How important are online reviews in your shopping experience? Many rely heavily on consumer reviews in order to generate business. But what happens when instead of providing customers the candid information that they deserve, companies try to silence their critics in order to improve their online reputation?
In recent years, companies selling products and services have included non-disparagement clauses (“gag clauses”) in their contracts in hopes of curtailing online criticism. Gag clauses are aimed at discouraging customers from writing honest reviews that criticize the company—and punished customers for their negative reviews in the form of liquidated damages. The problem is such clauses are illegal. In 2016, as we had previously written, Congress passed the Consumer Review Fairness Act, which prohibits companies from implementing gag clauses in non-negotiable consumer form contracts. In so doing, lawmakers sought to encourage free speech, consumer rights and the integrity of truthful criticism regarding goods and services sold online.FTC
In May of 2019, the Federal Trade Commission (“FTC”) alleged that three companies violated the Consumer Review Fairness Act. National Floor Direct, Waldron Electric Heating and Cooling, and Trail Riding threatened to charge or sue customers who left negative reviews on their websites. Such clauses required people to agree to “not publicly disparage or defame” the company “in any way or through any medium.” Another form contract provided that the terms and condition were private and “shall not be made public, or given to anyone else to make public, including the Better Business Bureau.” Customers were asked to remove their negative feedback posts or face penalties of thousands of dollars per violation. Under the terms of the settlement, the FTC required the companies to remove their non- disparagement clauses and notify customers who signed non-disparagement contracts after March 14, 2017, that their contracts were unenforceable.
Companies should consider this as a warning that regulators will readily enforce the Consumer Review Fairness Act in the form of fines or civil penalties. Thus, unlike here, the results could be different for companies in future cases. And while the act is designed to protect honest reviews, companies may still have recourse against persons who leave false reviews online. Further, customers are encouraged to understand what they are signing and to consider the implications of signing a non-disparagement form in the first place. More importantly, companies looking to enforce their gag contracts run the risk fines and of customers taking their business elsewhere.
*Special thanks to Kajon Pompey, a law clerk, for her assistance in drafting this post.