, certain trade secrets, personnel and medical files, law enforcement records, unlawful content, or computer viruses.
The federal bill has been submitted to the Senate, which also created a substantially similar version of the legislation in December of 2015, titled the Consumer Review Freedom Act of 2015, for reconciliation. If the bill progresses as is generally expected, the law will be enacted in the near future.
Although the Better Business Bureau has previously discouraged accredited businesses from using non-disparagement clauses and has offered tips to consumers regarding protecting themselves from these clauses, the Consumer Review Fairness Act of 2016 would be the first federal legislation officially outlawing such provisions. At least one state – California – has passed a law addressing non-disparagement clauses that is somewhat similar to the federal legislation. The California law broadly prohibits any contract for consumer goods or services – not simply form contracts – from restricting consumers’ rights to make statements about the business’s goods or services. Further, the California statute renders any waivers of the law unenforceable and provides for statutory damages of between $2,500 and $10,000. In other words, the California law states that even a perfectly balanced arm’s length negotiation does not allow for a non-disparagement clause.